Survival of the fittest - Debbie Legall
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Like many other firms, law firms are not immune to the current economic crisis. But certain firms are more susceptible than others and survival strategies can be effective.
There’s no escaping the facts. Following the worst financial crisis since the Second World War, there has been an unrelenting surge in the number of redundancies taking hold of today’s global employment market. And few, if any, countries or sectors are immune.
According to figures published by Eurofound, the European Foundation for the Improvement of Living and Working Conditions, the overall job market, in terms of job creation, is shrinking. The foundation, which was established by the European Union to contribute to the planning and design of better living and working conditions in Europe, has announced that job losses have outnumbered job creation by almost three to one. Between 1 January 2009 and 31 March 2009, more than 220,000 job losses were announced in the European Union, with only 90,000 job gains being declared in the same period.
The legal sector, in common with many other parts of the economy, is shouldering its share of the economic downturn burden, but is the picture one of equal doom and gloom for all types and sizes of law firm?
Is the price right?
For all law firms, regardless of size, it is becoming clear that cost will be a major driver as budget-conscious clients seek out the best deals and compare the services being offered by rival firms. Firms that can minimise their costs while improving their efficiencies will be more attractive to clients and will therefore enjoy greater prospects for survival, particularly if they can successfully add value by maintaining the quality of the services they provide.
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Thus, doing more with less would appear to be the best approach for any firm that is determined to ride out the economic storm. In other words, it is about retaining highly experienced and highly trained staff only – and trimming costs by paring down any superfluous headcount.
Reduced headcount
Allen & Overy is a case in point. Cost savings were the major driver for the type and extent of restructuring – which has only just recently been concluded. The world’s fifth-largest law firm kicked off its restructure with a comprehensive review of its global business in December 2008, and announced a slew of measures in February this year, which included a global reduction in partner headcount to the tune of nine per cent, a proposed nine per cent cut in the number of associates and other fee earners globally, a nine per cent reduction in the support staff headcount and pay freezes in 2009 for all staff globally – whether fee earners or support staff. On 1 May, the firm, which has 31 offices worldwide and approximately 5,500 staff, reached the end of its redundancy programme – resulting in the laying off of around 450 members of staff. The figure comprised 200 associates, 200 support staff, plus a further 47 equity partners – with half of the cuts targeted at the London headquarters. An undisclosed number of voluntary redundancies were also agreed.
Other outfits, such as full service UK top 50 firm Cobbetts, have embarked on multiple rounds of redundancy consultations, and another UK top 50 firm, Halliwells, launched it fourth redundancy programme in March, having already cut 40 jobs in previous rounds. A third cycle of layoffs at Eversheds, meanwhile, is, it is believed, likely to lead to a cull of ten more legal staff, in addition to the 73 lawyers who already lost their jobs following two previous redundancy consultations.
‘Firms that have approached growth and expansion with intellectual discipline... do not find themselves being forced to cut away unproductive fee earners’
Normal Clark
Walker Clark LLC
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Overexposure
Jonathan Fagan, director of Ten-Percent Legal Recruitment, believes that while ten per cent of solicitors and legal executives in the United Kingdom have been made redundant already, ‘another five to ten per cent are under threat of redundancy, or have had their conditions changed or hours reduced’. He adds that ‘the headline figures produced by the media are probably inaccurate, as most of the cutbacks are with the smaller players on the high street, rather than the big boys in London and other cities’.
Five types of special measure for law firms to consider as alternatives to slashing the headcount of their legal teams
- a reduction in salaries across the board
- a reduction in hours – which has included firms opening for four days per week rather than five days
- not using locums to cover spikes in workload
- expecting lawyers to work longer for less money;
- measures and identifying external transcription as asecretaries being made redundant as cost-cutting cheaper option
Jonathan Fagan
Ten-Percent Legal Recruitment
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One reason for this, Fagan believes, is practice area. The areas most affected by the downturn are, he explains, conveyancing, residential development, real estate, commercial property, property finance, banking, company commercial, wills and probate, tax and trusts and private client work. While the recession has, he concedes, hit both small and large practices equally, ‘smaller firms are usually more exposed to the property market than the larger firms; it has been disproportionately affecting the smaller firms’.
Figures produced by the Solicitors Regulation Authority also show that smaller, community-based firms, including legal aid firms, are particularly vulnerable in the economic downturn. Plans by the UK Government, for example, to make small firms bid for legal aid contracts, and the requirement for contracts of a stipulated minimum size, are likely to cause further harm, particularly in such areas of law as housing, mental health and debt.
