Lawyers are bracing themselves for the worst as economic conditions deteriorate, with only a third of partners feeling secure in their jobs.
As we reveal today, only 15 per cent of associates feel safe from redundancy, while only 34 per cent of partners felt strongly that they were secure in their jobs, according to the YouGovCentaur survey of nearly 2,000 legal professionals (see story).
“It doesn’t seem to be a slash-and-burn approach to mid-ranking associate levels,” says Jonathan Glass, chairman of executive search firm Glass Consultancy. “In fact, there has probably been an under-reporting of how many partners have been asked to go or have been de-equitised. That will only become clear over the next year or so.”
At the height of the boom in ;August ;2006, ;The Lawyer;reported ;that corporate teams were struggling to cope with M&A work because of a lack of associates with two- to four-years’ post-qualification experience. The story highlighted what Glass called at the time “the old boom and bust story that the legal market never learns from”.
Glass says that this time around firms seem to have learnt. Support functions are taking a bigger hit than associates, but there may be more redundancies to come for fee-earners. The findings of the YouGovCentaur survey suggest as much.
Respondents at 44 per cent of firms across the market reported redundancies at their firm. This peaks at 56 per cent among those at firms with an annual turnover of between £1m and £5m, and 54 per cent in mid-market firms with a turnover of between £25m and £50m. Among the top 50 firms – those with a turnover of more than £50m – the figure remains fairly consistent at 40 per cent.
“This is only the beginning,” warns outsourcing partner Andrew Rigby of Brodies. “One hopes law firms won’t cull so many people like they did in the 1980s, when they couldn’t cope when the markets came back.”
There seems to be little complacency among partners – 60 per cent of whom agreed that the economic turmoil necessitated a fundamental change in the way law firms run their businesses. There may not be complacency, but there is little imagination.
“I don’t think they know what they’re talking about,” says typically blunt consultant Alan Hodgart of H4 Partners. “Everyone seems to be talking about increased leverage, which isn’t a fundamental change to the business model.”
A lot of managing partners interviewed for this piece talked about the financial precautions that law firms should take. But, as Hodgart says, that amounts to little more than good housekeeping, not fundamental change.
Another area for change would be in fee structures, but even clients have proved a little reluctant to let go of the hourly rate.
One sector of the market that does need change, says Hodgart, are firms of between 100 and 300 fee-earners, which have risen to mid-market status on the back of the boom but are having to contract in the downturn and focus on core clients.
“They need to commoditise,” claims Hodgart. “Partners should be supervising but not doing the work. Delegate it down properly and take into account how to standardise documentation using technology. That situation has been bubbling under for some time but the economic conditions have brought it to the surface.”
Rigby agrees. “Law firms are terrible at reinventing the wheel,” he says. “I don’t think firms are really very good at building on their knowledge bases. Even complicated deals can be streamlined. And even firms that have banks of know-how aren’t using it properly. They aren’t managing their intelligence in a good way.”
Flight to quality
Those at many of the UK’s larger firms are more confident, banking on the cliché of a “flight to quality”.
Denton Wilde Sapte chief executive Howard Morris is one of those hoping for a “re-emergence of the traditional virtues of the profession”, adding: “There’s been a move toward greater commoditisation and the idea that you can drive down costs by using fewer staff. We’re seeing a flight to quality. With volumes of work dropping, the drive to commoditisation is also dropping.”
This time last year, The Lawyer asked managing partners for their predictions for the year ahead. Nearly all were banking on emerging markets to mitigate the prevailing market conditions, with China, India, Russia and ;the ;Middle ;East mentioned again and again.
After a tough year, it seems their faith in those markets has evaporated. Only three per cent of the 2,000 interviewed strongly believed that new work from emerging markets would be enough to help firms through the recession. And the figure even goes down among those with the largest international networks. Only two per cent of partners at firms with a turnover of more than £250m strongly agreed that emerging markets would be their saviour.
Allen & Overy senior partner David Morley was one who was convinced his firm was well-placed due to its strength in emerging markets – a feeling he reiterated when he was elected senior partner in February.
The tumultuous events of autumn have left him cautious but ready to adapt rather than die.
“It turns out the business cycle hasn’t been abolished, so we need a model able to adapt more quickly and flexibly to peaks and troughs,” says Morley.
“Enough sector specialists have been caught out to make diversification a new religion.”
While Morley believes it is too early to call for a fundamental overhaul of business models, it is clear he expects change. “Although I don’t subscribe to Armageddon theory, the damage in financial services has been severe,” he says. “The shape, size and direction of the market will be very different in the future.”