Duck the downturn

Dozens of lawyers were made redundant in the last recession, so should you be worried about the effect of economic woes on your chosen career? Ed Thornton speaks to recruitment experts about the best strategy for young lawyers wanting to survive the downturn

Legal Week's career clinic recently received an anxious message from a newly-qualified corporate associate at a US firm. No doubt having heard stories of the gruelling hours put in at such firms, the associate expressed surprise - and concern - that they were not exactly run off their feet. "I am concerned that the lack of work coming into the department will mean that heads will start to roll and I may be picking up my P45 sooner or later."

With the economy booming and M&A activity at record levels, the last four years or so have seen law firms busier and more profitable than ever, peopling their departments with handsomely-paid and hard working young lawyers. The complaints from junior lawyers about work-life balance have indicated just how busy firms have been, feasting on deal after deal as the world economy grows and companies indulge in a frenzy of investing and acquiring.

It does not require a degree in economics to be aware that the last six months have been a shaky time for the world economy, with the US subprime crisis inflicting some serious damage to global financial markets. In the UK, Chancellor Alistair Darling used his first budget speech to cut his economic growth forecasts as a possible economic crisis looms.

While much of the news coverage focuses on the consequences of the so-called 'credit crunch' for individual mortgage-buyers and consumers, there is evidence of anxiety among the UK's commercial lawyers about the situation.

A poll conducted by Legal Week at the start of this year found the country's top lawyers in a pessimistic mood about the economic outlook, with business confidence at its lowest rate in almost five years. The proportion of partners expecting double-digit revenue growth during the next 12 months stood at just 30% - falling dramatically from 70% at the same time last year and 66% last quarter.

If there is an economic downturn or recession, young lawyers could be forgiven for asking - like the newly-qualified (NQ) corporate associate - how secure their jobs will be. With burgeoning pressures on margins, how likely are law firms to keep on associates if there is not enough work for them?

Evidence from the last economic downturn provides some perspective. Following the dotcom bubble bursting in the early noughties, a number of law firms made redundancies after the flow of work began to dry up. For example, in 2003, Charles Russell made eight lawyers and 11 support staff redundant, Jones Day let 25 assistants go and Richards Butler showed the door to 12 of its lawyers.

And there are signs that the latest woes in the world economy are having a knock-on effect on some law firms - both here and in the US. On the other side of the Atlantic, Cadwalader Wickersham & Taft recently made 35 associates redundant while Dechert let 13 go.

In the UK, meanwhile, late last year Dickinson Dees cut 17 staff from its re-mortgage division, with the firm's senior partner, Robin Bloom, telling Legal Week: "We can see very quickly where the market is going and there is no point retaining a lot of staff if there is a decrease in the number of instructions coming through."

Meanwhile, in-house lawyers at finance powerhouses Deutsche Bank and Morgan Stanley are feeling the pinch of the credit crunch with legal roles being cut in both banks' UK mortgage and property divisions. Deutsche cut at least one legal position in its commercial real estate division in the wake of the bank announcing 300 job cuts worldwide following write-downs of E2.2bn (£1.64bn) in the third quarter of last year. Morgan Stanley said that its UK-based mortgage lending business' one-lawyer legal function would be impacted by cuts across that part of its business.

Scott Gibson, head of the London office of legal recruiters Hughes Castell, says commercial law is more vulnerable to the ups and downs of the wider economy than it used to be and is therefore not protected from the consequences of a recession. "The days of thinking you have a job for life have gone," he says. "Firms are not intrinsically unstable but there were departments that made redundancies last time. They are under pressure to keep profits high and one way to do that is not to have people sitting around bored."

Another recruiter observes that some City firms tend to have a "feast or famine approach", recruiting heavily in the good times and paying their junior lawyers very large salaries, but trimming their staff heavily during the bad times - arguably a veiled criticism of the smaller US law firms' hiring strategies for their London offices.

One possible problem is the sheer amount of money currently handed out to junior lawyers. NQ lawyers at top 10 City firms such as Clifford Chance and Simmons & Simmons can now expect to take home £63,500, while Herbert Smith and Linklaters pay £64,000 and Freshfields Bruckhaus Deringer and Allen & Overy offer £65,000. US firms in London, meanwhile, offer mouth-watering packages with Shearman & Sterling paying its NQs £75,000 and White & Case offering £76,000. Other firms, including Latham & Watkins pay more than £90,000.