Differing trends
Ruth Salamon, branch manager at Laurence Simons, a specialist legal recruitment agency based in Sydney, Australia, paints a different picture. Unlike the United Kingdom and United States, ‘in Australia, there are only a handful of law firms that have made large numbers of redundancies’.
Salamon makes the point that ‘it has tended to be the larger firms that have made redundancies. It is those firms that were recruiting quite heavily during the 12 months or more prior to the downturn in the market, so it’s those firms that had the most to lose by losing work’. She explains that the areas of law most affected by the downturn are ‘the noncontentious areas such as banking, finance, commercial property and corporate law’.
Building on the points made by Salamon, Norman Clark, Chair of the IBA Law Firm Management Committee and lawyer at Walker Clark LLC, a US-based legal management consultancy specialising in small and medium-sized firms throughout the world, shares his own observations: ‘I think that many – perhaps most – of the redundancies that we have seen since mid-2008 could have been avoided, or at least mitigated by better planning and some basic risk-management concepts.’ He explains that there were some early signs of an imminent business crisis for law firms as far back as mid-2007, and holds that ‘firms that have traditionally approached growth and expansion with intellectual discipline, demanding complete information and a thorough evaluation of the risks, do not find themselves now being forced to cut away so many unproductive fee earners’.
Some firms have, however, managed to stay sheltered from the worst effects of the market. Fagan explains that such practices ‘are usually very tightly run operations with good but sensible marketing campaigns, local links, not too large but not too small, in reasonably affluent areas and with an online presence’. Crucially, he adds, such firms also boast ‘a good relationship with staff and can move them around the firm according to the workload’.
‘Whenever you lay off a fee earner, you are also giving up future revenue potential’
Norman Clark
Walker Clark LLC
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Salamon echoes some of these views, explaining that more tightly managed firms are the ones that appear more likely to survive. Firms that remain immune to the recession, have, she states, tended to be more conservative in their recruitment patterns, hiring only when the need arises and ‘keeping a close eye on utilisation rates’ and, for this reason, it is the small and medium-sized firms that appear to be coping better with the market. She elaborates: ‘You find that the larger/mega firms rely on large-scale big ticket transactions, and it’s that type of transaction that is not as common in a depressed market. Therefore, once the larger matters stop coming in, you naturally end up with a great number of staff with not enough work to do.’
Alternative measures and different approaches
As well as the special measures being taken by law firms to avoid redundancies, examples of novel approaches to the economic crisis abound, with some firms, such as Travers Smith and Hammonds, offering future trainees cash incentives to encourage them to defer taking up their traineeships for one year. Other approaches include sending trainees on client secondments and, in some cases, encouraging students to enrol on a firm-specific MBA course.
Salamon highlights that ‘firms are using all manner of measures to reduce or avoid redundancies, including voluntary and extended periods of unpaid leave, encouragement to use up all accrued paid leave, salary freezes, recruitment freezes and the reutilisation of transactional/advisory lawyers into litigation practice groups including commercial, insurance and insolvency, where the work is still flowing consistently and more recently, increasing’. While some of the perks have now been consigned to a bygone era of plenty – such as ‘partner lunches and regular Friday night drinks’, she points out that ‘in some more extreme cases, lawyers are being offered pay cuts in return for keeping their jobs’.
Some firms are appearing to buck the trend. Burges Salmon, with its ‘best friends’ network in emerging markets such as India and China, and Trowers & Hamlins, which has five offices in the Middle East and has become one of the first international law firms to move into Syria after forming an exclusive association with Syrian law firm Sultans Law, appear already to be preparing for the future, and positioning themselves globally in order to benefit from any upturn in the markets.
Salamon asserts that while firms are doing all they can to avoid letting staff go, the staff, for their part, are sensibly accepting the options being put forward by their employers, ‘no matter how unpalatable, if it means securing their position with the firm’. But there is disquiet among a number of firms, Clark believes, because ‘whenever you lay off a fee earner, you are also giving up future revenue potential’. And this is a constant source of worry to the firms his consultancy works with. He elaborates: ‘in my discussions with law firm partners, the concern that I hear most frequently is not whether they have made enough cuts, but whether the cuts are too deep – not only removing the “fat”, but also the muscle that the firm will need when the recovery comes.’
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Debbie Legall is a freelance journalist. She can be contacted by e-mail at debbie.legall@blueyonder.co.uk.
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