Worrying Times Ahead for the U.K. and U.S. Legal Profession
The legal profession is currently in a state of flux. I have no desire to be a prophesier of doom, but I suspect extremely worrying times lie ahead for the profession as a whole, and specifically for law graduates on both sides of the Atlantic. The potential for currently choppy waters to be whipped up into a fully fledged storm was hammered home to me today when I read an article on thelawyer.com. Clifford Chance, the previously impermeable rock of cross-Atlantic legal giants, announced yesterday the laying off of 20 associates in the firm’s NYC and Washington D.C. offices.
Over the last few months we’ve witnessed Cadwalader Wickersham & Taft make 131 layoffs, Heller Ehrman dissolve, and U.K. firms earning their bread and butter dealing with conveyancing announce department closures and layoffs on a worryingly regular basis. In the U.K. alone the total number of layoffs over the last few months among the top 200 firms, now stands at 740.
Even as a trainee solicitor I believed that the market was saturated with law graduates. Fifteen years ago, there were too many law graduates competing for training contracts in the U.K. and junior associate positions in the U.S. This was before advances in technology enabled significant elements of many legal functions to be unbundled; before the Legal Services Act, alternative business structures and Tesco law; before Legal Process Outsourcing connected vast pools of talent in India, the Philippines and South Africa to law firms and legal departments in the U.S. and U.K.; and of course before the current Financial crisis.
Many may point to the impending retirement of the baby boom generation as the flip side to this argument. I’ve heard this many times, that there will be a dearth of high quality talent as these baby boomers head off into the sunset. I disagree. These individuals aren’t retiring from junior associate positions. These retirees are simply cogs that no longer require replacement in the legal profession’s ever turning evolutionary wheel. If one accepts my argument that the market was saturated to begin with, then perhaps without the variety of developments I highlighted above, the equation would balance. However, given the other forces at play, we’re not going to witness a “one out, one in” policy here.
I don’t believe the legal profession has begun to witness the full force of the financial crisis tsunami soon to reach its shores. Even though times of economic volatility inevitably lead to spikes in litigation, this will be outweighed by the disappearance of huge revenue streams from corporate clients that simply don’t exist anymore. As the Lawyer.com comments, when Clifford Chance merged with Rogers & Wells in 2000, R&W was billing over GBP9m to Merrill alone. Corporate legal departments will be tightening their belts like never before and undoubtedly either driving their outside counsel to lower fees, bringing work back in-house or exploring the possibilities available through offshore legal process outsourcing.
In another thelawyer.com article, Tony Williams, a former Clifford Chance managing partner and now principal at Jomati consultants highlights the example of a firm with a 25 per cent profit margin with a fee income that falls just 20 per cent, entirely plausible in the current financial climate. This firm would witness its profit fall by 80 per cent in the short term as costs simply cannot be adjusted quickly enough to take into account the revenue reduction. Add into the mix horrendous rises in indemnity insurance premiums and a tightening of credit, well you don’t need to be Nostradamus to predict bleak times ahead.
Over the last few months we’ve witnessed Cadwalader Wickersham & Taft make 131 layoffs, Heller Ehrman dissolve, and U.K. firms earning their bread and butter dealing with conveyancing announce department closures and layoffs on a worryingly regular basis. In the U.K. alone the total number of layoffs over the last few months among the top 200 firms, now stands at 740.
Even as a trainee solicitor I believed that the market was saturated with law graduates. Fifteen years ago, there were too many law graduates competing for training contracts in the U.K. and junior associate positions in the U.S. This was before advances in technology enabled significant elements of many legal functions to be unbundled; before the Legal Services Act, alternative business structures and Tesco law; before Legal Process Outsourcing connected vast pools of talent in India, the Philippines and South Africa to law firms and legal departments in the U.S. and U.K.; and of course before the current Financial crisis.
Many may point to the impending retirement of the baby boom generation as the flip side to this argument. I’ve heard this many times, that there will be a dearth of high quality talent as these baby boomers head off into the sunset. I disagree. These individuals aren’t retiring from junior associate positions. These retirees are simply cogs that no longer require replacement in the legal profession’s ever turning evolutionary wheel. If one accepts my argument that the market was saturated to begin with, then perhaps without the variety of developments I highlighted above, the equation would balance. However, given the other forces at play, we’re not going to witness a “one out, one in” policy here.
I don’t believe the legal profession has begun to witness the full force of the financial crisis tsunami soon to reach its shores. Even though times of economic volatility inevitably lead to spikes in litigation, this will be outweighed by the disappearance of huge revenue streams from corporate clients that simply don’t exist anymore. As the Lawyer.com comments, when Clifford Chance merged with Rogers & Wells in 2000, R&W was billing over GBP9m to Merrill alone. Corporate legal departments will be tightening their belts like never before and undoubtedly either driving their outside counsel to lower fees, bringing work back in-house or exploring the possibilities available through offshore legal process outsourcing.
In another thelawyer.com article, Tony Williams, a former Clifford Chance managing partner and now principal at Jomati consultants highlights the example of a firm with a 25 per cent profit margin with a fee income that falls just 20 per cent, entirely plausible in the current financial climate. This firm would witness its profit fall by 80 per cent in the short term as costs simply cannot be adjusted quickly enough to take into account the revenue reduction. Add into the mix horrendous rises in indemnity insurance premiums and a tightening of credit, well you don’t need to be Nostradamus to predict bleak times ahead.
posted by Mark Ross at
4:55 PM
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1 Comments:
It is an interesting article, but, as with all doom and gloom, it fails to be tempered. It seems to generalize and makes sweeping statements that (at least to me) seem to lump all lawyers and all firms into a category with jones day or caldwater. Of course large firms that make their profits off of international transactions are going to suffer as document review and commercial instruments get prepared more and more by in house or in india, but, the author seems to ignore the fact that most practicioners are guys who litigate car wrecks. I doubt raj from bangalore will be handling those matters. So, while I agree that huge firms that are highly leveraged and make bank historically off of bilking institutional clients are screwed, the fact of the matter is that those lawyers represent such a small part of the legal profession that I am not overly worried. Does it mean that we are going to see lawyers not being able to make $400k anymore as a time keeper? Sure it does. But, how many were really doing that anyway?
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