A good war for Freshfields and A&O – the big four in the recession

"The two firms went down diametrically opposed routes, with Freshfields avoiding a recession-related restructuring during the downturn and A&O going for a short, very sharp shock..."

Alex, why are you writing this when everybody in the legal industry knows it is untrue? As you must be aware, Freshfields "managed out" huge swathes of associates during the downturn. A recession-related restructuring done on the sly and without making proper redundancy payments is still a recession-related restructuring.

Puzzled -08 Jul 2010 | 19:21

£34m, is that all?

Given A&O has opened significant new offices in Australia in the last fiscal year, an increase in turnover is surely to be expected?

Amanda -09 Jul 2010 | 09:10

To Amanda - all these evaluations are relative, but, yes, I would say that adding £34m in revenue over two years when your most comparable rival lost £132m (while also outperforming said rival on profitability) looks a respectable result. As it happens, the Australia launch went live in March so would have had only marginal impact on the 2009-10 results but there’s nothing wrong with building your revenues through strategic expansion.

To Puzzled - I don’t write anything that I know to be untrue. But let’s be realistic. Managing out is fundamentally built into the law firm model and career track. There is no sizeable law firm that doesn’t manage out associates and if they claim they don’t they’re lying. Most law firms that did formal redundancies would have managed out as well.

So the issue is not whether a firm manages out, it is whether it does it with sound judgement, sensitivity and a bit of basic decency. On that score, my sense – and I acknowledge that this is totally unscientific - is that Freshfields sometimes fell on the wrong side of that line during 2009 and so didn’t get anything like the morale upside it should have for not doing formal large-scale redundancies. Whether the firm was in the right or not, in a good number of cases it failed to effectively communicate its position to staff and in that context, perception arguably becomes reality.

I also get the sense that Freshfields acknowledges there was an issue and has been making efforts to rebuild the partner/associate trust. Whether that is working, I couldn’t say. While that is something substantive for the firm to address in future it does not in my personal view change the fact that Freshfields is, in business terms, at the top of its game.

Alex Novarese -09 Jul 2010 | 09:59

Alex, my mates in one of Freshfields' core banking teams say their group was decimated - the 'managing out' had little relationship to performance. Doubtless it was similar across lots of other teams.

anon -12 Jul 2010 | 14:24

Performance criteria applied evenly may result in the departure of so many partners at MC firms that they have to be quite careful about targeting. The more arbitrary the better. Pour encouragers les autres.

sector 7G -13 Jul 2010 | 09:44

Elephant in the room

Isn't the big issue that no-one seems to talk about the relative decline of Linklaters' corporate department?

They are being massively outmanouveured by Freshfields, Slaughters etc - just look at what has happened at BP, Travis Perkins etc.

A big problem in the making for Silk Street.

Steppenwolf -13 Jul 2010 | 09:57

FF stealth reduncancies

Freshfields went through a big restructuring before the crisis hit and therefore did not have to go through a big programme. They still went through stealth redundancies though. Sneaky sneaky...

The Frog -13 Jul 2010 | 16:58

Second-raters always bleat on about "stealth cuts". As if anyone good gets kicked out when times are hard! What? The business wants to deliberately sabotage its own chances of survival by getting rid of good people when it's under pressure?! Very, very rare.

Hmmm -13 Jul 2010 | 17:49

Ironic Hmmm??

Please oh please tell me "Hmmm" is being ironic (in an ever so flippant way)?

Why would a firm want to make 'stealth cuts' as opposed to openly calling them redundancy? Errr, I'd think the all too obvious reason would seem to be reputational - i.e. "gee, they must still be doing well despite the hard economic climate, if they don't have to institute redundancies..." being the desired conclusion for people on the 'outside' come to.

Similarly, if you honestly believe that everyone who has been made redundant during the 'crunch' is not very 'good', you are seriously deluded. The cold hard reality is that associates cost money (hoping you've grasped this!!) - a cost that is typically off set by the numerous hours they work and bill to clients. But... if there's no work to offset the relative cost of said associates, the firm has got to think of ways to reduce or eliminate this cost - whether through unpaid leave, redundancies, etc.

Admittedly, some firms have been better placed to weather the storm (i.e. they've got greater contingency funds/are willing to float the cost of the associates for a while), but when the storm gets too severe, even the big trees (i.e. firms) are gonna suffer some damage (and no longer be willing to float the costs of the associates). No doubt the economic climate has forced some firms to take hard look at who is and isn't pulling their weight, but clearly not all of the people cut can be crap. Such a conclusion would seem to be naive at best, shockingly dimwitted and deluded at worst.

Additionally, what about people in those practice areas where work has virtually dried up, and is likely to remain so for a pretty long time (e.g. M&A, or more recently, BSF related work)? Is it commercially sensible for a business to keep costly associates in these areas? Retrain/deploy where possible, but it's not in anybody's interest to have people sitting around doing nothing.

