As the recession deepens, the wave of redundancies at large law firms has grown to threaten hundreds of partners. KATE GILLAM finds out how firms decide who will get the chop.
“No one is immune from the current economic crisis.” This is the public line a number of law firms are taking as they announce job cuts at all levels, from support staff to partners.
The move has been criticised by many who feel that partnerships have handled redundancies particularly brutally compared with previous downturns. One partnership lawyer observes: “Even partners working themselves to the bone are coming to see me about being made redundant or de-equitised, because they are just not making enough to qualify for the Premier League.”
Redundancies have hit more than 2,500 at UK law firms according to figures in The Lawyer, and as the recession deepens there are likely to be many more. Over a third of these are lawyers and fee earners, and nine firms have already announced that partners are not exempt from this process, including Allen & Overy, Addleshaw Goddard, Clifford Chance and Linklaters. The partners threatened with redundancy at these firms alone number in the hundreds.
Many other firms have remained tight lipped about partner dismissals, so the real number of casualties could be substantially higher than published. Legally, firms don’t have to announce the easing out of partners unless more than 20 members of staff go at the same time.
What criteria do firms use to select the partners on the redundancy list?
The most critical factor is billing. Larger firms, despite having bigger profit cushions, are some of the least flexible on this count. If they want to maintain PEP levels but profit is falling, the only solution is to share it out amongst fewer partners. “It doesn’t matter if you were a star last year. If you are not immediately profitable then you could face the chop,” says Clare Murray, a partnership lawyer. A city partner adds: “I think you’ll find that almost no very high billers get fired.”
Partners at risk fall into two main categories: under-performing partners and those in practice areas where demand has evaporated. Corporate and real estate have been particularly badly hit and are naturally seeing the most redundancies. But firms are actually being more flexible and lenient for good partners in these areas than mediocre partners in others. “We are trying to take a more long-term view. But if the long-term conclusion is that there is no long term, you have to redeploy or consider alternative options,” comments one partner at Linklaters, where a staggering 70 partners are reportedly to go.
Firms are not being so open-minded about under-performing partners. They are raising the bar and as profits drop so tensions rise. “You are seeing partners under pressure but they would have been under pressure anyway,” says Tony Williams of Jomati legal consultancy. “Underperformance was hidden by a bull market where everybody was busy, so to some extent some of the departures are no surprise.”
But although billing will be the first consideration, it’s not the only factor considered by law firms when reviewing how to shrink their partnerships. “We have always assessed partnership performance on a broad range of criteria which together assess total contribution; our focus is never purely financial,” states Ffion Griffith, HR Director at Olswang, one of the firms that have announced partner cuts.
Making billable hours the only measure or even the main measure would also not encourage the right behaviour from partners. Some of these criteria, such as going out and finding new clients, can even be at odds with billing highly. Tony Edwards, managing partner at Thomas Eggar, says: “If you only look at billing then the partner will stay in and bill as many hours as he can. However they are the people who are best at going out and getting new work, so you want to encourage them to delegate the work and go find new business for the firm in hard times.”
The other criteria firms look at in the downturn are the same criteria firms look at when reviewing partners on a normal annual basis. These include team management, cross-selling, client relationships, technical ability and finding new clients. The relative weights of these criteria will depend on the culture of the firm, its size and how many institutional clients they have.
Finding new clients in particular will play a big part in judging whether a partner is worth keeping. “If you are not busy now, what are you trying to do about it?” asks Tony Williams. “What are you doing to keep close to your clients? Are you trying to develop new areas of work or just sitting around waiting for the phone to ring? How proactive and pragmatic are you being?” Smaller firms have placed a greater emphasis on this during boom years, of course, as it plays a much greater role for firms that have fewer institutional clients.
Firms are not looking to cut just the bottom partners in billable hours. Being a pleasure to work with, making every effort to bring work to your practice and being flexible are qualities that can save a partner from the chop. So although an exceptionally high biller may be safe, others will have to rely on a number of qualities to distinguish them.
The other major factor, of course, will be the law firm you work for. Some have a more understanding approach than others – Stephenson Harwood, for instance, where Jeff Marlow in HR says: “You have to cut them a little slack basically. You are not going to be expecting huge amounts of new business or revenue but you can look at what they have been doing nevertheless.”