A legal future of doom or boom
16 June 1998
It is easy to look back and comment on the past 10 years of recruiting in the legal market but it is far more exciting to gaze into the crystal ball and view the future.
This is especially so at the moment, because in my 15 years of experience in the legal profession - four in practice as a solicitor, the balance as a recruitment adviser - the market has never been in greater turmoil.
It is a turmoil caused largely by the clash of the very different players in the market who are all competing with one another. There is the charmed circle of City firms pitted against the emerging US firms in London, against multidisciplinary partnerships (MDPs), against regional/national firms and against the renaissance of legal departments in commerce, industry and the banks.
At the same time major changes are looming in the way in which the law will be practised. As a result, life will get more competitive, not less.
Those remaining City firms that are clinging to lockstep are laying themselves open to pillage by the Americans and MDPs in particular. Bright junior assistants and young Turk partners no longer accept the reassurances of partners 20 years their senior that their time will come in the big earning stakes. Uncertainty will prompt them to take career decisions based on shorter term motivations.
The muscle, might and distribution networks offered by MDPs are awesome when compared with even the largest City firm. How many English firms are going to be able to get remotely within the salary range offered by those US firms paying partners in their late 30s and early 40s guaranteed three-year no-cut drawings of between US$1m and £1m?
Within the next five to 10 years, the provision of global legal services will become dominated by just a dozen or so firms. At least two of these will be MDPs. The jockeying among contenders for the remaining slots has already started and will become ever more intense. This is obviously going to have a significant impact on the recruitment market as individuals try to ensure they back the right horse.
The stakes are high for firms and individuals alike and, in the UK, are likely to lead to the sort of disasters seen in the US, with firms, even high-profile ones, going belly up. These and other pressures will accelerate the move towards incorporation with true limited liability.
As a more corporate culture becomes the norm, the spirit of partnership will, to a large extent, be lost and firm loyalty will come under even more pressure than it is now. It is already common for people to move firms several times in their career. As life becomes more corporate, moving firms may become desirable and almost certainly will become the norm as a means of promotion and advancement.
Firms in England also face a significant economic conundrum. Historically, most practices have treated lawyers in different departments broadly the same at comparable levels of competence. For example, a star litigator is rarely materially differentiated from a star international finance lawyer at either assistant or partner level.
This cannot continue. Reward will in future be much more closely linked to individual and team performance. This will increasingly see the major English firms embracing the so-called "American salaries" for their star lawyers. But they will then demand the productivity to support it.
It does not take much to recoup an extra £20,000 in incremental income at a charge-out rate of £250 per hour. Yet if these salaries were paid across the board firms could not remain economically viable. Nevertheless, these salaries will have to be paid in sufficient numbers to have a significant effect on firms' bottom lines.
So what can firms do to redress the balance? The first step is to demand an increase in productivity. The second is to differentiate between the stars and the merely highly competent. Third, commodity work and, in particular, commodity aspects of lawyering must be driven down to the lowest possible level of operative.
Increasing use will be made of contract lawyers and paralegals to ensure that fixed costs are minimised and flexibility of costs and pricing maximised. And much of this will be client driven.
None of these predictions are earth-shatteringly new. For example, the established New York firms grappled with an identical salary hiatus when the non-New York firms made their initial moves into the Big Apple several years ago. Ironically, their initial response was much the same as that of some of the leading English firms now - initially one of denial and derision, followed by a slow-dawning realisation of the need to divide ranks of lawyers in two and reward each appropriately.
The US use of paralegals as a cost-effective resource in litigation and other areas is illuminating, as is the widespread use of contract labour. As I say above, much of this is client driven.
Clients are quick to cotton on to the fact that a flexible cost base is to their advantage and they will look at how firms intend to resource their work to ensure they are getting good value. They will assume they will get good-quality work, meaning real opportunities for contract lawyers able to provide that level of service. In turn this draws people of higher quality into contract work.
The lack of a fixed cost base and the other savings associated with using contract lawyers can mean that such lawyers are better paid than they would be for the same amount of work in full-time employment while the firm enjoys a lower cost and the client benefits from the overall efficiencies.
The emergence of the contract lawyer in this country will be one of the significant changes in the recruitment market over the next 10 years.
It may seem that I am prophesying doom and gloom for the English legal profession. Far from it. In fact the chaos in the market offers fit, well-managed firms more opportunity than ever. Also, it must be remembered that a number of US firms have had, and will continue to have, their own problems, and when they start to unravel, historically they have done so much more quickly than firms from any other country.
And what of the MDPs? These are massive organisations, but can they maintain that critical mass or will there be increased splits and splinters?
We have already read of a possible split-up of the great Arthur Andersen organisation and seen its difficulties in absorbing a law firm with the Wilde Sapte merger being called off. perhaps for a time the MDPs will become much less feared, although they are bound to remain major players.
Change to date will seem slow compared to that which is looming. The fit will survive and thrive; the flabby will wither. Whatever happens, though, in the recruitment sphere there is going to be a great deal of activity.