Property predicted to stay in the firing line but partners warn that the wave of redundancies and lack of transparency will impact on law firms’ reputations. Emma Sadowski reports on the results of the Big Question survey
Almost half of partners believe lawyer redundancy programmes have a major negative impact on law firms’ reputations, according to new research.
The latest Legal Week/Big Question survey findings follow several City firms — including Freshfields Bruckhaus Deringer and LG — announcing job losses as a result of the credit crisis, following in the wake of a stream of redundancies at national and regional firms.
Despite the number of firms announcing redundancies to date, results from the survey show that 39% of respondents think publicly laying off lawyers has a negative impact on firms’ reputations, with a further 6% arguing that the effect is ‘very bad’ and hard to shake off.
Only 16% of the 135 respondents said reputations are unaffected by redundancies as people understand that law firms are businesses and need to respond to market conditions. A further 39% felt job cuts had a ‘minor’ impact.
One magic circle corporate partner said: “Redundancies will have an impact on a firm’s reputation in the recruitment market. Firms have to be properly run, and taking a hit in recruitment could be damaging.”
Given the stigma associated with formal redundancy programmes, respondents concede that law firms often try to pass off market-related job cuts due to poor performance of individual lawyers. More than 20% said this happened either ‘often’ or ‘very often’, with a further 45% admitting it ‘sometimes happened’. Only 6% said it ‘never happened’, with the remainder saying it was an occasional occurrence.
Slaughter and May executive partner Graham White (pictured above) said: “Firms have to look at performance when work is thin… if there are redundancies that could affect the firm’s reputation when it comes to recruitment.”
Half of respondents believe firms could improve the transparency with which they treat staff cutbacks due to the economic climate.
Around 45% said firms ‘could do better’ in terms of openness and transparency, with a further 6% claiming firms ‘habitually’ cover up when they seek to cut back staff as a result of market pressures. Only 2% said there was a culture of transaparency within law firms on the subject.
However, most partners (73%) still argue that firms generally communicate formal redundancy programmes fairly, with only just over a quarter saying firms handle them ‘poorly’ or ‘very poorly’.
Real estate departments have born the brunt of many of the redundancies to date and the practice was overwhelmingly cited as the most likely department to face further lawyer redundancies over the next 12 months by respondents, being highlighted by 89.5% as one of the two most vulnerable practice areas. Capital markets, structured finance and general banking were also seen by many as likely areas for cuts. 
Despite the number of firms making property cuts, one City commercial real estate partner said: “We are recruiting where opportunities arise. For firms with vision and strong nerves, now is the time to invest in the future and prepare for an inevitable upturn.”
Employment was the only named practice area not to score a single vote, with intellectual property and litigation also faring well. Several firms are actively seeking to bolster their litigation groups in preparation for an anticipated surge in contentious work as the markets continue to dive.
Norton Rose litigation chief Antony Dutton (pictured right) said: “We were already busy prior to the impact of the credit crunch, which is now fuelling further growth and [further] growing the team is one aspect of our strategic plan for the dispute resolution group.”
In other findings the survey found that partners fear they will also be targeted as top City firms tighten their belts in response to the market downturn. The results show that 86% of respondents believe partners will be affected by cost-cutting measures at law firms, with 26% believing they will be ‘considerably’ or ‘very much’ affected. Only 16% of the 135 respondents said partners were unlikely to be affected much by the cost cutting.
Some law firms are getting better at being honest about job cuts. If you are open about a redundancy programme, people accept it and there will probably be little long term damage to the firm's reputation. If you cover up redundancies as performance management, your people won't trust your honesty, won't forgive you and you will be damaged at least medium term.
The flipside of the profession's self-projection as being commercially aware like their clients is the need on occasions such as redundancy programmes to act commercially to protect the jobs of the majority who remain in the firm. Hard decisions need to be made fairly and transparently and implemented humanely.
For firms with vision and strong nerves, now is the time to invest in the future and prepare for an inevitable upturn. Partners should take home less to try to remaining preserve jobs.
