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BofA’s Answer to Mayopoulos’ Firing: Downsizing

We all know that times are tough, so what's the best way to save some money when you are in the middle of a contentious merger? Fire the GC, of course. That's what the three Bank of America executives testifying before a Congressional panel yesterday, Brian Moynihan, Charles "Chad" Gifford, and Thomas May, argued when trying to explain the suspicious firing of Mayopoulos. It was result of "downsizing." Yeah, right.
I guess it was as good a try as any, but it's hard to know how these executives were able to keep a straight face during their explanation. Firing the GC literally overnight, while the company was struggling to complete a merger and 24 hours after the GC learned that reported losses were nearly twice what it had been reported to him by the CFO, is a hard one to swallow. Downsizing happens, but would a company take its top legal officer out in the middle of a critical deal? Short of a gross impropriety, that's unlikely.

The story gets even harder to give it the benefit of the doubt as details further unveil. According to an article by Corporate Counsel, all three testifying executives agreed that "Mayopoulos was a good lawyer and had done good work in his five years at BofA." There were no signs of any impropriety or wrongdoing. So, if Mayopoulos was doing such a good job, why was he fired overnight? To save money? That weak argument is debunked by Moynihan's own testimony.

Moynihan's testimony was critical as he acted as Mayopoulos' replacement for 44 days. If you suspend your disbelief for a minute, and assume that BofA absolutely had to save money by firing Mayopoulos, the fact that his replacement only lasted 44 days gives the story even less credence.

Consider the fact that Moynihan didn't ask why Mayopoulos was fired. If you were taking over for someone fired, that might be the first question that would come to mind. Moynihan claims that he thought it was part of a 10 percent cut in executive staff. I guess he didn't wonder if he'd be next on this "downsizing" list.

Moynihan never had to worry about that. While he has his detractors, see "Attorney in Charge of Merrill Lynch Eyeing BofA CEO Job," he's also has the backing of CEO Kenneth Lewis, who may have been grooming him to take over his position (Lewis will be departing December 31st). Lewis had discussions with the Board to try to hold on to Moynihan who was threatening to leave for greener pastures unless he was being offered better opportunities with the bank. So it comes as no surprise that when Ken Lewis offered him the GC job, he accepted. You have to give it to Lewis, this was a clever albeit unscrupulous way to kill two birds with one stone. Get rid of someone whose legal advice you don't want to hear, and hold on to your "golden child" in one swift move.

Congress does not seem to be buying the far-fetched stories it has been presented with by BofA executives, which they've called "very curious," "troubling" and not believable. Congress is also unlikely to appreciate the backstabbing and deceitful practices that are now coming to light. After all, this episode came at a great cost to taxpayers; BofA received a total of $45 billion in government aid, which included an injection of $20 billion after it threatened to pull out of the Merrill Lynch merger. And that's no laughing matter.

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Mayopoulos: The GC That Knew Too Much…Or Not Enough

After months of waiting and wondering about what happened following the announced Merrill Lynch losses declared by Bank of America on December 9th, Tim Mayopoulos was finally able to tell his side to the story before Congress after the bank agreed to a request to waive its attorney-client privilege.
In a tale that would make for an interesting John Grisham novel, Mayopoulos recounts how he was "fired on the spot," the day after he learned that losses at Merrill Lynch & Co., Inc. were almost twice what he was originally told, or $15.3 billion.

According to an article by Corporate Counsel, Mayopoulos was fired without notice and without reason, after trying to speak with BofA's CFO, Joe Price, following the disclosure. That fateful discussion never took place, as Price all of the sudden became "unavailable" and Mayopoulos was fired the next day.

Mayopolous was given the boot after five years on the job, having received outstanding performance evaluations, and being assured he would be the general counsel for the newly merged company. Mayopolous was in the wrong place, at the wrong time, and in the hands of unscrupulous executives.