"Lawyers are now paid such large amounts - particularly at junior level, where the increases have been happening - that they are too expensive," says Gibson. "Newly-qualifieds are very possibly going to find there are not enough holes for them. When the music stops there aren't going to be enough seats to sit on."

Simon Firth, trainee development partner at Linklaters, acknowledges that an economic downturn or recession might make it more difficult for NQs to find their first job. "Firms stop recruiting to anywhere near the same degree as in a boom because not as many people leave," he says.

But he adds that those who are about to start or are currently undertaking a training contract should be relatively confident: they have two years of effectively guaranteed employment and a strong chance of a job offer, even if the economic outlook worsens. "At the bottom of the last recession we were still taking on 90% of people who wanted to join us, which isn't a massive fall," he says, adding that 100% of the latest round of NQs who wanted to stay on at the firm were offered jobs.

Law firms themselves cite the amount of money they invest in trainees as one of the reasons they are not inclined to let them go easily. "It would be very short-sighted to pay trainees a lot of money to come in for two years and then tell them to go away," says one partner at a City firm. "We take a long-term view and new blood is vital for the growth and stability of the organisation - therefore we want to encourage people to stay."

One head of recruitment at a national firm insists there will not be any knee-jerk reactions. "I have not been told to cut down on numbers. We keep an eye on costs but recognise you need to put people in at the bottom."

Firth says the number of training contracts offered by his firm is unlikely to change significantly. "When we recruit we are recruiting two years ahead of [a student] joining the firm and four years ahead of qualifying, so there is no way of judging how busy we'll be. So you have to have a relatively fixed number designed to cover the good and bad times."

Rather, what tends to change is the number of NQs employed on a short-term basis. During very busy periods firms will employ significant numbers to deal with the sheer workload, but cut back when they are not required.

Still, many in the market think it inevitable that firms will make cuts. Jonathan Benjamin, director of private practice recruitment at the London office of Laurence Simons, says that it is firms that recruit for the sake of it during boom times that will suffer. Therefore, he advises students pondering which firm to apply to for a training contract not to be lured by sky-high salaries. "It is important to look at the firm and what it is doing. Forget about the money, instead look at the firm's structure and client-base and geographical presence."

Indeed, a firm with a diverse range of clients in different locations will be better protected if conditions worsen in a particular practice area or market. As Clifford Chance London managing partner Jeremy Sandelson told Legal Week following the revelation of low business confidence among the UK's senior lawyers: "There are still many countries out there where liquidity is not an issue. The law firms which are more likely to face difficulties in a serious downturn are those that are over-reliant on domestic clients or one specific area."

Indeed, one piece of advice that budding lawyers could take if they want to guard against economic downturns is to think more broadly about which practice area they would like to specialise in.

"Litigation and restructuring have been fairly quiet in the last few years but we are seeing those areas picking up," says Benjamin, who adds that it is also worth considering specialising in areas that people cannot live without, such as tax and pensions, where there are always more vacancies than lawyers with the required expertise.

At the same time, demonstrating the ability and willingness to work in another practice area that is currently busier will be looked upon favourably by the firm. As one reader advised the corporate associate worried about the possibility of looming redundancies in their department: "Show you are flexible and that you understand that a law firm is a business. Speak to the partners you work for and let them know that you would be happy to help out in any areas of the firm that are busy - perhaps emerging markets work or restructuring."

"By showing this kind of attitude you will ensure that, if they do let people go, you will not be in the first wave," the reader adds. "Use this as an opportunity to broaden your experience."

Another option for lawyers with a few years' post-qualification experience (PQE) is to consider moving in-house. While the pay is less than in private practice and the teams are smaller, the advantage of this is that the company is more likely to be able to afford to retain its relatively few junior lawyers.

"If you do decide to go in-house you are probably slightly safer than you would be as a junior in private practice, partly because of the size and structure of in-house departments, where juniors make up a smaller proportion of the department," says Rachael North, an in-house recruiter with Laurence Simons.

That is not to say that in-house legal teams are not sometimes cut but, as North points out, redundancies tend to affect the more senior lawyers such as general counsel. For example, when Reuters announced cuts to its legal department in 2003, the main way it saved costs was by letting its general counsel go and combining the role with that of company secretary.

