Law firms aren’t the only ones pushing attorneys out the door to shrink costs. U.S. companies, both large and small and across varied industries, are dismissing attorneys as they retool their law departments to cut costs and adapt to slowing U.S. economic activity.
Hyatt Corp., Cigna Corp., General Electric Co., eLoyalty Corp., Motorola Inc., Merrill Lynch & Co. and Yahoo! Inc. are among those that have reduced the number of attorneys in their law departments during the past year as their companies seek budget cuts amid the U.S. recession.
Some of the lawyers were shed as part of broad employee dismissals.
Already this year, the Association of Corporate Counsel‘s membership has dropped, for the first time since 2003, declining by almost 6 percent to 23,396 this month after average 10 percent annual increases.
The number of recently dismissed attorneys whom the association is allowing to remain temporarily as members without paying dues has jumped by 50 percent to 321 during the past year. The association is hopeful that membership will increase by 1.5 percent from its 2008 level by the end of September.
Although companies often cut back on outside counsel expenses before shaving internally, the law departments are being forced to chop the head count now as budget-cutters zero in on employees squarely in the cost column.
“Anybody who’s not generating revenue is particularly vulnerable,” said Steve Shapiro, the general counsel at Rosemont, Ill.-based Cole Taylor Bank, who just started there this month after being cut from the same post at eLoyalty Corp., a Lake Forest, Ill.-based consulting company now without a general counsel.
CUTS INVOLVE ALL INDUSTRIES
The pain for in-house attorneys has generally been spread across industries, with lawyers at those companies most affected by the recession faring worst, said Deborah House, who is deputy general counsel of the Association of Corporate Counsel.
“Name an industry where you’ve seen a significant problem, and attorneys are experiencing it along with everybody else,” said House, pointing to auto manufacturing, insurance and financial services.
In-house attorneys may be inexpensive alternatives to outside counsel in some cases, and even integral to identifying cost-cuts in other parts of the company, House noted.
Still, there’s a point at which the legal workflow slows so significantly that the cost equation tilts in the other direction, against in-house lawyers. Their high salaries and healthy benefit packages are suddenly seen as expensive overhead, in-house lawyers said.
Fairfield, Conn.-based General Electric has cut lawyers across the country while Motorola, which is based in the Chicago suburb of Schaumburg, Ill., has shed attorneys in the Midwest, according to legal recruiters.
GE and Motorola declined to comment on the reductions. Yahoo’s attorney dismissals in California came in December, when the company made broader reductions, said Kim Rubey, a spokeswoman for the company.
There are clearly more in-house attorneys on the street looking for work than there were two years ago as a result of bankruptcies, mergers and companies shrinking their departments, said P.J. Harari, a legal recruiter in the Los Angeles office of Major, Lindsey & Africa who heads searches for such lawyers.
“I am seeing more efficiency being asked of the leaders of the departments,” she said.
A REGIONAL SLANT
The industries from which significant numbers of attorneys have been shed vary from region to region.
While many unemployed in-house attorneys in New York came out of the financial services industry, those who are out of work in Southern California more likely were formerly in the real estate and construction industries, Harari said.
After Bank of America Corp. acquired Merrill Lynch in September when the country’s financial crisis was coming to a head, the bank said it would cut as many as 35,000 employees from the combined enterprise.
That figure included some of the company’s attorneys, said Merrill spokesman Bill Halldin, who declined to break down the number of lawyers cut. The former Merrill general counsel, Rosemary Berkery, was among those who is no longer at Merrill and has not been replaced because of the lead taken by Bank of America General Counsel Ed O’Keefe.
Chicago-based Hyatt Corp. said in a statement that it has “eliminated a number of positions” in the law department as part of a corporate restructuring that “re-engineered its methods of supporting its internal clients.”
The company said it’s also working with law firms that have the ability to provide nontraditional staffing and fee structures. Hyatt General Counsel Susan Smith declined further comment through a spokeswoman.
At Time Warner Inc., General Counsel Paul Cappuccio has been whittling down his law department during the past two years, cutting the number of lawyers to 30 from 40 by dismissing some and not filling vacancies when others left, he said.
The reductions came as the New York-based company revamped the legal departments at its headquarters and at subsidiaries, sometimes in the aftermath of mergers that led to a duplication of roles.
For example, the company eliminated the patent attorneys at the corporate parent, leaving that work to patent attorneys at its subsidiaries, Cappuccio said.
“I laid off some of my most talented people because I didn’t need to duplicate [their function] at corporate,” Cappuccio said.
Some of Time Warner’s subsidiaries have been cutting lawyers too.
At Time Inc., where there are four fewer full-time lawyer positions than last year, General Counsel Maurice Edelson is trying to keep his remaining lawyers focused on the highest-value work and outsourcing the lower-risk matters, he said.
“We are trying to think about different ways to get the work done here in more efficient ways,” Edelson said.
BROADER RESPONSIBILITIES
Carol Petren, the general counsel at Cigna Corp., has eliminated less than 10 percent of her attorneys since late last year after her budget was sliced by 5 percent, forcing her to increase efficiencies, she said. In the process, lawyers in the department have taken on broader responsibilities when colleagues left, and the department has shifted some of its public policy work to outside firms, she said.
Petren’s attorney staff includes 85 lawyers in the United States and 100 worldwide.
“We have had to reduce our staff, but from my perspective, I have focused equally on evaluating how to take out any inefficiencies in these processes,” Petren said.
General counsel at some companies are finding ways to trim their law department budgets without cutting lawyers.
At E.I. du Pont de Nemours and Co., Andrew Schaeffer, managing counsel for operations and partnering, was tasked with cutting his legal department budget by 10 percent this year.
To meet that goal, he has jettisoned some legal matters that aren’t critical, delaying others and reviewing whether he’s got the most cost-effective outside counsel on each issue, he said. Generally, Schaeffer said he’s shifting more work to firms that tend to be smaller or in the Midwest and can offer lower rates.
DuPont makes “that kind of choice to get an hourly rate or some kind of alternative fee arrangement that’s very attractive,” Schaeffer said.
DuPont, which has 180 lawyers worldwide, hasn’t done much new hiring in recent years in an effort to remain lean, Schaeffer said.
There aren’t any plans currently to lay off attorneys, he said.
In the much smaller corporate law department of the Internet security company Buysafe Inc., where General Counsel Travis Brown Jr. is the only attorney, he’s taking a similar tack to reduce the company’s legal costs. He’s generally more hesitant to assign work to outside counsel or more eager to find a business-solution alternative to litigation, he said.
“There are some things that don’t need to be lawyered up,” Brown said.
Major Lindsey’s Harari said there are hopeful signs of in-house hiring in some areas.
Health care companies have been hiring consistently through the recession, and there’s been a pickup in demand from the energy sector and from those financial services companies that are investing in distressed markets, she said. Lawyers with skills in regulatory and labor practice areas are being sought in all sectors, she added.
In some cases, companies are hiring because they know there are strong out-of-work attorneys whom they can snap up at lower cost, Harari said.
As for the attorneys, they are being forced to adapt to leaner pay and benefits packages, and they often face another climb up the corporate ladder to replicate the work and compensation of past posts, she said.
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