Back to the brink

 In January 2009 the downsizing began in earnest. Many of the biggest ­commercial firms had held off until the New Year, but Clifford Chance’s decision to make up to 80 lawyers redundant in London helped trigger a wave of layoffs around the City. Allen & Overy (A&O), which like Clifford Chance had been hit badly by the downturn in finance and transactional work, followed suit shortly after.

In the regions the property slump meant the death of Hammonds Direct, the bulk conveyancing ­business spun off from Hammonds in 2001, which entered prepackaged administration after margins fell from 80 to 20 per cent. The dispute over the lease commitments of the failed bulk conveyancer between Hammonds Direct shareholders, of whom more than 20 were Hammonds ­partners, and the Hammonds partnership itself rumbled on for months.

The world recession and reshaping of the economy resulted in a major shake-up at Linklaters. Its ‘New World’ practice restructure saw a cull that reached all the way to the ­partnership – something that ­Clifford Chance and A&O also later admitted they were doing.

January was not all about ­shrinking, however: Clifford Chance announced a formal alliance with elite Indian firm AZB & Partners, while Berwin Leighton Paisner (BLP) poached some 70 lawyers from top Russian firm Pepeliaev Goltsblat & Partners while simultaneously launching in Abu Dhabi.

A whole new world

In February the new world was confirmed as Slaughter and May admitted it was now embracing ­discounts and fixed fees. Its entry into ITV’s fixed fee-only panel may have been one of the reasons, but the more likely explanation was the increasing insistence by general counsel on value billing.

Simmons & Simmons slimmed down in Portugal, while former Moscow associate at A&O Deidre Dare threatened to sue the firm after she was sacked for gross misconduct after publishing an ­erotic online novel.

Stealing a march

In March The Lawyer published the complete revenues and profits of the top 50 US firms for the financial year 2008. Baker & McKenzie had one of its best years for some time, with ­revenue up by 20 per cent to $2.19bn (£1.35bn) and only $10m away from Skadden Arps Slate Meagher & Flom, the largest US firm, which managed only a 1 per cent rise in turnover
in 2008.

The biggest revenue rise was recorded by K&L Gates, which was up by 27 per cent following aggressive expansion. In 2008 it took on Texas firm Hughes & Luce, Charlotte firm Kennedy Covington Lobdell & Hickman and Taiwan firm J&J Attorneys.

Back at home the silks round saw Brick Court Chambers come out on top with five new QCs. 1 Hare Court and 4-5 Gray’s Inn Square managed three apiece, with most other major sets bagging two each. The number of applications had dipped. Sixteen women made the grade from only 29 applicants, while 224 barristers applied in total compared with 333 the previous year. Meanwhile, A&O, Cleary Gottlieb Steen & Hamilton and Debevoise & Plimpton were all awarded a silk, as was the Crown Prosecution Service.

That month the big news was ­Norton Rose’s decision to offer staff a four-day week on 85 per cent pay or take a sabbatical of up to 12 weeks on 30 per cent pay, rather than embarking on redundancies. The firm voted overwhelmingly to endorse the plans.

By contrast, DLA Piper’s decision to offer the statutory minimum ­payout to staff made redundant sparked internal anger.

Outward bound

In April Hextalls entered prepackaged administration following a series of partner departures and a period where operating profit had fallen by 67 per cent, from £2.8m to £946,000. Hampshire Trust asked Begbies Traynor to take control of Hextalls. On 30 March Hextalls Ltd was formed and bought Hextalls LLP out of adminstration. It became one of the most significant rescues of the year.

The legal process outsourcing (LPO) bandwagon was launched that month when Simmons admitted that it was considering moving legal jobs offshore.

At the bar 39 Essex Street started a trend by opening in Manchester in order to handle work created by the regionalisation of the Administrative Court. “There’s less of a willingness to bring cases to London,” noted senior clerk Michael Meeson.

And there was big news in the regions for the public sector. Nine unitary authorities launched in the biggest shake-up of local government for 30 years.