This can also provide valuable career opportunities since the company, eager to rein in costs, leaves the junior people to run the show.

Whether in-house or in private practice, the reality is that some lawyers do experience redundancy, either because of economic circumstances or other reasons such as a merger or departmental restructuring.

One obvious worry is how this will impact on future career prospects, as one associate with four years' PQE recently told Legal Week's Career Clinic, having been offered a redundancy package. "I am very attracted by the pay-off, if it is what I expect it to be, but am worried that I will have my card marked and struggle to find another job."

The experiences of other readers suggested that, if the worst does happen and redundancy becomes a reality, it is not the end of the world. "I took voluntary redundancy last year when the company was taken over and it did me absolutely no damage in the job market," wrote one reader, while another said that each time they were shown the door they subsequently found a better job.

Indeed, for another reader being made redundant ended up paving the way to a better life altogether. "I got a better job afterwards and bought a house in France with the cash, so it is difficult to have any regrets."

Ultimately, when mapping out a legal career, it is important to consider long-term factors rather than worry about the short-term health of the economy and its effect on your career. "I am not in favour of people taking decisions about their entire career on the basis of what is happening in the market in the next 18 months," says Firth. "The primary consideration should be what do you want to do with your career? What interests you? If you are good at it there will be work available."

Indeed, the only way to ensure your career is as recession-proof as possible is to be extremely good at what you do. As the recruitment manager of a major national firm says: "If you are good enough, you'll ride anything out."

Boom time for insolvency lawyers

While corporate and finance have been considered the sexiest practice areas in recent years, students mulling over the specialisms on offer would do well to think of other options - especially if there is a worldwide recession and deal work starts to dry up. The counter-cyclical practice areas most in demand during bleak economic times are restructuring and insolvency - when teams of lawyers step in to rescue a stricken organisation or, if its condition is fatal, wind things up.

In the US, restructuring and insolvency work proved highly lucrative for law firms following the collapse of companies such as Enron and Global Crossing. And there is evidence of growing demand on this side of the Atlantic as well.

Michael Rutstein (pictured), a partner in the reconstruction and insolvency group at Denton Wilde Sapte, says: "We anticipate, whether there is or is not a recession, that there will be more insolvency and restructuring in 2008 and 2009, so it is something that is an attractive option to students."

Even when the rest of the economy is booming, insolvency and restructuring practitioners are kept busy when particular industries get into trouble for reasons not attributable to wider economic circumstances.

For example, after a sudden drop in the energy price in 2003, British Energy underwent a two-year restructuring process, involving the restructuring of £15bn of nuclear liabilities and £1.2bn of debt. The process was overseen by Clifford Chance, which reportedly scooped more than £25m in adviser fees - demonstrating how lucrative this practice area can be for firms.

Other major restructurings that have taken place in recent months include that of Eurotunnel which was advised by Freshfields Bruckhaus Deringer, Weil Gotshal & Manges and Herbert Smith on a complex process that saw it attempt to come to an agreement with its creditors to reduce its £6.2bn of debt.

Aside from the increasing demand, Rutstein says that specialising in restructuring and insolvency gives the lawyer access into other practice areas. "A lot of insolvency touches on security, banking and finance documents and at one end our skills are really a type of finance lawyer," he says. "It is very varied and touches on practically everything else - I am working with real estate, corporate and employment lawyers, not just my own colleagues."

Consequently, the skills are transferable. "People who do bank restructuring can move into other types of financial work when there is not so much restructuring work around," says Rutstein. "We have a very large insolvency practice and can feed if there is a downturn but, when the opposite happens, people will go and do corporate and finance work - they have that flexibility."

Indeed, Skadden Arps Slate Meagher & Flom's relationship with Carlyle Capital is a case in point: the firm advised the company on its flotation last year but also landed a lead advisory role on its liquidation after it defaulted on debts worth $16bn (£7.8bn).

However, a career in restructuring and insolvency may not be for those drawn to a legal career expecting the thrill of high-volume deals with big-name clients but lacking an interest in hard law. "You have to be interested in the underlying law," says Rutstein. "I have found it extremely intellectually challenging - it requires commercial acumen as well as knowledge of the law."

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