Assuming you were not being ironic, count yourself lucky Hmmm... it must be wonderful to be so insightful and no doubt a 'first-rater' who is 'good' (good at what, may however be open to interpretation...)

Dorothy Gale -14 Jul 2010 | 16:11

Dorothy - making stealth cuts for reputational reasons or to fool everyone that they’re doing great? WTF? Most firms are LLPs and so their numbers are widely available. Added to which, since most of the big firms made job cuts, what is this supposed stigma? I didn’t say that everyone who got edged out the door or made redundant was ‘crap’ or ‘not very good’ and actually I don’t think any such thing. But, yes, I do reckon that there is generally a judgement made on performance in redundancies and managed exits. But apparently you don’t. Which would imply that your logic is that law firms wilfully and illogically get rid of people with no regard as to whether they are assets to the business or not. Well, here’s a crazy notion I’m going to put out there: some – not all and probably not even that many – but some who get kicked out and moan about the injustice actually aren’t very good. By a strange coincidence this is exactly the camp likely to be the most vocal. That said, some people do get well and truly stitched up. Glad you think I’m a first rater. I made no such claim – like most people, I’m just trying to get by.

Hmmm -14 Jul 2010 | 17:19

Hmmm: you are assuming competence in management and the absence of a self-serving structure (partnership). It's not a meritocracy; get used of it.

hmm to your hmmmm -15 Jul 2010 | 08:37

CC pushed the envelope?

To think that CC was ever in danger of falling from its high horse is evidence of a fundamentally flawed understanding of how modern law firms should operate.

Luckily, I don't need to say much, they're back on top as #1.

Skeptik1 -15 Jul 2010 | 09:51

I am used to it - that's why I don't expect fairness, unlike most poor lamb associates. And it's just three ems, thanks. The other guy's an imposter.

Hmmm -15 Jul 2010 | 10:09

Frozen salaries, increased PEP - people who trained for 5-6 years to be lawyers made redundant.

Agree with the posters who disagree with Hmmm's narrow-minded 'survival of the fittest' viewpoint. I think it's a shame that greed is too deeply embedded throughout our society. Greedy politicians trying to maximise tax revenue through minimal regulation, greedy bankers trying to take short-term advantage of this, greedy partners trying to protect their PEP at the expense of the juniors when the going gets tough.

Anon2 -15 Jul 2010 | 16:48

ahh ha ha hmmm...

Hmmm - not sure I know of, or have come across many clients that review a firm's numbers before instructing (or think of instructing).

In my experience, most engagements are based on the impressions and perceptions a client has of a firm - impressions that I'm pretty sure are formed more by media coverage (and past relationships) than reviewing annual disclosures. If a firm is said to have been ruthless in culling its associate ranks while at the same time increasing PEP, I'd like to think that some clients (admittedly not all) might not find such actions acceptable. Then again, maybe it's me that's now being naive.

Re the redundancy stigma - in my view, it's not that making cuts is a stigma, on the basis of so many firms having had to do so (as you point out), but more that not having to make redundancies is seen as a 'positive', or a way in which to distinguish one firm from another. Similarly, some clients may regard a firm that is able to avoid making cuts as a firm that has been more strategic, forward-looking and proactive in managing itself during difficult times - skills and attributes I would think pretty much any client would value - whether in terms of their advisers managing themselves, or when assisting the client to manage their own legal issues (i.e. what client wouldn't want strategic, forward-thinking proactive legal advice??).

As to those who are made redundant not quite cutting it - I take your point that you did not say all that were cut were "crap" or "not very good", though it seemed to me to be the logical inference to be drawn from your remarks. Similarly, I mentioned that the tough times had forced many firms to take a hard look at who is and isn't pulling their weight, not that there is no such evaluation during this process (though you seem to think that's what I said/concluded??). That said, it's rather difficult to pull your weight when there's no work to be done!

Glad to hear you're willing to admit that some people have indeed been "stiched up".

I could of course be wrong, but it seems to me to be to be a slightly different tune than you were originally singing...

Dorothy Gale -15 Jul 2010 | 17:05

Yes, Dorothy, you are being naive. Not only did clients not think any worse of law firms that made redundancies, I know partners who reckoned they would have had a perception problem if they didn’t chop associates, on the basis of how would they explain that their firm had it so cushy that they could get away without cutting headcount. You think some large manufacturer or retail client that yanked 5,000 staff is gonna think better of Freshfields because Sebastian and Jeremy didn’t get the heave-ho?

Yeah, some people got stitched up. But plenty who moaned the loudest did not. During the boom a sizeable chunk of not-very-good lawyers were built up in the profession who were only tolerated because there was so much work and it was hard to get good people. There was always going to be a shake-out at some point. Added to which, I’ve got minimal sympathy for lawyers who expect City law firms to be shining beacons of fair play. This game is high return - that makes it high risk. Some want it to be high return, no risk.

Hmmm -16 Jul 2010 | 13:48

Oh to be so wise...