Enter the dragons

In May Hill Dickinson merged with Middleton Potts and Beachcroft took over the insurance business of Kingslegal in Newport.

One of the most intriguing stories of the month was Sainsbury’s ­general counsel Nick Grant’s move to create a ‘Dragon’s Den’ for his external ­advisers. Panel firms were invited to introduce other clients to pitch new products or services to Sainsbury’s. “Community is about the flow of ideas, not just me sucking value out of a firm then dispensing with it,” said Grant. “Firms will hopefully be proud of having referred clients in these hard times.”

Paul Stothard stepped down from Shoosmiths one year into his third three-year term after it was revealed that it was the only UK firm not to offer ­compensation for pushing back trainee start dates (see ‘Graduate Recruitment’ box). Although readers of TheLawyer.com and sister ­website Lawyer2B.com lambasted the firm for the decision not to pay out, two of its deferred trainees, Tom Goff and George Roberts, defended the firm, only to be mocked in a series of posts from readers.

Despite internal messages ­supporting the pair, Stothard stopped short of supporting them in public – a massive own goal, not helped by his comment to The Lawyer: “I don’t regret not offering any compensation to our trainees because we spent lots of time making the decision.”

Age of reason

In June there was a victory over ageism in the profession. Former technical director for pharmaceutical company Teva and Bird & Bird trainee Mary Smillie qualified aged 50. “I have a good number of years to give,” she said. “A lot of my younger colleagues are dreaming of ­partnership, but I’m not thinking about that because I really enjoy the job I do.”

Pinsent Masons joined the LPO wave with its South Africa outsourcing project, while in one of the ­highest-profile moves of the year ­former Mayer Brown co-deputy chair Paul Maher joined Greenberg ­Traurig to launch the Miami firm’s London operation – a move that effectively ended its alliance with Olswang.

Meanwhile, Norton Rose’s tie-up with Australian law firm Deacons was proof of the former’s global ­ambitions. The news was revealed on the very day of The Lawyer Awards 2009, in which Norton Rose took the top prize of Law Firm of the Year.

Raising the bar

July was financial results season. Both Linklaters and Freshfields Bruckhaus Deringer ­overtook Clifford Chance in revenue terms, while the latter’s average profit per equity partner (PEP) ­plummeted to nearly half of its magic circle rivals’.

It was bad news for Blake Lapthorn too, with the revelation that PEP was averaging £65,000 – less than half of what fixed-share partners were taking home.

Alan Milburn’s social mobility report that month ­elicited a storm of online comments with its assertion that the legal profession was closed to those from poorer backgrounds.

Bar wars

In August Clifford Chance ­confirmed that it was trying to energise its ­practice areas by creating sector focus groups to which all partners would have to sign up.

High-profile pair Maurice Allen and Mike Goetz abruptly left ­Freshfields after just 25 months at the magic circle firm.

At the bar, pupillage pay was being inflated by the heightened competition between chambers for the best young talent. The top payer was One Essex Court, where 2010 pupils will earn £60,000 – an increase of 33 per cent on the 2009 figure of £45,000.

Fortunes at the bar ­contrasted with newly qualified (NQ) pay at regional firms, with Addleshaw Goddard, Burges Salmon, Hammonds and Walker Morris all cutting NQ pay.

Books of revelations

September saw the publication of The Lawyer UK 200 Annual Report, now in its tenth year. In that decade the top 100 leapt from £5bn to £14.4bn, with PEP doubling from £241,000 to £402,000 in the same period. PEP in the magic circle increased faster: in 1999 it was £564,000, while the 2009 figure stood at £1.13m.

In the same month The Lawyer revealed research on hourly rates, which showed that average magic ­circle partner rates had dropped by a third, from £680 to £450, in three years. However, magic circle NQ rates and five year-PQE rates held steady.

The research, carried out by costs lawyer Jim Diamond, showed that the decrease in partner rates was highest in the magic circle and lowest at national firms, where average partner rates dipped from £360 to £325.

Pond wife

In October the LPO trend was ­confirmed with the news that ­Slaughters was discussing outsourcing plans at the behest of a client. Momentous indeed.

