The other day a US lawyer I was chatting to happened to mention that he and his partners had been busy “adjusting our expenses”. Translated, this friendly little euphemism means “slashing lawyers and staff”.
Certainly, there’s been no shortage of layoffs recently. But there’s more than one way to save a few quid (or bucks).
In the past week, firms on both sides of the Atlantic have revealed that they have either delayed or reduced partner profit distributions. Eversheds in the UK and Dewey & LeBoeuf in the US have taken steps to ensure that, however bad next year is, they won’t be strapped for cash.
Both firms are blessed with leaders who prefer to meet these issues head on, and who do not dissemble when faced with tough questions from partners or the press. Dewey chairman Steve Davis was refreshingly open last week when describing his desire to build a “cash cushion” to protect the firm.
The problem, of course, is not that Dewey has to start watching its pennies, but why. “You try to build a cash cushion because there’s not enough revenue coming through the door on a regular basis to do it in the normal run of business,” says US legal market consultant Joel Rose.
In other words, it looks like a mixture of too many lawyers, not enough work and clients who are loth to make speedy payments. Not a good combo.
But Eversheds and Dewey are not alone. In the US and the UK, firms are increasingly making cuts at associate or support-staff level, changing the status of less productive partners or, in more severe cases, handing them their walking papers. And it’s certain they will search out other ways of cost-cutting.
Frankly, it’s not alarming at all that firms are doing this. At the start of the decade, the legal market was rocked by the collapse of Brobeck Phleger & Harrison. One of the (many) causes of the firm’s downfall was the reluctance of senior management to make the necessary cuts to survive.
In a week that saw a second US firm collapse after breaching its loan covenants, firms will try anything to maintain enough cash to stop the banks pulling the plug. It’s called prudence.