Different firms will have different requirements. Firms that are in decline in any event, will use this time to clear the deadwood. Some of the firms which have been doing will use this time to consolidate and decide how to shape their practices going forward, others may not take this opportunity. Good lawyers will always be needed, not so good lawyers are more noticeable in tougher times, so they are doubly exposed.
As an associate, I understand that redundancies fuelled by market conditions are entirely outside the law firm’s domain. Hence, in these market conditions, I think redundancy is not bad and does truly reflect on the “law firm” as such.
However, being honest and open about it (like Freshfields) is critical. Any form of "performance" related stealth clearly reflects that either the law firm is untrustworthy or that the law firm had bad lawyers (which then begs the question regarding consistency of the quality within the law firm). I think, unlike some of their peers Freshfields have set a good example and deserves an applause.
To me, as a partner, the really important criterion is preserving profit per equity partner- a key benchmark of firm reputation, one which we all look at, rather than any reputation management in terms of assistant redundancies. The latter is often code for criticism by the legal media, which can be misplaced, as trite journalism to get attention from assistants.
Associate discontent is important, but not as fundamental as ensuring the partnership as a whole does not suffer by partner defections. The loss of partners is, in my view, the most dangerous type of relationship breakdown a firm faces.
Ensuring that those who supply the intellectual and financial capital of the firm continue to enjoy a healthy return on their investment, and that key teams and practice heads are secure is fundamental.
Enjoying that the level of associate support we have, isn't more important that reviewing it so see if it is the right one, and shouldn't be underestimated. It is a perfectly valid business consideration.
Partners pay a cost too, not least in terms of the human cost in time and energy, to run law firms; and if the financial costs increase, then, as owners, it is correct to look at how the business suits our clients and ourselves, and make decisions on performance and associate utility accordingly.
Performance criteria should be applied more rigorously in all directions including towards partners who are poor managers of their own businesses, whether by squandering and misusing associates' time, failing to invest in technology and working practices which will increase associate productivity and by over-recruiting rather than more proactively talent spotting. Partners who are both mediocre lawyers and who fail to bring in or retain clients effectively (but rely on the firm's brand or rainmaker partners) should also be subject to performance criteria. Older partners who have given the business much, but who have also taken their fair share should not be permitted to leech off more active partners and associates' work (unless they can present a good business case for remaining as partners. A deadwood partner is a much bigger drain on profits per equity partner than deadwood associates. Unfortunately, until firms become more commercial and separation of ownership and management of law firms is better achieved, it will be associates who bear the brunt of any downturn.
Nothing can be more damaging to a firm than rumours that it is wrongly using its appraisal system to performance manage out the solid and capable senior associates who were being courted to join it less than 12 months ago. Word gets out about this kind of behaviour, and it can build a lot of resentment. Hiding behind severely questionable, dressed-up 'capability' grounds in an attempt to avoid having to announce a lack of work to the market is nothing short of cowardly. Firms doing this at this very moment (you know who you are, and so do we) should be ashamed of themselves. Granted, you're in business to survive, but go about things the honorable way....... these are people's careers you are messing with.
There's a fundamental question of integrity here. A law firm acting in such a way as to cause its integrity to be questioned will ultimately suffer far greater reputational damage than a law firm that makes difficult decisions in a tough market but does so openly and honestly. Individually, solicitors are required to be of fit and proper character. It's interesting how traits such as honesty and integrity don't seem to translate when it comes to running a law firm.
AnoN is bang on the nail. Maybe someone should start a 'name and shame' campaign - that'll soon teach them!!
I am a casualty of an appallingly handled redundancy programme at a property West End firm. After eight years of hard working - dare I say it loyal service - I was cast off just as soon as the economic downturn kicked in, and performance was cited as one of the reasons - strange, as I had managed to survive eight years at the firm in the good times and suddenly I was now a bad lawyer in bad times...how convenient.
Partners do not wish to see a reduction in drawings, they would rather rid themselves of staff, pure and simple. As soon as the market turns again (which it will) they will be crying out for the very people they made redundant.
Firms which have grown too quickly on the back of conveyancing and who owe the banks are facing serious trouble. In this respect law firms are no different from any other business. The same lessons have to be learned over and over again. Well-funded firms with a solid client base built up over several generations together with enlightened managements are the ones likely to pull through.
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