Try driving across London or walking its crowded parks in sunny May and it becomes hard to remember that the nation, and much of the Western world, exists in a state of at least semi-lockdown.
While food queues and the inability to do much beyond kick around the house testifies that things are far from normal, since the government in early May started obtusely unwinding the lockdown, the business and legal worlds have entered an ambiguous chapter of the coronavirus saga.
But perhaps not that ambiguous as major law firms have decided to ignore the ‘Stay alert’ mantra and stick with the ‘Stay home’ approach for the foreseeable future. Speaking with a string of law firm leaders at major UK and US firms this month, the consensus could not be clearer: no one expects staff to be trickling back into London offices in any meaningful manner until July at the earliest and most cite September as the more likely point.
The vast, ad hoc experiment with remote working has been a straight win on productivity, warmly received by staff (even if slightly less embraced by partners), the tech has more than held up and law firms are able to function for months on end in this form if needed. This was aided by a progressive adoption of homeworking in the UK profession over the previous three years, one reason London firms handled the initial lockdown better than New York peers. Homeworking does impose tedious levels of internal communication on partners, though this is more than compensated by time saved on commuting and business travel. As one leader with a major US firm in London observes: ‘The truth is, I’m less efficient than in the office but not much less efficient.’
There is also obvious common ground in how firms are approaching the eventual phased return. Nearly everyone has committees forging in-office protocols that can be applied globally, as the equation differs radically across firms’ networks according to national levels of infection and the practical options to get to the office. Many major firms already have Asian offices with over 50% of staff back in the office, while Frankfurt is in a completely different realm to other European hubs. Australian offices are, likewise, already well out of strict lockdown. London – like its global twin New York – is plainly at the polar opposite of that spectrum given the realities of getting staff to work without heavy reliance on crammed public transport.
Managing partners also agree that the dialogue with staff over a staged return to office working remains discretionary, largely reflecting the willingness or anxiety of individuals to come back to the water cooler. There is no talk of attempting to chivvy staff back against their will, but firms have a small camp of staff that for a variety of reasons would rather be back in the office. A far larger camp like the long-term appeal of homeworking or are at least reluctant to come back in the next month or so.
Notes one senior partner: ‘We’re going to be at the back of the queue for returning to the office. They don’t need lawyers clogging up the transport network.’ Such attitudes also reflect the reality that the benefits of office working are a matter of critical mass. The cultural dividend and improved inter-team communication that come with being in an office only materialise with a significant proportion of people actually there. Having 40% to 50% of staff in the office in one working week may be worth it, but 20% to 25% – what’s the point?
Measures firms are deploying where staff have returned to foreign offices are obvious, including face-masks, staggered hours, socially-distanced meeting areas and alternating A Teams and B Teams on office duty.
Everyone expects remote working to be a sea change for law firms and their much-reduced use of real estate and many leaders see these extraordinary days as a huge opportunity to galvanise the kind of far-reaching operating changes that are resisted in law firms at normal times. Such sentiments extend well beyond the happy clappy, progressive managing partners to the hard-nosed pragmatist camp, but exploring the prospects for such disruption is a matter for future columns.
The other pressing matter is market conditions for top 50 UK firms over the next three to four months. Top 30 players and more profitable mid-tiers have fallen into two camps since the lockdown begun. The first saw little or no sign of any Covid-19-related impact on cash collection, much to the surprise of managing partners and CFOs. Two firms I spoke to out of a dozen were actually up on the same period last year. Firms in the other group, which tend to operate broader practices with higher associate/partner leverage, have seen roughly 5% to 10% falls in collections against the same period last year. A few are closer to 15% down.
One reason that firms have defied even their own expectations in resilience is the sizeable increase in the proportion of contentious work at major law firms over the last decade. Back when the banking crisis battered the profession, these firms were basically deal machines, now they derive far more work from natural hedges like litigation, arbitration and high-end regulation. Even so, major law firms have so far seen only an extraordinarily modest impact for a period in which a third of the wider economy, and half the private sector, shut for two months.
At this point the good news books a socially-distanced journey out of the vicinity. Bulging pipelines and disaster response matters flattered the last two months and both are now ebbing. The next three to four months will be much harder, even as the wider economy begins some level of painful revival; law remains a lagging indicator.
Budgeted like-for-like falls of 15-20% for quarters one and two of the 2020/21 year are not unusual, if the current finger-in-the-air planning can be called ‘budgeting’. Thereafter, many are kicking around projections for 5% to 10% falls in quarters three and four. At that level, major firms can endure with the current cost-cutting measures, without resorting to substantial job cuts. Deferring distributions has obvious limitations in that it remains an amassing liability but reduced-hours flex schemes have gone a long way in terms of practical, short-term response.
A determination remains at most firms to avoid the kind of widespread job cuts that happened during the banking crisis – it must help that many current partners were associates when Lehman collapsed.
Comments one senior partner at a top 20 firm on the changing attitudes: ‘You have a greater maturity in partnerships than in 2008. If the darlings in the partnership have to get 30-40% less this year, then so be it. It’s not gonna kill you and you benefited from all the good years.’
Such sentiments have so far been widely supported by rank-and-file partners. The caveat is if the numbers start looking a lot worse than the above projections, all bets are off. Six months of lockdown in its current form and many leaders concede that heavy job losses would be inevitable and the picture will be far worse still for smaller firms exposed to SME clients.
How quickly the wider economy will recover also remains little better than a blind guess. As deep as the fall in the second quarter of 2020 will be, previous recessions were cyclical affairs in which governments had little power to shape; we have no precedent for the current situation in which states have deliberately shut entire sections of the economy.
None of which changes the fact that the legal industry remains extraordinarily well positioned to ride out this hurricane and has acquitted itself well so far. As one senior partner remarks: ‘I was speaking to someone on the board of a major retailer the other day – their revenues are down 95%. You just need to keep a sense of perspective.’