A calculated risk

You have to give Clifford Chance (CC) credit for not being cowed by the weight of general opinion. After all, the received wisdom in the US is that you simply do not lay off litigation associates in a downturn – not in a market that puts so much faith in dispute resolution.

So CC’s shock announcement on Tuesday (14 October) that it is to make 20 associates redundant in its US disputes group would not be without risk for any firm. But that goes double for a foreign outfit with CC’s baggage, picked up courtesy of an initially troubled union with Rogers & Wells and further burdened by ill-fated Californian ventures and associate memos; in the US a reputation for being quick to fire associates can dog a firm for years, and CC has already had to put up with more than its fair share of sniping.

Sure, CC had already laid off a six-lawyer team in its structured finance team in November last year, but that clearly went with the grain of a market braced for heavy cuts in the mortgage-backed securities market. The latest job losses, which are equivalent to cutting nearly a fifth of its US disputes team, send out an entirely different signal.

CC, for its part, argues the move was a direct result of the failure of the much-touted litigation boom to materialise. Under this analysis, the firm had waited a year with a staffing level above its needs in anticipation of work that never materialised. It argues that what has been seen of the litigation upturn has been shared among a tiny handful of firms and that many US practices are currently running with under-utilised teams and too much wishful thinking.

In particular, the market for intellectual property litigation has tailed off and banks, despite being widely targeted by litigants, are choosing in the current uncertain environment to settle claims quickly rather than fight it out.

CC also remains confident that its US partnership is now in the right shape, having by 2006 put the infighting behind it. The practice is still acknowledged to be underweight, accounting for just 14% of its £1.329bn turnover in 2008, and CC remains on the hunt for lateral partners in the US (current indications are that CC has “no plans” for further cuts, either to other US practices or in other offices).

The firm will also have mitigated some of the damage by making a point of explicitly bracketing the cuts as economically-driven and handing out reasonable exit packages. Still, a calculated risk is still a risk. CC has slogged long and hard to improve the image and morale of its US operation and achieved considerable success in recent years. Some will wonder whether tolerating a little over-manning in litigation would have been a fair price to safeguard that progress in a market of such strategic significance.

Of course, if other US practices ultimately struggle with a lack of litigation work and have to make cuts, then CC will be seen to have taken unpleasant but necessary and decisive action. If that obviously doesn’t happen, the firm’s reputation – and ability to recruit quality associates– will take a substantial knock Stateside. Well, no one ever said running the world’s largest law firm was easy.