The number of trainees being kept on by the UK’s top 50 firms has dropped by nearly 150, despite law firms claiming to be in desperate need of corporate and banking associates.
The average retention rate in the top 50 firms was 81.2 per cent in September 2006, down from 85.2 per cent in 2005, despite the continuing boom in the corporate and M&A, and private equity markets. Almost half of the top 50 firms recorded lower retention rates than the average.
Nabarro Nathanson reported the worst result, keeping on just 47 per cent of its 17 September qualifiers – down from 84.2 per cent the previous year. Graduate resources manager Jane Drew sums up market perception by explaining the drop as being the result of newly-qualifieds’ increasing interest in practice areas where there is little market demand.
Drew says: “This has been a very unusual year. We usually retain 85-90 per cent of our trainees. This year, of the nine who went, five wanted to qualify into employment, but there was no business need for newly-qualifieds in that department.
“All of the five were offered alternatives in other areas but chose to go BANKING/FINANCE 17elsewhere as they wanted to practise employment law.”
Osborne Clarke also saw one of the biggest drops in retention rates, keeping only 61.1 per cent of its trainees this year compared with 100 per cent in CORPORATE192005. Osborne managing partner Simon Beswick claims: “It’s because a whole rack of them wanted to do commercial work and we didn’t have the opportunities in that space.”
Linklaters trainee development LITIGATION 14partner Simon Firth says: “It’s not surprising retention rates are going down as the economy is booming and the market is more fluid. Trainees have more choice and increased opportunity to move.
“The two years’ PQE level is the main pressure point. At this level associates may decide that they want to move outside law. There’s always been a shortage at this level and I certainly think it will continue.”
This year Linklaters recorded a retention rate of 83.3 per cent, just down from the 85 per cent retention rate recorded in 2005.
Firth also attributes the drop to choice of practice area. “Everyone who wanted jobs upon qualification was offered jobs,” he says. “Some trainees chose not to stay with us as we couldn’t offer them their first choice of department.”
DroughtThe comments reinforce worries raised by the City’s leading firms over the summer. As first revealed on www. thelawyer.com (7 August), London’s top firms are struggling to cope with the M&A boom due to a drought in corporate assistants that has left them unable to man deals adequately.
In particular, firms have hit a brick wall in trying to recruit corporate assistants with two to four years’ PQE.
At the time, director at recruitment agency Glass Consultancy Jonathan Glass told The Lawyer: “At the moment almost every practice area will take on anyone with good experience. And of course, when the slowdown kicks in they’ll cut back. It’s the old boom and bust story that the legal profession never learns from.”
Mark Wagner, senior associate at recruiters Shilton Sharpe Quarry, agrees. He says: “While there’s always been a shortage of associates at the two to five years’ PQE level, law firms under-recruited during 2001-02 and we’re still feeling the knock-on effect from that.
“The lack of associates at this level looks set to continue, particularly in mainstream transactional areas such as corporate, finance and real estate, which require large numbers of associates.”
Retention rates for newly qualified solicitors plummeted by as much as 40 per cent at the height of the last recession in 2003, according to The Lawyer’s sister title Lawyer 2B’s annual retention rate survey.
SJ Berwin kept on just 61 per cent of its trainees that year, while Denton Wilde Sapte (DWS) retained just 58 per cent.
Both firms’ retention rates for 2006 look more promising, in line with the continuing bull market. SJ Berwin’s rate for this year was up by 27.5 per cent on 2003 to 88.5 per cent and DWS’s retention rate rose by 13.9 per cent over the same period to 71.9 per cent. However, this remains below the average rate of 81.2 per cent.
However, there are suggestions that the legal profession could repeat the mistakes of the last downturn.
As Nabarros senior partner Simon Johnston tells The Lawyer: “Strategically, one of the greatest challenges law firms face is the associate retention rates at two to five years’ PQE and, until we reach the next downturn, there’ll be an imbalance, especially in the corporate and finance departments.”
Corporate v bankingCorporate continues to account for the bulk of newly qualified jobs given to trainees, but is losing ground to banking and finance. Just under a fifth – 19 per cent – of retained trainees qualified into corporate in 2006, compared with 21 per cent in 2005. Meanwhile, 17 per cent of qualifiers joined banking and finance departments.
Spots in litigation and commercial also rose, with litigation now accounting for 14 per cent of all jobs and commercial 5 per cent.
The magic circle accounted for the bulk of the banking and finance jobs: Allen & Overy gave 28 trainees places in its finance department; Clifford Chance offered 31; Freshfields Bruckhaus Deringer 14; and Linklaters 18.
Louise Hatton, graduate recruitment manager at Macfarlanes, explains: “We recruit trainees with the aim of keeping everyone on on qualification. We’re quite painstaking in ensuring that consideration is given to the trainee’s career development.”
Halliwells graduate recruitment partner Paul Rose says: “Traditionally, we have always had high retention rates, with a minimum of 75 per cent but generally closer to 85 to 90 per cent. We can probably put this down to the firm’s expansion and also the refinement of our graduate recruitment policy.
“Most firms recruit about two years in advance, so gauging the number of trainees is quite difficult. But we have always erred on recruiting less because of a certain nervousness.”
Beachcroft, Salans and Field Fisher Waterhouse, all of which kept on all of their 2005 qualifiers, each bade farewell to one trainee this year.
Withers saw the highest increase in trainee retention, keeping on 12 of its 13 September qualifiers in 2006 compared with only nine in 2005.
DLA Piper retained the most trainees of any firm in the top 50. It offered jobs to 63 of its 80 qualifying trainees, 59 of whom accepted places.
Just behind was Eversheds, where 58 out of 60 trainees accepted jobs. More than a quarter (17) of those were in the corporate department.
However, despite such exceptions, a wider twofold retention problem has materialised. The shortage of associates at the two to five years’ PQE level is not only the knock-on effect of firms under-recruiting during the the last market downturn. It is also the result of large numbers of associates rethinking the work-life balance away from the highly pressurised corporate and finance markets.
Law firms will have to up their game if they want to retain, motivate and recruit banking and corporate associates in particular, and they will have to spend more time analysing market fluctuations before defensively lowering retention rates again.