The Law Blog and ATL, among others, are reporting deferrals at Cravath. The payment terms are generous. Cravath is supposedly saying its business is fine, it just has too many associates and summer clerks because of a high acceptance rate.
Yet Cravath is not only offering a deferral option to its current associate class of 09, but a mandatory deferral of its entire 2010 class with less generous terms. Moreover, these layoffs come as the economy is showing signs of life. This seems like more than a minor glitch in the acceptance rate.
Why is this big news, given how many other layoffs, etc, we’ve been seeing lately? Because Cravath has been touted as the epitome of the traditional high-reputation law firm, the type most likely to survive the current upheavals. See, e.g., this recent Henderson & Bierman paper.
This latest news supports my assertion that the problems with Big Law are fundamental to the business model and not just recession fallout.
You mean fundamental to corporate-heavy firms that are not well-diversified in an economy where there is still no corporate work to speak of?
Posted by: Realist | June 12, 2009 at 06:42 PM
Ask not for whom the bell tolls. . .
Posted by: Larry Ribstein | June 12, 2009 at 06:47 PM
Larry,
I agree the model is under huge stress. To my mind, the deferrals are just buying time until Cravath (and many other NYC firms with practices built around the capital markets) can figure out how much to retool.
Regarding whether Cravath itself is in imminent danger -- I think the answer is an emphatic no. Remember that Cravath is a small partnership (90 partners, all equity, in fiscal year 2007) based largely in one office. Indeed, Cravath is, by modern standards, a mere business law boutique. It is the mega firms with 12 offices and a 450 partners that have real problems.
Posted by: William Henderson | June 12, 2009 at 11:39 PM