The impact of COVID-19 on law firms has barely begun. When it comes to the flow of work, some firms are experiencing a measurable or even significant bump thanks to having the right practice focus at the right time: but for the most part, law firms have experienced some degree of decline in both work and collections.

How firms have responded to the negative impact has been mixed. Some have found ways to hold the line on employment and compensation. Others have implemented furloughs, lay-offs, and compensation reductions.

But all signs point to the fact that we’ve barely weathered the initial shock.

As the reality of longer-term damage to demand becomes clearer, there are increasing signs that in response to the market, firms are downsizing. The following is a sub-set of the numerous announcements during the last week:

  • Skadden is latest firm to announce layoffs; experts say more…
  • Layoffs Hit Two AmLaw 100 Firms
  • Nixon Peabody Lays Off Some Furloughed Workers…
  • Baker McKenzie to Cut North American Workforce as COVID…
  • Layoffs Come to Cleary Gottlieb

An Appropriate Response

The prospect of downsizing any organization is daunting. The impact on individuals and families is impossible to calculate or plan for and is often tragic.

Yet, as law firm leaders around the world are examining options, the question is when are layoffs the appropriate response to economic realities.

At one end of the spectrum, firm leadership has a duty to clients and partners to do what is necessary to ensure continuing viability. Failure to act soon enough could result in even more pain for many more people.

The discussion isn’t legitimate, however, without looking at the other end of the spectrum. Leaders have a responsibility to each and every person that is part of their law firm. Any decision to downsize, which is driven by the pressure, or a need, to deliver as much income as possible to firm owners is to completely ignore the degree to which every individual in the firm has contributed to any success.

Equity ownership in any endeavor carries with it implicit risk as well as a potential reward.

For owners who have accepted this reality, the challenge comes in identifying the point at which some level of economic impact becomes a threat to institutional existence. Possessing this level of insight requires access to real-time measures and a commitment to manage this reality.

The answer as to what to do is going to vary from firm to firm. It warrants planning that, if not already in motion, should begin today. It not only depends on the data noted above but must include substantial input from firm owners.

I have been inspired by accounts from within our industry where leaders have brought creative thinking to bare on this discussion and have crafted innovative responses to the moment, and in the process, have rallied everyone in pursuit of the other side of this challenge. It requires a vision that sees beyond the end of this year.

An Effective Path to a Decision

The questions of when and how to deal with the possibility of layoffs speak to who and what a firm is. A quiet but broad-based discussion with owners to determine common objectives and values, what varying approaches to the moment might cost, and precisely what that existential moment looks like is an effective way to come to a position that reflects a firm’s real culture.

How is your firm preparing to answer this critical question?