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Law firms cutting staff, pay

After years of growth, a broad retrenchment is under way among law firms in Philadelphia and across the nation.

After years of growth, a broad retrenchment is under way among law firms in Philadelphia and across the nation.

Firms are cutting staff, freezing or even reducing compensation, and pushing some lawyers into early retirement.

The most recent staff cuts were disclosed yesterday by Dechert L.L.P., which said it was cutting 72 administrative positions in its U.S. offices, or about 13 percent of the firm's support staff. The firm declined to say how many people in Philadelphia would be let go, but the reductions are likely to fall most heavily in Philadelphia, where Dechert has its biggest offices.

Earlier this month, Reed Smith L.L.P., a 1,650-lawyer firm based in Pittsburgh with a large office in Philadelphia, said it was cutting 115 administrative positions. Both Wolf, Block, Schorr & Solis-Cohen L.L.P. and Ballard, Spahr, Andrews & Ingersoll L.L.P. have let go administrative staff and lawyers in response to the downturn.

"It is mostly in the large firms that have had heavy involvement in financial practices," said Robert Denney, a law firm consultant. "The midsize firms are holding up pretty well."

Most firms are reluctant to talk about staff reductions for fear of scaring off new law school graduates.

John Byrne, a spokesman for the Center City firm of Drinker, Biddle & Reath L.L.P., declined to confirm or deny reports today that the firm had recently laid off 20 associates.

Ballard Spahr chairman Arthur Makadon declined to discuss reductions there in detail, but he said that as the firm pared dormant practice areas, it also has added lawyers in others. As a result, he said the head count at the 550-lawyer firm is unchanged from a year ago.

Wolf Block, a 300-lawyer firm, confirmed that it had laid off 15 lawyers, both associates and partners, and staff last week, largely from its real estate group.

"We have to make sure that our business is aligned with reality during a time of economic uncertainty in which volatility seems to be the rule, rather than the exception," Makadon said. "Every responsible business leader and every law firm is, or should be, doing this right now."

The cuts come on the heels of a boom in law firm revenue and expansion dating to 2002, the bottom of the last recession. Then, law firms also took some hard economic hits and also were forced to let go of lawyers and administrative staff.

Since then, many firms have grown rapidly, adding staff in Philadelphia and expanding around the country, and in Europe and Asia.

The growth in new business was so robust that law firms, year after year, raised salaries for first-year lawyers, reaching a high of $145,000 on average in Philadelphia and $165,000 in New York and Washington.

That era is over.

The layoff announcements began in New York earlier this year, when the old line firm of Cadwalader, Wickersham & Taft L.L.P. let go of more than 100 lawyers. One major firm, Thelen L.L.P., of San Francisco, collapsed because of the downturn and a failed merger. Firms also are cutting travel budgets and other expenses.

Denney said one major trend was that a number of firms were moving to take away the ownership interest of some partners, essentially lowering their compensation.

"I have been through two recessions, and this one is much worse and scarier," said Bill Brennan, a partner at Altman Weil, the Newtown Square legal consulting firm. "What has happened is that there is a long lead time between when new business comes in and when work is completed. So what has happened is that firms are working through their inventory, but the problem is the pipelines have not been fed with new engagements."

A recent Altman Weil survey found that 75 of corporate legal departments planned to cut spending on outside law firms next year.

The economic stress on corporate clients is making itself known in other ways. Mark Alderman, chairman of Wolf Block, said it was becoming increasingly difficult for law firms to collect from some clients. A Citibank survey earlier this year of the nation's top 160 law firms found the number of hours billed had declined 10 percent.