Hogan & Hartson’s talks with Lovells saw the light of day – with the Lovells negotiation team agreeing to ditch lockstep to get the deal through. It needed to: its PEP was £586,000 in 2008-09 compared with Hogan’s 2008 PEP of £730,000. The deal looks set to be completed at the end of this financial year.

Simmons’ decision to put corporate responsibility (CR) at the heart of its business saw CR come of age at law firms. “There’s a whole world of need out there,” said CR and pro bono partner Richard Dyton. “Lawyers have a moral obligation to go out and change things in their communities.”

Prize time

In November Ashurst streamlined its US relationships into six best friends: Akin Gump, Davis Polk, Paul Weiss, Ropes & Gray, Schulte Roth & Zabel and Quinn Emanuel.

The Lawyer In-house Summit played host to general ­counsel, with discussions on relationships, ­reputation management and value billing, while The Lawyer’s first-ever European Awards saw Garrigues win European Law Firm of the Year.

The big legal stories that month were the campaign for libel reform, with Carter-Ruck defending its stance; collective redress in the Finance Bill; and the bank charges case that saw the OFT lose at the Supreme Court.

Recession results

In December interim results came in. The big winners were Denton Wilde Sapte, DWF, LG, Stephenson ­Harwood and Watson Farley & Williams, which all saw turnover increases at the half-year stage.

And last, The Lawyer’s own research showed the extent of ­partner ­departures at the top 10 firms, as per their LLP accounts. ­Clifford Chance suffered the most with 72, with A&O losing 46, ­Eversheds waving goodbye to 38 and ­Linklaters missing 23.

Graduate recruitment market takes a tumble

With deals drying up and firms being forced to lay off underutilised ­associates, it was only going to be a matter of time before the recession caught up with the graduate ­recruitment market.
The first casualties were future joiners, with many due to start their training contracts in September being asked to delay their start dates.

The first firms to announce trainee deferrals were Newcastle’s Muckle and Ward Hadaway back in December 2008. But that list grew rapidly to around 40 during the first six months of 2009 after Norton Rose announced it was offering those who agreed to defer for either four or eight months a lump sum payment of up to £10,000. But the money did come with some strings attached, with the trainees encouraged to do something for the good of the community.

Thankfully, most of the deferrals were voluntary, but firms such as Field Fisher Waterhouse, Lovells and Reed Smith had to make compulsory deferrals after insufficient volunteers came forward.

Shoosmiths also made its deferral programme compulsory, but it also asked future joiners to withdraw from their training contracts altogether, with no compensation (Lawyer2B.com, 30 April).

When the Shoosmiths story broke, Lawyer2B.com’s message board was inundated with users slamming the national firm for being such a scrooge. But two of the trainees affected by the move, Tom Goff and George Roberts, leapt to their future firm’s defence, penning an open letter to Lawyer2B.com. “In spite of the bad news,” they wrote, “we are committed to our firm, and are resolved to rise to the challenge in these tough times together.”

Unfortunately, the letter did not have the impact they had been hoping for, with many Lawyer2B.com posters claiming they were just trying to score Brownie points. But whatever their motives, Goff and Roberts did have a point – looking back on the terrible year the legal market has suffered, £10,000 does seem a tad generous.

With so many firms pushing back their trainee start dates it was inevitable that some would be forced to scale back their graduate recruitment programmes. A number of summer vacation schemes were cancelled as firms decided to stop accepting training contract applications over the summer.

The good news, however, is that the bloodbath that was predicted with would-be investment bankers snatching training contracts off law graduates did not materialise. Indeed, most firms received a similar number of applications as in previous years, with some even seeing a dip. No one really has an explanation for this other than that students are so worried about securing a graduate job that they are just burying their heads in the sand. Or perhaps they took heed of the Law Society’s warning about the oversupply of law students.

But students cannot stay away forever, so the overriding worry now is that the training contract timebomb might explode next year instead.

Husnara Begum, editor, Lawyer 2B