Published on:

Microsoft’s legal layoffs and some questions on the savings metrics

As posted on LawShucks, the National Law Journal learned from Microsoft GC Brad Smith that his law department’s budget was cut by 15 percent and head count by 5 percent. According to the piece, “[b]efore the cuts, the company’s legal department had a $900 million annual budget and 1,050 employees, 43% of them attorneys. That means approximately 53 people were cut, of which (assuming lawyers and staff were cut in proportion to their overall numbers) about 23 would have been lawyers.”

The write-up adds “The $135 million he had to cut from the budget came from the RIF, requesting (and apparently getting) fee reductions of 10%, and ‘mov[ing] farther away from the billable-hour model.’ Oh, and a healthy dose of vetting bills more closely.”

I wonder whether the Microsoft law department nets out severance costs. I also wonder whether the 10 percent discounts requested were an additional ten or were these discounts imposed for the first time?

My trusty calculator raised deeper questions. How did Brad Smith reach $135 million in cuts? If you assume each lawyer laid off represents $500,000 in fully-loaded costs, that is $11.5 million (disregarding severance costs). If each non-lawyer laid off represents $200,000, that adds another $6 million. If the $900 million total budget consisted of 60 percent outside counsel, that $540 million reduced by 10 percent (assuming very crudely that all of it gets all of the discount) yields another $54 million in savings. The shortfall between the total of those three amounts ($71.5 million) and the mandated cut ($135 million) is huge. Bill review and non-hourly billing won’t get there.