Behind the Sonnenschein Layoffs: Pushing for Profitability

[WSJ Law Blog]

The Law Blog caught up today with Elliott Portnoy (pictured), chairman of Sonnenschein, to ask about the firm’s firing of 37 lawyers, and 87 other employees. (Reported on Above the Law and later here on our blog.)

Portnoy was frank in discussing the move.

Sonnenschein laid off lawyers whose practices have slowed, he says, to sustain the firm’s profit margins and overall profitability. It takes financial heft to pay competitive salaries for top lawyers, he says, and the firm has been focused heavily on partner recruiting. It hired 42 lateral partners last year, and is on pace to exceed that number in ’08. To hunt for big game, in other words, it can’t afford to carry underperformers.

“Business as usual isn’t an option, and we have to take the steps necessary to make sure we are competitive for talent,” Portnoy says. “A small group of firms are positioning themselves to pull away from the pack” in terms of profitability, “and we intend to be in that small group.”

This sort of frank talk still counts as novel in the legal biz. Sure, firms are much more hard-nosed than in the bygone era: firings and demotions are common, as is the all-consuming fixation on average profits per partner. Yet, capitalistic machinations are not often put out in plain view.

This is not the first time that Sonnenschein (and Portnoy) have been unabashed in their quest for better financials. Earlier this year, as we reported, Sonnenschein rescinded employment offers to summer clerks and incoming associates in its Charlotte office, which has been hurt by the market downturn in mortgage-backed securities (see article). And last year, it fired some trusts & estates partners, a practice some firms are sloughing off because it’s more rate sensitive and less lucrative than other practices.

“We are not doing this below the radar screen,” Portnoy says of the latest firings. Perhaps his only artful turn of phrase was to say the firm “separated,” not fired, lawyers. It’s a term that is new to our ears.

Portnoy, though, still perhaps lags Mayer Brown’s chair James Holzhauer in the frankness department. In discussing Mayer’s firing and demotion of 45 partners last year, Holzhauer told the Law Blog: “We want to drive our stock price up.”

Photo: Sonnenschein