Leaner and Meaner: UK Firms are Streamlining Again

Much of the world’s attention over the past fortnight has been focused on the UK as London hosts the 2012 Olympic Games. The country has been flying high with positive Olympic sentiment and pride on the back of the host nation’s success; not only on the sporting field in terms of Team GB’s better than expected gold medal haul, but also in terms of a well-run games (potential issues concerning travel chaos and its notoriously fickle weather have by and large been unfounded). However, what has snuck under the radar this week was the announcement of worsening economic conditions as UK economic forecasters revised their 2012 estimates.

The UK economy remains in a double dip recession, with negative growth recorded for the last three consecutive quarters. Furthermore, according to a report in the Financial Times (registration required), the UK economy will not only decline by half a percent this year, but sluggish growth is predicted in 2013, as it struggles with the continued global economic downturn, weaker domestic consumption and increased competition from cheaper imports.

This long-term economic slump continues to affect the UK legal market; increased levels of competition, market segmentation and industry consolidation occur at pace, in an already competitive market.

Few firms were immune to some level of restructuring in 2009, as the industry adjusted to the reduced demand levels that occurred in the post-Lehman world. This was mainly via large scale redundancies, but also via re-deployments to practices or international offices less affected by reduced demand and actively approaching clients to arrange secondments. A report this week by The Lawyer indicates that redundancy programs are back on the agenda for a number of UK firms, due to a growing range of reasons.

Some of the cuts are the result of firms continuing re-adjustments to staffing levels in areas with overcapacity. For example, a number of UK-based operations have announced staff cuts in response to the prolonged economic downturn. They include London firm Charles Russell, as well as U.S. firm Mayer Brown and Scottish firm Dundas & Wilson*.

However, matching supply with demand is not the only driver of redundancy consultations. A return to redundancies has also occurred in the wake of:

1. Firms re-focusing on strategically important practice areas

The economic environment has provided firms with an opportunity to implement strategic resizing of underperforming practices, or those which lack the necessary strategic fit.

UK regional firm Shoosmiths announced in July that 86 fee earners and support staff, mainly within the motor vehicle personal injury division of its consumer legal services arm, had been made redundant in its Basingstoke operations (southeast of London). The firm cited a strategic downsizing of the volume personal injury business, to focus more specifically on conveyancing, medical negligence, high-net-worth wills and probate and complex personal injury litigation.

Likewise, leading Scottish firm, Maclay Murray & Spens revealed in June that it was making a handful of redundancies in the Glasgow office. These redundancies, concentrated in the private client team, have reportedly been made following a strategic review and a re-focusing on practices targeted for long-term, profitable growth.

2. Reduced levels of associate attrition

Three firms have indicated that reduced attrition levels among the associates ranks are playing a part in their decisions to undertake further redundancies.

Clifford Chance announced in March that it was making 13 associates in the London capital markets and finance teams redundant, despite the fact that the firm has seen growth within these practices. The firm reported that it chose to make the cuts to make way for younger lawyers coming up.

Similarly, Herbert Smith concluded a voluntary redundancy consultation in June that saw it eliminate 43.5 full time equivalent jobs in London, including 24 lawyers within its corporate and real estate ranks. The firm cites a combination of over-capacity (due to a partnership restructuring during 2011 in which 15 corporate and finance partners were asked to leave the firm) and low associate attrition, which resulted in “uneven” associate staffing levels, according to Managing Partner, David Willis.

Most recently, leading UK national firm Addleshaw Goddard reported in June that it had 24 positions at the managing associate and legal director levels under consultation with the aim of rebalancing a “top-heavy fee earner structure”.

3. Removing duplicate roles following merger

The global financial crisis has accelerated consolidation of the legal market (a topic I will discuss in greater depth in an upcoming post). One of the largest mergers to occur this year, the combination of Pinsent Masons with Scottish ‘Big 4’ firm McGrigors, has led to redundancy consultations with at least 40 support staff in a bid to remove duplicated roles within the support functions.

Furthermore, the recent mid-market merger of two Midlands-based firms, Shakespeares (Birmingham) and Harvey Ingram (Leicester) is also likely to result in a similar program, according to comments made in The Lawyer by the combined firm’s CEO, Paul Wilson.

Posted by Tricia Pelton