That is the message coming from the latest Legal Week Big Question survey, which found that nearly two thirds of respondents (62%) believe that current market conditions will see staff turnover fall, while a further 5% said it would fall ‘drastically’. In contrast, only 13% thought that staff turnover was set to rise.
“When the economy is down there is a natural and understandable tendency to ensure that your firm is running as efficiently as possible,” said Taylor Wessing managing partner Michael Frawley (pictured right). “In these circumstances I suspect retention rates will drop in order to reduce costs and maintain profitability.”
The City firm historically has an annual staff turnover rate of 15%, according to Frawley, putting the firm in line with many of its competitors.
Berwin Leighton Paisner managing partner Neville Eisenberg (pictured below left) said it remained important for law firms to ensure that they are retaining their staff through the economic cycle. He commented: “We invest a lot into our associates and work hard to keep them.”
The survey found a broad consensus over an appropriate rate for law firms to aim for annual staff turnover, with 40% claiming that law firms should aim for a rate of 5%-10%, while a further 40% cited 10%-15%.
Seventy percent view the current level of turnover of legal staff at their firm as ‘about right’, with 16% stating it is ‘too high’ and 9% believing it is ‘too low’.
There is also speculation that turnover rates are likely to drop as vacancies with banks are sparse and associates are less likely to take up in-house positions as a career move.
“In the case of big firms, they have been losing people to financial institutions,” said Hughes-Castell director Scott Gibson. “That [rate] will reduce because financial institutionsare not hiring.”
However, while more assistants are expected to stay put in response to the uncertain economic climate, there is widespread expectation that law firms will be raising the bar in performance reviews after a period in which less able junior lawyers were tolerated.
Seventy-eight percent of respondents believe that City firms will put in place tougher performance reviews in response to less buoyant market conditions. In addition, a further 15% said reviews would become ‘very much’ tougher as firms are ‘carrying too many low-performers’. Only 7% believe that reviews would remain unchanged or that law firms would seek to improve retention.
Commenting on performance reviews, Frawley told Legal Week: “When there is a credit crunch people are less charitable and more likely to make tougher decisions in order to maintain performance.
“We introduced a rigorous review process three years ago and we will not need to modify it to take into account any downturn in the market.”
The survey, based on the responses of 153 partners, found mixed views on whether law firms generally seek to mask economically-driven cuts on performance grounds.
Thirty-nine percent thought that performance problems were used as an excuse for exiting staff due to falling activity levels, while 11% thought firms ‘often’ used it as a technique and 41% thought it was ‘sometimes’ used to cover up for falling activity levels.
One responding partner commented: “When all is going well, there is limited pressure on headcount. When things go bad, practice group heads are asked to look at headcount. Inevitably, they take a Darwinian approach and seek to lose the poorest performers, while keeping those they know will perform in an upturn.
“The poorest performers may well be asked to leave as work drops off, but their performance is not an excuse; it is the reason why they are going.”
The poll comes as a string of major City law firms have announced reviews of their associate salary bands, with Linklaters and Clifford Chance among those confirming modest rises.
Allen & Overy and Herbert Smith have left their rates unchanged, though assistants typically still see annual rises through the assistant track as they gain more experience.
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What the partners said
"Hopefully the present uncertainty will be shortlived, although a consequence of that will probably a rise in staff turnover again."
"A certain amount of turnover is healthy. Some people fail to live up to initial promise, there is a need to create headroom for more junior lawyers and 'good' leavers may become better clients. Finding the right amount is the tricky bit..."
"There are always people performing at a lower rate than the 'average' - there have to be. A decline in work enables management to focus on those performing at below that level - maybe more law firms should look at this on a more consistent basis, to keep people on thier toes and thereby improve profitability, without necessarily affecting retention rates... at least, once the system has stabilised."
"Confidence in law firms to recruit will reduce from the heights seen in the last three years, which was unrealistically high. This is therefore an inevitable market correction."
"When times are booming, every business enterprise - including law firms - seeks to retain and use their human resources. When times are not booming, they may look a bit more closely at the weakest links but are unlikely to do an arbitrary decimation (in the true sense of the word). There is no optimal level of staff turnover in a law firm. It depends on the needs of the firm at any given time."
"The current batch of associates haven't seen a downturn. They have been blessed with a market that has allowed them to move when they feel like it. They would be well advised to stay put in the current climate and see how things pan out, even if that means adopting an 'any port in a storm' approach and taking a short-term hit on remuneration."
"Firms will look more closely at performance during any downturn. When busy, firms may be prepared to keep associates whom they would not be prepared to keep during difficult periods."
"Generally, most law firms bury their collective heads in the sand when dealing with personnel issues. Many partners will mumble and complain about support staff and professional staff but rarely do anything about it if it is up to them - they want to avoid direct conflict and sometimes the problem is with the partners, at least in part. The ecomomic slowdown will provide something of an opportunity for firms to move some of the deadwood but they need to be careful because unless the partners act first and carefully, the wrong people (i.e. the support and professional staff they want to retain) could leave. At the beginning of downturn cycles, the firms will be slow to initiate any redundancy programme and will be especially slow to be the first to do so. Also, firms are fearful of letting go people too early in the cycle, in case the downturn is very shortlived. Previously, firms' reputations were hurt by a hasty and badly-managed redundancy programme and subsequently such firms found it difficult to re-hire. However, only some firms will get the balance right because in the other firms, if the partners get the sense of a dramatic (on a subjective basis!) reduction in their income, there will be knee-jerk reaction and all hell will break loose."
"The time to use performance reviews to get rid of people has gone - there are no other jobs to go to."
"It has been a seller's market for so long there are very few associates who have any experience of the effects of a slowdown. We don't yet know how bad it will be and, for the time being, activity levels are holding up pretty well here, but jobs are likely to be harder to find than they have been - trainees approaching qualification and senior associates looking for partnership seem well aware of that already and we are seeing a lot more CVs than last year. At the same time, the attraction of US firms and investment banks, for instance, will be reduced and we expect increasingly to hold on to our best people. There is also an opportunity to recruit surplus talent twiddling its thumbs elsewhere - well-managed firms won't have many underperformers these days."
"When all's going well, there's limited pressure on headcount. When things go bad, practice group heads are asked to look at headcount. Inevitably, they take a Darwinian approach and seek to lose the poorest performers while keeping those they know will perform in an upturn. So the poorest performers may well be asked to leave as work drops off but their performanace isn't an 'excuse' - it's the reason why they're going."
"In a downturn it's more likely that a team within a firm is less willing to tolerate performance problems and therefore feel more compelled to address them."
"The slowdown will have a significant effect on the big UK firms in the current financial year. Watch for less trainee retention, more performance-based exits and a quieter recruitment market."
"We hope to benefit from increased staff turnover from other major London firms as we are looking to hire."
