vallierojas: Law firms fear double-dip recession

Legal profession weathered first downturn but redundancies are more likely if recession returns

The legal profession likes to think of itself as recession proof and, to an extent, it is. In the boom, law firms get rich advising on big deals; in the bust, they clean up representing clients squabbling over who's to blame for what went wrong.

Even in the aftermath of the dramatic collapse of investment bank Lehman Brothers in October 2008, most big law firms still found themselves pulling in healthy ? albeit reduced ? revenues from the flow of insolvency and restructuring work generated by companies going to the wall.

Their relative health was reflected in a reluctance to make job cuts, in spite of a dawning realisation that the market for legal services had fundamentally changed in a world suddenly stifled by debt. Instead, most firms sought to trim costs through relatively minor measures, such as deferring the start dates of their new graduate recruits ? with some being so kind as to pay delighted students as much as �10,000 for the pleasure of delaying their entry into the working world for a year. Others brought in four-day week working arrangements, granting their still pretty healthily remunerated lawyers (�60,000-�500,000 salaries were cut by around 15% as part of the scheme) a rare period of work-life balance.

When the work generated by the crash started to dry up, and the redundancies finally began, they took place on a notably lower scale than in other industries, running into double, rather than triple figures at most large law firms ? a significant but not huge amount given that these organisations typically employ between 1,000 and 6,000 staff. Those who did get the chop had the blow softened by often extremely generous compensation packages. One fairly junior lawyer I know who was made redundant by Linklaters during this period was given a �30,000 golden goodbye, and promptly flew off for a two-month break in Los Angeles to cheer himself up.

This sort of thing is unlikely to be repeated if we get a double-dip recession ? as many are predicting in the wake of recent events in Europe and the US ? with three years of near-stagnant market conditions leaving many law firms severely weakened.

"Lawyers rely on activity," explains Tony Williams, the former managing partner of Clifford Chance, who now heads legal consultancy Jomati. "What hurts them isn't boom or bust, but market paralysis." He adds that a substantial number of firms are currently "hanging on by their fingertips".

Another recession would, at best, force the strugglers into a quick-fire round of mergers with each other, precipitating a heavy spate of job cuts. At worst, it could see a host of firms go out of business altogether in the style of Halliwells ? the one major law firm to collapse so far. In such an environment, don't expect many trainee deferral payments, reduced-hour working schemes or lavish redundancy packages.

Still, at least those with jobs have something to try to hang on to. For graduates attempting to enter the profession the situation is worse, with further economic turmoil likely to see a particular squeeze placed on trainee recruitment. For wannabe lawyers to boost their chances of success in such a market, Alan Hodgart, managing director of the legal consulting group Huron, recommends they target the higher calibre firms.

"Over the last couple of years we have seen a flight to quality among clients," he says. "As a result, all five of the magic circle law firms, alongside the top Wall Street firms in the US, find themselves in decent shape - unlike many practices outside the top tier."

Not that it's easy to get a job at such a firm in a shrinking graduate job market flooded with students who perceive law as a safe option. A decent alternative for those who miss out on the magic circle are more traditional firms that behaved cautiously during the boom years, and now benefit from the stability of loyal client bases spread across a range of sectors. (To get an idea of who these are, have a quick scan of the major firms' recent financial results ? available here and here).

Solicitors to the royal family, Farrer & Co, (which takes on ten trainees a year) is an example of a firm in solid shape. Its former senior partner James Furber says he would be "very worried" if Farrer did only commercial property and banking work, as is effectively the case with many City outfits.

"Whatever happens in the world," he continues, "people are still dying, still making wills, and still getting divorced. Happily, we're positioned to benefit from that."

For those who don't manage to secure a graduate job, the good news is that you won't be alone. Jomati's Williams says that "many more graduates than in the past will probably have to accept a period of paralegal work before finding a traineeship."

Of course, recessions, like riots, don't last forever. And when they pass, the survivors usually find themselves well-placed to thrive as the economy picks up again.

Alex Aldridge

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