Opinion

People are the main asset of any law firm, but they are also its biggest overhead. So in tough economic conditions, how do law firms balance profitability against other less tangible factors that indicate the health and success of a firm?

One argument is that a firm must maintain profitability in order to retain its star partners and to be able to recruit and retain the partners of the future. This argument takes no account of culture and individual loyalty to a given firm, or of the qualities that make up the employer brand of a law firm.
We have seen a range of strategies employed by firms to cope with tough times, including deferring trainees, offering sabbaticals, performance-managing people out, de-equitising partners, redundancy and the use of compromise agreements. So what is the right approach and what are the long-term implications of the drive for profit in the short-term?
Maintaining and building profits has to be the aim of any business, but most companies are very careful about how they deal with what some would consider to be the ‘softer’ issues, such as brand. Law firms are relatively new to the game of employer branding, but as partnerships they also have a choice. A partnership can choose more easily between immediate profit and investment in its people, brand and the future.
The corporate boom of 1997-2000 illustrated the potential impact of short-term strategy on future success. Demand for corporate assistants was rampant and many law firms spent vast sums on recruiting and raising their profiles as employers. Why? In part because in the previous downturn trainees were let go or not taken on and for the first time many assistants were made redundant. Firms that took a hard line in the last recession paid heavily in the damage done to their employer brand. When the time came to recruit again, they were left in the chasing pack. Some firms never recovered.
By contrast, it is no coincidence that Wragge & Co and DLA finished as the two highest ranked law firms in The Sunday Times ‘100 Best Companies to Work For’ list. In the past, both firms have taken the view that it is better to take short-term risks in relation to profits and investment in order to emerge stronger from a recession. They have backed and built their teams even when the economy was slower and in the process established strong and loyal teams which were ready for the corporate boom of 1997-2000.
Too often in the corporate world, the needs of the individual are sacrificed for short-term profit. No professional services firm can or should follow suit when its business is almost entirely built on the talent and goodwill of its employees. It is only a very short time since we were in the middle of the infamous ‘War for Talent’ and long-term trends suggest the battle for the best talent will resume.
Employer branding is particularly important for the medium-size firms in assisting them to recruit and retain the best people – the individuals who are going to enable them to achieve their long-term goals. The magic circle and global law firms can to a certain degree do as they please as they are always likely to be ‘destination’ firms and similarly the successful boutiques will always have their niche and hence their own unique attraction. That said, even the best legal brands are not immune to damage to their employer brand.
If the opportunity is there to recruit people who are going to be good for the medium and long-term success of the business, then it has to make sense to dig deep and invest. A recruitment coup at a time when others are experiencing difficulties can be a huge fillip to an employer brand.
There are indications that many law firms expect to recruit again substantially in the next twelve months. The ones who will be successful are those who have maintained or established a strong employer brand through these difficult times. Essentially this will come down to whether they have treated their people with respect and demonstrated the kind of leadership and strategy that inspires loyalty internally and admiration and interest externally. If so, they have the basis of a culture which can carry them through tough times and will help them to recruit in the future.