As aptly put by the former President of the European Central Bank last week, “We have medically triggered an artificial coma of all our economies”. The economic challenges we all face are a direct consequence of strategies adopted to tackle a medical problem. Health and wellbeing has rightly been the top priority for government, but of necessity now the economic challenge of stimulating the economy nationally and indeed globally has to come to the fore. Whilst the rate of transmission (‘R’) is of paramount importance, R happens to be a letter with relevance across the Coronavirus crisis.
R for Retention.
Thankfully, the Coronavirus Job Retention Scheme has provided a lifeline to UK businesses, with over 7 million people having the majority of their wages paid by the state. Currently 75% of my team are on furlough and whilst Brooke Thornham didn’t sign up immediately or back-date a claim it certainly is welcome support in a quiet market for recruiters. Our clients have embraced the furlough scheme for support team members, Trainees and Fee Earners and I’d expect further engagement with this scheme from law firms between now and October given the ongoing uncertainty on the economic front and the Chancellor’s announcement today.
In the legal sector the other ‘retention’ in sharp focus at this time of year is that of NQ solicitor. That market is understandably slow and decisions are deferred as firms focus on other priorities and try and get some perspective on their management of lockdown and decreasing client demand. Will NQs find berths, or will they be superfluous to requirements in greater numbers than for the last decade? That is to be seen, but perhaps the extended furlough scheme will give employers confidence to make decisions in their favour.
R for Re-start.
The key question now is how and when to ease lockdown and re-start the economy. Better brains than mine are investing a lot of time and energy into making plans to get the economy moving again for as many parties as possible. The trade-off between direct Covid-19 health risks and the broader negative impacts of lockdown, financial hardship, and anxiety and mental health, is a difficult balance to achieve. There is increased public and media pressure to ease restrictions. Despite the dreadful number of deaths, the health of a substantial majority of the population is not directly seriously affected by the virus at the moment and those people are understandably questioning the ongoing restrictions to life as we know it.
I can’t help feeling that we need to see some light at the end of the tunnel soon, and committed time frames despite Boris Johnson’s speech on Sunday evening. Industry needs to know. What we all know is that lockdown is unsustainable and cannot continue indefinitely.
The UK is blessed to have the economic strength it has, and the protection that has afforded to both employers and employees. Huge sections of the world’s population live on the margins, without the economic resilience and resources that we Brits can draw upon. For their populations they simply cannot afford to hunker down at home – to miss a day’s work is to miss the days meal. Extended furlough scheme aside, the UK is reaching the point of needing to emerge, to get on with it, and with precautions in place to start living again and doing what we do – we work.
R for Redundancy, perhaps?
Having recruited since 1997 I’ve seen economic slow-downs and recession before. The difference this time is it hasn’t been caused by economic forces but by policy choices and instructions to society. My hope is therefore that the economy can bounce back quickly, that it can avoid sinking ever deeper into recession, and that it can display some resilience.
“We had our best ever March as a business” said one of my law firm contacts last week, and that is off the back of year after year of substantial expansion. It is not long since the economy was running well and plans to invest and recruit were rife. That feel good hopefully isn’t so quickly forgotten that businesses leaders reconcile themselves to a recession and settle into a mindset of collective acceptance.
We are already seeing law firms head down the cost saving route of pay reductions aligned to reduced hours, or in some cases not. Partner retirements have also been accelerated, which perhaps works for both the firm and the retiree. Reducing staff costs seems prudent and reflects preservation of funds and also reduced volumes of work to occupy the workforce.
I know clients who have made the decision as a partnership that they won’t lose any staff. They recognise that talent is precious, the fee earners make the money and so it seems logical for a firm to protect its engines for when the economy picks up. Without fee earners in harness the firm will be hampered and will be back to wrestling with upstream competitors for new recruits at great expense and risk.
The partner mindset is key as business moves forward. Partners aren’t just experts, and managers, they traditionally are also financiers of the business. The rewards of equity come with the risk of ownership and it’s certainly not a guaranteed upward curve. It’s a lesson I saw brutally learned in the last recession with several partners leaving equity positions and never seeking them again, such was the financial stress they’d experienced.
How firms are managed has many influences, but in part it is a question of what financial tolerance partners have personally (such as financial resources), and also what they are prepared to tolerate as they are making the decisions. The headlines in the legal press have been about reduced or deferred drawings and so right now it looks like a lot of firms are being prudent for the greater good, but I’d expect discord and fall out the longer Coronavirus and associated restrictions linger.
Who might redundancy affect?
An obvious assumption will be transactional teams which traditionally fare worse in a distressed cycle. It’s painful as those skills are prized, and to some degree often protected, but a sustained fall in work will make redundancies inevitable.
Looking more at levels of lawyer, last time around the NQs struggled to get into their careers, and Trainee intakes were deferred so the junior end of the market was definitely blighted. The other obvious demographic of lawyers displaced by redundancy was the 6+PQE non-Partners. Their expertise, reliability and client skills were highly prized by partners needing that back up in order that they could be client facing. But with the Partners protecting their positions internally and taking back ownership of daily operational functions and retaining more work for themselves, those £60-100K fee earners were obvious targets to both save costs but also cement the partners function at the top of the team.
If redundancies come (and given that Virgin, Uber and other sizeable brands are going down that route then it’d be a safe bet to say law firms will make redundancies) then it’ll be interesting to see if it is these same two sets of lawyers bear the brunt of it.
R for Rishi.
The man of the moment – Rishi Sunak. He’d been Chancellor for barely a month when Covid-19 came into view, such a short period to enjoy a prestigious position in government before the unprecedented onslaught of Coronavirus. What a dire task he has been given, and from my observations he’s handled it as well and anyone could have.
Having previously stated that the Job Retention Scheme (JRS) as operating now is not sustainable, it is commendable that today he has announced the extension of the scheme until October. There’ll be sighs of relief across the country from employers and workers in equal measure. Vital now as regards law firm management and the prospect of redundancies in the legal sector will be his ongoing management of JRS and economic stimulus. So watch this space… when it comes to Coronavirus if it begins to ‘R’ it’s worth paying attention to.
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