Allen & Overy has pre-empted a likely financial hit from the coronavirus crisis with a host of measures, including altering profit distribution to partners, increasing partner capital levels and freezing some investments and recruitment.
The firm confirmed today (31 March) what it described as ‘prudent management measures’ as part of its ‘ongoing scenario planning’ as the Covid-19 continues to affect international businesses.
In a statement, the firm maintained it was in ‘a very strong financial position but given the unknown nature of the evolving challenges, and their long term impact on our markets’, the move was sensible.
‘[The measures] include adjustments to the phasing of profit distribution to partners, increasing partner capital levels, deferring certain investments and recruitment, and cancelling events,’ the firm said.
‘For staff, including fee earners and business support staff, we have decided not to undertake annual salary reviews in the first quarter of the forthcoming financial year. We will still award bonuses for this financial year, with bonus payments for fee earners and our more senior support staff split between our normal payment date in July and October’s payroll,’ the statement added.
A&O said it was ‘confident in our resilience if economic conditions worsen’ due to its good diversification across practices and broad international offering.
Nevertheless, the Magic Circle firm has struck a defiant note in the face of the crisis, yesterday going some way to fulfilling its transatlantic ambitions with the re-appointment of IP litigation partner Paul Keller from Norton Rose Fulbright in New York.
Last year, A&O’s financial performance was on trend with the pace set by its Magic Circle peers to post solid but unspectacular financial results, increasing its top line by 5%, sending revenue up by £75m to nearly £1.63bn. A pacier 8% growth in profit before tax to £708m was more heartening, even as profit per equity partner (PEP) rose just 1% to £1.66m amid a 2.4% uptick in headcount for the year.
As the full extent of the pandemic’s impact is unlikely to be known for months to come, it seems inevitable that firms will continue to make financial contingencies to minimise the fallout.
Earlier today it emerged that Reed Smith has ringfenced a portion of its cash reserves against partner distributions as the crisis unfolds. The measures will see monthly drawings reduced by 40% for full equity partners and 15% for fixed share partners globally.