London layoffs cast a long shadow
Czarnecka, Marzena. The Globe and Mail [Toronto, Ont] 17 June 2009: B.5.
Abstract: The British legal press has made for grim reading in the past six months, with headlines such as “Clifford Chance and Allen & Overy push back partner promotions” and “Lovells cuts 79 City jobs; pay levels frozen” and “Slaughters to freeze salaries after pay review.”
As boom turned to bust and British law firms began to jettison staff, the legal landscape has had to change
The British legal press has made for grim reading in the past six months, with headlines such as “Clifford Chance and Allen & Overy push back partner promotions” and “Lovells cuts 79 City jobs; pay levels frozen” and “Slaughters to freeze salaries after pay review.”
The bloodletting in response to the global meltdown began in early January, when Clifford Chance LLP announced that 70 to 80 lawyers’ jobs in its 880-member London office were “under review.”
Now it’s estimated that about 3,000 predominantly corporate finance lawyers are beating the U.K. pavement searching for work.
Clifford Chance is one of the five “Magic Circle” firms, the crème de la crème of what many see as the most prestigious legal market in the world. The other four are Allen & Overy LLP, Linklaters LLP, Freshfields Bruckhaus Deringer LLP, and Slaughter and May.
As the economic crisis deepened, all eyes were on those five firms – how they would be affected, how they would respond.
“Business has obviously been quieter following the credit crunch and the financial crisis,” said Jeremy Sandelson, London managing partner of Clifford Chance. “The volume of transactions from our traditional client base declined considerably, particularly in the immediate period following the demise of Lehmans.”
Others are more blunt: “It’s been pretty dire,” said Peter Noble, a partner with the London office of Ogilvy Renault LLP.
The slowdown was visible in London by late last summer. By November, it was still possible for Mr. Noble to alleviate his Canadian partners’ concerns about the U.K. situation. “When people were asking me, ‘How are things in London?’ I’d say, ‘Okay. Much better than in New York.’ ”
By December, armies of corporate lawyers sat twiddling their thumbs in the City, London’s financial district. These were the same armies that made their firms obscenely profitable during the upswing, working in huge teams on complicated leveraged-finance transactions, intricate securitizations and record-shattering mergers-and-acquisitions deals.
“The City was built to service a boom that had never been seen before,” said Robert Brant, a partner with the McCarthy Tetrault LLP office in London. As the boom turned to bust, “a lot of people had to accept that there are too many lawyers and too many bankers in London.”
“By December, it was pretty clear across the market that there would have to be layoffs,” Mr. Noble said. “But no one … wanted to be the first.” When Clifford Chance announced that about 10 per cent of its London work force was on the block, it was the signal other City firms were waiting for.
Two weeks later, Linklaters said up to 120 lawyers and 150 business support staff in London could expect to lose their jobs. Clifford Chance later announced that 10 to 15 per cent of partners would be asked to leave by the end of 2009.
In February, Allen & Overy said its global restructuring would slash 400 jobs – half in London – reducing the head count across the board by 9 per cent, including at least 45 partners. The firm also asked remaining equity partners to contribute about £30,000 (about $55,000) each in new capital contributions.
Clifford Chance did that too, but on a larger scale, asking the global partnership to bump up their capital contribution by £100,000 to £150,000 each in a move to raise £40-million to £60-million. It described the move as a “normal part of managing its finances” and a “response to prevailing market conditions.”
The other two members of the Magic Circle fared better. Freshfields did not cut staff (it had culled its partnership ranks two years ago) but did announce pay freezes. And Slaughter and May’s, which was criticized in the past for being less expansion-minded than its competitors, is now reaping the rewards of running a leaner ship. Both firms are now doing a large amount of insolvency work for the Bank of England.
Smaller British firms also reduced their ranks in January, as did a slate of U.S. firms with London offices. “If anything, London was hit worse and faster than New York,” says Pierre Raymond, chairman of Stikeman Elliott LLP.
In 2009, Stikemans, the first Canadian law firm to hang its shingle in London, celebrated 40 years in the City, four decades marked by ups and downs. As the company’s 18 London lawyers, 25 visiting Canadian partners and about 575 guests from the City celebrated the firm’s anniversary the last week of March, the mood wasn’t always celebratory.
“This is like nothing any of us have seen,” says Derek Linfield, managing partner of Stikemans’ London office. “And no one has any idea how this is going to end up.”
Like many Canadians in London, Mr. Linfield has spent some time over the past six months “translating” that market for colleagues in Canada. He sees the Magic Circle cuts as much more than a downsizing and retrenchment in the face of a shrinking economy. Rather, it’s an intensive examination of business plans that, however profitable during the boom, “may not make sense any more,” he said.
Simon Davies, managing partner at Linklaters, told the Times Online: “An increase in work in areas such as insolvency and corporate recovery … cannot possibly compensate for the decline in work in mergers and acquisitions and financial products. And, it must be said, because of the changes brought about by the developments of the past year or so, much of that work will never come back – or at least not in the foreseeable future.”
If the current crisis manages to cause a permanent shakeup in the London legal landscape, smaller firms may benefit. “We feel relatively optimistic,” said David Paterson, a corporate partner with Herbert Smith LLP.
“Some of the other law firms, the ones most affected by the crisis, had a very substantial weighting of their practice towards six or 10 global financial institutions,” he said, referring to Clifford Chance and Allen & Overy. “That wasn’t our model.”
Herbert Smith’s litigation-slanted model meant that it was positioned to get a share of insolvency and restructuring work. Some of it has Canadian connections: The firm has the lead on the worldwide Nortel Networks Corp. insolvency, a role on the insolvency proceedings of Calgary’s Oilexco North Sea Ltd. and, outside the insolvency field, even a “bit part” on the Suncor/Petro-Canada merger, Mr. Paterson said.
Canadian firms in London, meanwhile, are dealing with the crisis by being grateful that they’re small. Blake Cassels & Graydon LLP and Ogilvy Renault each has four lawyers in London, while McCarthys and Stikemans are at 14 and 18, respectively.
“It doesn’t take much to keep us busy,” quips McCarthys’ Mr. Brant.
The largest Canadian shop in London is Fasken Martineau DuMoulin LLP, with 50 employees. It has felt some of the effects of the crash; it let go several people on the corporate side, but in the past four months added four partners. “We’ve done some fine-tuning,” managing partner David Corbett said.
Clifford Chance’s Mr. Sandelson said the drastic changes of the past few months have been painful, with hard lessons for the legal community. “Some people think the concept of life-long tenure in law firms, particularly at partnership level, has been challenged – and indeed it has,” he said.
But he believes that, ultimately, top-quality firms will become stronger, more competitive and better aligned to their clients’ needs.
Marzena Czarnecka is a contributor to Lexpert.
Credit: SPECIAL TO THE GLOBE AND MAIL
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