What's a GC to do when his client is disclosing inaccurate information? Based on the figures he was provided, Mayopoulos did what every good GC would have done in his place. He discussed it with his outside counsels at Wacthtell. Because the amount originally disclosed, $5B, was similar to Merrill's previous losses, and because the bank had indicated it expected losses to remain nearly the same, all the lawyers concluded in a conference call on Nov. 20 "that disclosure was not warranted," as reported in the Corporate Counsel article.

Clearly, that changed when the numbers came to $15.3 billion. A number that BofA would use to threaten a pull-out from its Merrill Lynch merger, which eventually earned the bank another $20 billion in federal bailout funds. An expensive slight of hands for taxpayers, which Congress is now trying to unravel.

Mayopoulos' treatment sure leaves a bitter taste in the mouth. One has to wonder how Mayopoulos, whose family still lives in Charlotte on the same street as the soon-to-be former BofA CEO, Kenneth Lewis, has been dealing with this ugly slap in the face. I wouldn't be surprised if the neighbors aren't greeting each other on their way to work (Mayopoulos is now GC of Fannie Mae).

The story does not end here as other BofA executives are scheduled to testify before Congress, including Mayopoulos' temporary replacement and controversial figure, Brian Moynihan (See: "Attorney In Charge of Merrill Lynch Eyeing BofA CEO Job"). Stay tuned.

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Top White House Lawyer Resigns

White House counsel Greg Craig has announced his resignation today. According to a report by NBC News, Bob Bauer, who was general counsel on Obama's presidential campaign and a longtime adviser to Obama, will be taking over Craig's role, officials said.
What led to the sudden resignation?

Greg Craig has been the subject of questions about his future since late summer, when he became involved with the controversial plan to close Guantanamo Bay. Dogged by criticism from both the left and the right on how this process has been handled - from the release of information, to the decision of where to house detainees - Craig had been increasingly under fire.

But don't worry about Greg Craig hitting the growing unemployment line.

According to officials, the former White House counsel never intended to stay on for more than a year. And that's highly believable. The Yale Law School graduate, who held the same position in the Clinton administration, earned $172,200 per year - the highest salary paid to any of the White House counsels (see our previous Blog post "What Do White House Lawyers Earn?"'

Prior to joining the Obama administration, Craig left a very lucrative private practice with the Washington, D.C.-based law firm of Williams & Connolly, where he had been a partner since 1999, earning $1.7 million. Clearly, Craig was never in it for the money, and he is likely to land on his feet quickly. According to the NBC news report, Craig is expected to move to another prestigious job, such as an ambassadorship or judicial posting. Returning to a lucrative private practice is also not out of the question, something Craig had done when he left the Clinton administration.

Whatever Craig's next move is, it will certainly be a respite from the highly stressful and publicized position he held for the last 10 months. One can only feel a little sorry for Bauer who is now inheriting the Guantanamo Bay debacle. It's a tough job, but someone has to do it.

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CLO Compensation Increases While Other In-House Lawyer Compensation Declines

In 2009, we have seen salary cuts for associates at large law firms, where the $145-$160K starting salaries are no longer the norm. What about the salaries and bonuses of Chief Legal Officers and other in-house counsels at large companies?
According to a recent 2009 Law Department Compensation Benchmarking Survey by ALM Legal Intelligence, median U.S. chief legal officers saw their total cash compensation (salaries plus bonuses) increase by almost 4 percent this year to $485,200.

In light of the current economic climate, CLO’s have goods reasons to be happy to be taking home nearly half a million dollar in pay, even if it falls short of the 13% increase they received in 2008. CLO’s are not far from their law firm counterparts, when law firms like Cadwalader posted a 30% decrease in profits per partner, but still took home $1.88 million during one of the worst economic markets in nearly 60 years. Clearly, there is still plenty of money being made.

