CC job cuts: predictable, shocking, unresolved

[image_library_tag 798/85798/cc.jpg' width="220" align="left" vspace="5" border="0" />The suspicion that law firms cutting staff has become old news has been disproved today by Clifford Chance (CC), whose announcement that it is consulting over 70-80 lawyer redundancies in the City has set the wires buzzing.

On current form, the story will drive legalweek.com to its busiest day for web traffic by a country mile, and is even in danger of overtaking the web phenomenon that was Shearman’s unhappy brush with a lap-dancing club. All that before you get to sizeable reports in UK broadsheets, major news wires and The Wall Street Journal.

All this attention comes despite a move that, on one level, was hardly out of the blue, not least because the firm had already announced 20 job cuts in the US last year. As Legal Week reported in December, partners had also already indicated that it was likely that CC would be gearing up for job cuts in the City early in the new year after a tough first half that had seen revenue fall by 5%-7%. One head of a magic circle rival even described the today’s move as the “City’s worst-kept secret” and professed surprise the cuts were not deeper.

Yet for all the forewarning, there’s no denying the significance of today’s events. For one, CC has become the first top-tier City firm in recent memory to launch a formal redundancy process for lawyers, breaking what was considered to have become a taboo for its peer group. Likewise, the depth of the expected job losses, which equate to nearly one in 10 of CC’s 880 City lawyers, is one of the deepest package of announced cuts yet seen in the UK from any tier of a law firm. And unlike in the US, where litigation was singled out, CC’s cuts are expected to come across the board. The assistant redundancies are likely to be followed by a process for support staff.

There are two obvious conclusions to be drawn from CC’s actions. First is that this recession is now pushing the legal profession to the point where once-unthinkable decisions in are rapidly becoming reality. This was further underlined when Latham & Watkins – of all firms - in late December became the first US law practice to freeze associate salaries since the early 1990s.

The second is that, while all major City firms are clearly now feeling the brunt of the global recession in earnest, CC is that little bit more exposed than its peers. While highly leveraged capital markets businesses and a market-leading European private equity team are wonderful assets in easy credit markets, in current conditions they are a heavy burden. Likewise, there is a consensus, which CC doesn’t entirely dispute, that the firm has yet to secure its fair share of the restructuring and insolvency mandates on offer, leaving too much running to Linklaters and Freshfields Bruckhaus Deringer. Such a failure, if continued, will leave the firm dangerously exposed.

Neither are these easy conditions for a corporate practice that, private equity aside, never quite made the time investment in cultivating its wider plc client base, even compared to Allen & Overy (A&O).

There must also be some concern that CC - having already waged war on costs during the boom - has less obvious spare capacity to trim than some of its rivals. Renewed evidence of dissent and poor performance in its US practice, which carries massive symbolic significance for the firm, is also troubling.<, title="CC" height="306" alt="CC" hspace="10" s practice during its troubled 2002-04 years has yet not been repaired. Effective cost control, greater partner discipline and booming markets certainly stemmed the damage and led to something of a revival. But underlying issues with the firm's practice and ability to develop business still remain. In this context, short-term restructuring of the practice is probably a necessary evil, but it is dealing with these underlying issues that will be a tougher challenge even than this painful episode.