Focus on slimmer, fitter firms

More redundancies are likely as firms merge or revise their markets reports James Swift

News that Britain’s output fell by 0.7 per cent in the second quarter of 2012 – the third consecutive quarter of negative growth – will be a wake-up call for anyone in the legal market still bullish about an economic recovery.

That said, the number of law firm redundancies announced this year suggests there were not many optimists left anyway. Since the tail end of 2011, starting with Linklaters, firms have been restructuring and making cuts on a scale not seen since 2009.

But while the bulk of the redundancies made in 2009 were simply to adjust to the leaner, post-Lehman market, firms are now giving a variety of reasons for binning lawyers and staff.

The first reason, and probably the most common, is the same as the one that drove cuts in 2009. Firms have too many lawyers and staff in practice areas that, because of the lumbering economy and the changing legal services market, are not making money like they used to and are not likely to again.

Shoosmiths is the most recent example. In July the firm announced 86 fee-earners and support staff, mostly in its Basingstoke volume motor personal injury team, had lost their jobs. The cuts were part of a strategy to move away from the bulk processing work involved in personal injury cases and instead focus on conveyancing, medical negligence, high-net-worth wills and probate, and complex serious injury and mixed liability litigation.

Similarly, Maclay Murray & Spens confirmed in June it was making two lawyers and four support staff redundant in its Glasgow private client team so it can focus on services more closely aligned to client needs and, according to a representative, “deliver long-term profitable growth for the firm”.

Also in June, Charles Russell said it was consulting with nine staff members, while Herbert Smith concluded a round of redundancies in London when 43.5 full-time equivalent jobs were cut, including some 23 fee-earners in corporate and real estate. In May, Mayer Brown announced it was consulting with 20 lawyers and staff in London, while Dundas & Wilson axed 30 staff after reviewing the “nature and level of demand for its services” in April. Field Fisher Waterhouse laid off two London lawyers in its public and regulatory group in February.

“The redundancies in 2009 were firms’ first reaction to the crisis but they didn’t make enough because they hadn’t seen [a depressed market] go on this long,” says Tony Williams, principal at consultant Jomati. “But now even the most bullish people tend not to see recovery as likely this year so they just think that they might as well get on with it.”

Painful though they may have been, the redundancies mentioned at least followed an established narrative. But when Clifford Chance announced in March it was cutting 13 associates in its London capital markets and finance practices it caught the market off guard with its reasoning.

David Bickerton
David Bickerton

In a statement, London managing partner David Bickerton said: “We’re proposing to make a small number of lawyers redundant in London. Our business is very strong and resilient and we continue to grow. However, our attrition has fallen significantly and we have a programme of trainees and new qualifiers coming through.”

Essentially the firm was doing fine but cutting senior lawyers to make way for younger ones. Few doubted the authenticity of the statement – Clifford Chance topped Mergermarket’s 2012 half-year global M&A table by volume, doing 102 deals worth almost £1.2bn. But one City firm managing partner told The Lawyer he would never do the same for fear of what it would do to morale.

And Clifford Chance was not the only firm to make cuts to remove a bulkhead of senior lawyers. Addleshaw Goddard followed suit in June by stating that 24 fee-earners (mostly managing associates and legal directors) were at risk of losing their jobs.

“The sad fact is that you have very little mobility in law firms at the mid-seniority level at the moment but the traditional firm model works on a level of attrition that we’re just not seeing,” says Williams. “Also, because the markets are slow, people are getting more senior and moving up the ranks but they’re are not getting the same amount of experience at the coal-face. So firms are having to do what the market isn’t doing for them.”

The final category of redundancies seen this year comes from mergers. Pinsent Masons confirmed in June it was consulting with 40 support staff in a bid to eradicate any duplicated roles in the wake of its merger with McGrigors. Likewise, Shakespeares’ chief executive Paul Wilson, has said redundancies are likely following his firm’s £50m merger with Harvey Ingram.

Mergers have always created surplus roles but now overheads are driving consolidation.

“Mergers mostly used to be done for growth reasons,” says Giles Murphy, a partner at accountant Smith & Williamson. “Now we’re seeing a lot more defensive mergers.”

It looks like the market should brace itself for more redundancies yet.