Joining a parade of law firms that have adopted cost-cutting measures to mitigate the financial fallout from COVID-19, Sullivan & Worcester managing partner Joel Carpenter told the firm this week that it would adopt several austerity measures in the months ahead.

In addition to general discretionary expense cutting, Carpenter said the Boston-based firm has furloughed a number of employees for 90 days with full benefits, and it has instituted temporary pay cuts across much of the firm. Employees making less than $66,000 per year will not be affected, while staff members making above that amount will see a 5% reduction in salary. Non-equity partners will see a 10% reduction, while equity partners will see a 20% decrease from their monthly draws.

All of the cuts are temporary, Carpenter said, with the firm anticipating it will lift the measures in 90 days, if not sooner.

"There isn't going to be a magic formula here," Carpenter said in an interview. "We don't have a crystal ball. The exercise we went through took a look at our budget, and we need to assume significant decreases in revenue over the next several months at least."

Carpenter said the firm examined its March performance and found that it came in at about 97% of budget, while billings exceeded expectations. But, it also showed only 84% of expected revenue, which was a concern so early in the year, Carpenter said.

The firm has taken a data-driven, somewhat conservative approach to modeling the pandemic's impact on its finances.

"We took a stress test for a 40% revenue decline, which we hope is worse than we experience," Carpenter said.

The firm performed a month-by-month cash flow analysis, and after cutting discretionary spending, it also looked for nondiscretionary spending that could be postponed, such as a pending technology upgrade that—while necessary—wasn't urgent.

"That is where you start, as it is the most painless," Carpenter said.

The furloughs were limited to those who could "not effectively work from home," he said, declining to say how many were affected.

"They are people we value a lot, and we are committed to rehiring them," Carpenter said.

The rest of the budget adjustment would need to come from individual earnings, he said.

Carpenter said the pay cuts announced Monday are enough for the firm to continue operating comfortably through the summer, at which point it will reevaluate its options.

"It wasn't designed to save a specific dollar amount," Carpenter said of the package of measures. "We needed to know what we needed to feel comfortable for the next six months, so we went that far. We will examine it every month."

Carpenter said the varying depths of the pay cuts—from 20% for equity partners down to zero for some employees—were meant to minimize the disruption in people's lives as they work to get through unprecedented times.

"The more you make the more you can afford to be reduced," Carpenter said of the cuts. "It was a balance between what is prudent as an organization and recognizing that people have their own bills to pay."

Carpenter said he's sure the benefit of hindsight will reveal that the firm either under- or overreacted to some extent. He said basing Sullivan & Worcester's response on other law firms' moves wouldn't be prudent given their differing mix of practices, financial health, overhead and cash flow.

"I can't truly be a smart observer of what other firms are doing," Carpenter said. "I assume they are doing more or less what they can."

Sullivan & Worcester has also been evaluating its summer associate program, which would normally kick off next month. Its preference is to keep the program in place, Carpenter said, and the firm has been in touch with candidates. A remote program, temporary postponement or outright cancellation may be necessary, he acknowledged.

Sullivan & Worcester was first included in the Am Law 200 a dozen years ago, and is currently ranked at No. 193 based on its 2018 revenue. It saw growth last year, with overall revenue up 6.6% to $111 million and profits per equity partner up 3.5% to $894,000.

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