Editors' Blog

Welcome to The Cadwalader Effect

Posted 1/08/2008 by Alex Novarese

This blog is not really about Cadwalader Wickersham & Taft and the New York-based law firm’s recent decision to fire 96 lawyers (there is plenty of coverage of Cadwalader both online and in next week’s edition of Legal Week). But what is also apparent is the immediate impact of the US firm’s high-stakes restructuring in encouraging other law firms to announce their own, thankfully more modest, job cuts.

The logic of this is well-rehearsed. No-one wants to be near the front of the queue when it comes to taking the reputational hit of cutting staff, so when someone goes in hard, those toying with something similar promptly get out the announcement.

Since DLA Piper and Cobbetts have followed up in different practice areas – respectively media and property - on the other side of the Atlantic, the business reasons are obviously different to Cads’ cuts, which are heavily focused on property securitisation. It is certainly proof of the extent to which legal services has become a kind of global community when the decision of a Manhattan outfit dubbed the Shark Tank can be seen within two days at one of Manchester’s most cuddly law firms.

The most infamous example of this in recent employment history is 9/11, when a group of major companies sensitively rushed out news of redundancies in the wake of the terrorists attacks.

It would be surprising if we don’t see a further clearing of the decks over the coming weeks as more firms move to get bad news out before September (indeed, there is another major firm that is reliably cited as being about to cut in property finance).

It is also a further reminder what a torrid time it is for property lawyers, especially in the regions. The fact is that the business of property law is going to come under sustained scrutiny. It was largely rescued from where it looked like going in the late 1990s when firms were increasingly treating it like a backwater thanks to the debt bubble. But some huge fundamentals that underpinned it for five years – cheap debt, investors falling out of love with shares, the rise of securitisation – have not only played out; they are going in reverse and will not be changing course anytime soon.

Property aside, DLA Piper’s decision to cut back in media is eye-catching given the huge bet on the sector the firm took after hiring a large team from Denton Wilde Sapte a few years back. It also suggests that mounting claims that DLA Piper’s remarkable upward momentum has run its course were not wide of the mark. But we’ll likely have to wait for The Cadwalader Effect to subside a little before we know how widespread the malaise really spreads.

alex.novarese@legalweek.com