Silicon Valley's tech companies aren't the only ones
trimming staff. Times are also
tough on the region's law firms.
Cooley Godward Kronish laid off 52 lawyers and 62 staffers last week, and its rival
Wilson Sonsini Goodrich & Rosati PC announced Monday that it would cut 45 associates and 68 staffers. The moves were driven by the economy, of course, but behind them lie an array of long-term forces that threaten the law firms themselves.
The most obvious of those is the
decline of the IPO. The frenzy of the late 1990s has never recurred, not only because investors were badly burned but also because the passage of the Sarbanes-Oxley Act in 2002 made going public much less appealing. At the time, lawyers estimated that SOX meant that to be viable, a public company needed to have a market capitalization of about $250 million, double what would have previously been required. VCs adjusted their ambitions accordingly and started to put more emphasis on funding companies from which investors could successfully exit via a sale instead of an IPO.
Over time, that's meant fewer public companies for Wilson and Cooley to represent. They and their rivals at
Fenwick & West LLP,
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian LLP and the Silicon Valley offices of national firms do VC work and sell private companies, but those assignments don't generate the revenue that public companies do. To take just one example, there's no securities litigation, a field in which Wilson and Cooley developed large practices.
Fenwick, with about 300 lawyers in four offices, and Gunderson, with about 100 in four offices, are better structured for such work than Cooley, which has about 725 lawyers in eight offices, and Wilson, a firm of roughly the same scale. By way of comparison, Wilson had only 375 lawyers on the cusp of the tech market boom in 1997. At that size, Wilson was designed to play small ball, a game in which big firms, such as
Davis Polk & Wardwell LLP and
Skadden, Arps, Slate, Meagher & Flom LLP, could not compete with the native Valley firms; today's Wilson, even after this week's layoffs, is not.
But as Wilson and Cooley have developed the cost structures of national firms, they have not broadened their practice beyond technology companies, and rivals have encroached on their turf. Hostile deals used to be rare in technology, but that's changed dramatically; seven of the 10 largest bids in the tech sector last year started out hostile. None of the principals in those situations used a Silicon Valley firm, though Google Inc. did tap its usual counsel, Wilson Sonsini, in helping Yahoo! Inc. fend off a bid from Microsoft Corp. No Valley firm has worked on more than one of the 10 biggest tech deals or bids of 2008.
That suggests Wilson and other Valley firms are losing out on one-off M&A assignments. New York's
Wachtell, Lipton, Rosen & Katz, which has no branch offices in California or anywhere else, landed roles in three of the seven hostile situations. Other firms have capitalized on their branch offices. Skadden's Palo Alto, Calif., office played a lead role for Yahoo!, while its Los Angeles branch defended SanDisk Inc. against a hostile bid from Samsung Electronics Co. Ltd. And
Latham & Watkins LLP represented Oracle Corp. and Mentor Graphics Corp., the latter of which beat back a hostile approach from Cadence Design Systems Inc., and Advanced Micro Devices Inc. in forming a joint venture with Advanced Technology Investment Co. of Abu Dhabi.
Layoffs may ease financial pressures at Wilson and Cooley in the short term, but they do nothing to address the fundamental challenges both firms face. -
David Marcus
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