Law Review: A law-firm CEO cuts his own pay

For law firms struggling in these tough economic times, here's a thought:

Why not take the approach of Barton Winokur, Dechert L.L.P chairman and chief executive officer, who has announced that in addition to layoffs of lawyers and support staff, he will take a $1 million pay cut?

Um, you read that right.

Winokur disclosed the self-imposed pay cut, actually a reduction in his draw from firm profits, at a super-secret gathering of big-firm leaders organized by Thomson Reuters in Pebble Beach, Calif., in late April.

Typically, there is no press at this yearly conclave. An absence of publicity ensures its near-invisibility - and the candor of law-firm leaders, which Winokur apparently supplied in abundance.

In addition to his salary cut, Winokur emphasized that other Dechert leaders had taken similar hits.

This must have made at least a few other handsomely paid lawyers in the room fidget nervously with their silverware. After all, once word of this socially destabilizing giveback got out, could it be very long before hard-pressed Fortune 500 clients demanded the same of the other leaders of Big Law?

Not that it will substantially dent Winokur's compensation. The American Lawyer reported in 2007 that the firm's highest-paid partners, Winokur among them, had earned nearly $8 million the year before. One lawyer, chuckling a bit ruefully, I suspect, said of the $1 million pay cut: "I couldn't cut my salary that much because I don't make that much."

Winokur's Philadelphia-based firm is one of the nation's largest and richest and is a complex global organization. Its per-partner profits average more than $2 million and have soared in the last decade.

Dechert has taken a number of cost-cutting steps in recent months, prepaying millions in lease costs and trimming lawyers and support staff, all to bolster itself against further market turmoil.

The firm announced the opening of an office in Moscow on Friday, to add to offices in Asia, Europe, and the United States.

In that context, compensation of $8 million does not seem irrationally exuberant, to borrow a phrase from former Federal Reserve maestro Alan Greenspan - he of the low-interest-rate strategy that triggered the housing boom, fueled mass securitizations of really bad mortgages on Wall Street, and pumped revenue into law firms now struggling to survive in the strangely unanticipated absence of those huge fees.

But wouldn't it have been maybe a better idea for the leaders of Big Law to have avoided the cost pressures in the first place, to have at least proceeded with a bit more caution, maybe a bit of humility? Dechert, more than many other firms, had a deep involvement in mergers and acquisitions and in capital market offerings, and that business has dropped off a cliff.

A few firms charted a less go-go approach and now are reaping benefits.

One example: Abe Reich, cochairman of Center City-based Fox Rothschild L.L.P., concluded with other Fox Rothschild leaders in 2006 that it was time for the firm to drop out of the frenzied annual competition to pay ever higher salaries to lawyers fresh out of law school.

At the time, Fox Rothschild paid those lawyers $125,000 a year, but other firms in Philadelphia had bid up the starting salary to $135,000. The next year, Philadelphia firms such as Dechert and Morgan Lewis & Bockius L.L.P. went up to $145,000. In New York and Washington, the number hit $160,000.

Fox Rothschild's reaction was that salary spiral was madness, Reich said. He knew that if the firm raised salaries for first-year associates by $10,000, it would have to do the same for its other associates.

"We did a quick back-of-the-envelope calculation and realized that it would cost us $3 million," Reich said.

The firm decided not to raise salaries.

Though it has 400 lawyers and a national presence, it also made a point of staying relatively modest and small.

It focuses on smaller, privately held middle-market companies. It has 13,000 paying clients who pay on average $15,000 each.

It did not have exposure to clients deeply involved in the capital markets last year. When the credit collapse hit Wall Street, Fox Rothschild was relatively unscathed.

In 2008, a gut-wrenching nosedive for many firms, Fox Rothschild had its best year ever, with more than $200 million in revenue. That's only a fraction of Dechert's, but the firm, in contrast to many of its peers and certainly to larger firms, has not had to lay off lawyers.

It recently opened an office in Stamford, Conn., to supplement its lawyers in New York and now seems to be reaping the benefits of a very stringent focus on costs. This may have been the result more of fear than fiscal virtue.

Reich said the firm had focused mainly on maintaining profitability out of concern that if the numbers declined precipitously, its best lawyers would leave.

"If you have an economic slide, your quality people are going to walk and take their book of business with them," Reich said.

At least for now, Fox appears to have avoided that fate.