Those who are experiencing most of the compensation squeeze are “other in-house counsels." While CLO compensation increased, total cash compensation for deputy chief legal officers, division general counsel and high-level specialists decreased during the same period, by 1.4 percent, 9.8 percent and 5.3 percent, respectively. The ALM Survey did not provide figures. For more information on salary and bonuses for "non-CLO in-house counsels", see our previous Blog post: “In-House Compensation Remains Flat As Companies Continue Cost-Cutting Measures.

If you are not in a “management” in-house position, what’s the best paying practice? Not surprisingly, patent law is the most lucrative specialty for senior attorneys and attorneys. Senior IP attorneys took home 40 percent more than the national median total cash compensation last year. It pays to be in IP, whether in private practice or in-house.

To compile this survey, the ALM polled organizations with 5,000 or more employees (46%), with 66 percent of participating organizations reporting annual sales revenues of $1 billion or more.

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2009 Brought the Largest Drop in Lawyer Headcount in Thirty Years

The results of the 32d annual National Law Journal survey of the nation's 250 largest law firms provides a vivid picture of the toll that the economic recession exacted from law firms this year. The total number of attorneys working at the top 250 law firms plunged by 5,259 lawyers. How significant is this loss? According to the article, it's as if all of the lawyers working at two firms the size of Jones Day vanished in 2009.
The 4.0 percent decline in the total number of attorneys marked only the third time that the lawyer count among the group has dropped since the NLJstarted collecting headcount data in 1978. The last time totals backslid was in 1993, when they dipped by 0.9 percent. The first decline was in 1992, when they fell by 1 percent. The tally this year wipes away nearly one-third of the growth that firms made during the past five years and puts many of them well below levels they enjoyed in 2005.

The number of attorneys in 2009 sank to 126,669 lawyers, compared with 131,928 attorneys last year. In 2008, the number of attorneys increased by 4.3 percent. This is only the third time since 1978 that lawyer counts has dropped.

Which of the 75 law firms on the NLJ list bled the most in 2009?

  • Fried, Frank, Harris, Shriver & Jacobson, which declined by 26.4 percent to 468 attorneys from 636 in 2008.
  • Latham & Watkins, which shed 444 lawyers, had the biggest number of layoffs. It had 1,878 attorneys this year, compared with 2,322 in 2008, for a 19.1 percent decline.
Which are the biggest firms in 2009?
  • Taking the No. 1 position on the NLJ 250 was Baker & McKenzie, which had 3,949 attorneys.
  • DLA Piper took the No. 2 spot this year. Its lawyer population fell by 7.3 pecent, to 3,450 attorneys from 3,721 attorneys in 2008.

Associates were the hardest hit by layoffs; their rank shrank by 8.7 percent, to 61,733 from 67,648 last year.

Partners, on the other hand, seem to be doing better as a whole. The number of partners in 2009 was 53,468, compared with 52,980 in 2008, an increase of 0.9 percent.

Perhaps the most worrisome numbers are those of first-year associates whose start dates law firms deferred. Of the 250 firms on the list, 113 reported that they deferred a total of 2,784 associates. That figure represents 42 percent of the 6,636 law graduates who would have been in the incoming first-year associate class.

This will have a major impact on the future of employment for both current and would-be lawyers that have recently graduated. The unemployment rate hit 10.2 percent in October. All told, 15.7 million Americans are out of work. Lawyers are no exception.

The legal sector lost 5,800 jobs, according to seasonally adjusted statistics in a recently released report (PDF) from the U.S. Bureau of Labor Statistics. When not seasonally adjusted, the figures show a gain of 1,500 jobs, but that is probably attributable to the elimination of summer associates from law firm payrolls, reports the Am Law Daily.

What can these unemployed lawyers expect from the job market? Many are looking at a long road ahead, often looking for 6-12 months before gaining employment. Grim figures that are unlikely to change in the near future, especially with the end of the year closing in, which traditionally provides for additional layoffs.

[Leigh Jones, The National Law Journal, November 09, 2009]

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