Hmmm - gee, I couldn't possibly think of any reason why partners would want to justify cutting associates as being necessary or the 'right thing to do'? Oh, wait... if you cut (say) 50 associates, you pay 50 fewer salaries (and related benefits) such that the firm's liabilities are reduced, you might actually increase profitability and in turn partners' return? I'm sure that had nothing to do with the partners thinking... Funny how relatively few partners thought it reasonable to voluntarily cut their own salaries? Their drawings may have decreased on the basis of the firm not generating has much revenue, but I'm pretty sure not too many of them thought it wouldn't be 'right' to continue to collect their sizeable wedge whilst pushing associates overboard.

"Cushy". Don't think I'd say cushy so much as successful contingency planning. Some firms clearly have done better over the years, and therefore are better prepared to weather the storm. Similarly different firms take different views on what income should be retained for difficult times.

Dear dear Hmmmm... with all due respect, you seem unable to grasp what I thought was a relatively straightforward explanation as to why some firms are keen to avoid the suggestion of their having to make redundancies. Whether or not "Sebastian and Jeremy" are shown the door isn't what the clients will care about, it's why it was necessary to show them door that will be of greater interest to prospective clients. Quite simply, it's not as simple as you think or would like to suggest.

Similarly, I would think a large multinational client might be interested in a firm's respective headcount on the basis of wanting to know there will in fact be bodies on the ground to do their work. Lots of work with to few people to do such work does not a happy client make...

Dorothy Gale -16 Jul 2010 | 14:38

How many clients are you basing these comments on? I've heard the views of a fair number of senior clients on this issue and I'm just not hearing the sentiments you're talking about. They see lawyers being made redundant in private practice as a fact of business life. It happens in industry - they see no reason why it shouldn't in the legal profession.

Hmmm -16 Jul 2010 | 16:45

Redundancy is indeed a (sad) fact of business life in the current economic climate - but again, in the context of a law firm, it's the partners/executive committee (comprised of partners) who make decisions about redundancy - a decision that can (significantly?) impact their own income/drawings (...conflict of interest??) In a "true" corporate it's not quite the same where you've got shareholders/boards deciding senior remuneration...

In terms of the number of clients I'm referring to, as I thought you gathered, I'm talking about impressions and perceptions, hardly something that is readily quantifiable. Not too sure what you mean by "senior clients" - pretty much assumed that a client is a client. If you mean big clients (by which I mean those providing a firm with a large annual legal spend - remembering of course that what is "large" for one firm is not for another...), I think it's safe to assume that some big clients will care (as to the need or making of redundancies), others will not - - not all clients, whether big or small are the same...

Dorothy Gale -16 Jul 2010 | 17:31

Dorothy - "I'm talking about impressions and perceptions, hardly something that is readily quantifiable" … and… "I think it's safe to assume that some big clients will care".

So you’re basing your comments on nothing but your "assumptions" and "impressions". When I talk about the views of "senior clients", I mean senior decision-makers in large companies and banks. I’ve heard the views from at least a dozen such clients, either personally relayed to me or via reliable people. Quite simply, you are wrong about how clients feel on this matter. And, by the way, shareholders do not in any practical sense set executive remuneration in plcs, and of course it’s not a conflict of interest for partners to make decisions on pay and staffing levels.

Hmmm -19 Jul 2010 | 09:49

Dearest Hmmm...

Clearly you are someone "in the know", with your "finger on the pulse", and no doubt a real "mover and shaker" to have so many "senior clients" talking to YOU about about their legal engagement decisions... little 'ole me, just a hayseed from Kansas best head back to the farm...

Dorothy Gale -19 Jul 2010 | 12:52

I'm in a position to have heard the views of a reasonable handful of clients with sizeable legal budgets, if that's what you're getting at. I have no delusions about that making me king of the hill or whatever but, yes, it has informed my views somewhat.

Hmmm -19 Jul 2010 | 14:53

Agree with Hmmm

I'm currently posted in-house (we're a big client to three of the magic circle and most top international firms). As a company, funds are tight and people are being laid off, factories shut etc and one of the key factors here with regards to instructing firms is value for money and the billing structure. Hmmm is spot on; a firm that is not having to make cuts and redundancies is seen to be a firm that is obviously charging too much, lining the coffers to pay people to hang around. They are not seen as good financial planners. I can assure you the senior management here believe themselves to be good financial planners too but have still had to make redundancies and do not feel so charitable as to pay top dollar to law firms so that they can keep everyone happy on huge city salaries.

Agree with Hmmm -20 Jul 2010 | 08:20

Client perception

The old generation of in-house big firm placees are gradually being edged out and deference within client legal teams to partners at firms is in decline.

Yes, they may realise associate redundancies are a necessary fact of business life.

But next there will increasingly be an expectation that they are not paying for mediocre partners who could in fact be pushed out with little loss to the business and an increase in quality.

Agence -21 Jul 2010 | 08:54