It’s fair to say that Legal Business has long been sceptical of the prospects for listed UK law firms, and none more so than the most hyped of the lot, DWF. ‘The 2020s still look likely to end with public markets as a marginal force in global law,’ noted our recent cover feature on the big issues set to shape the profession through the current decade. And that assessment was written before the coronavirus pandemic, a jolt that is about to put the weaknesses of the listed law firm model to a savage test.
So in this context the news on Friday (29 May), that the UK’s largest listed law firm DWF was dispensing with the services of its long-term leader Andrew Leaitherland amid pressure on its business is both surprising and yet much foreshadowed.
Sometimes a shock looks certain to leave life forever changed only for things to carry on much as normal. Sometimes, the jolt marks a genuine crack in the foundations underpinning industries, business and society. We now know that for the profession and the City, the banking crisis proved very much in the latter camp. In law, the most visible result of this was the end of the startling 25-year success story of the Magic Circle, closing the period in which the group had blazed a trail across the global market and become utterly dominant in their core European and Asian heartlands.
After the banking crisis, growth slowed, ground was ceded to US rivals, and even some mid-tier rivals, and the group lost much of the strategic daring that defined their remarkable ascent. They remained successful institutions but the swagger was gone, the myth of invincibility lost.
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.
If we can already make a few forecasts about some aspects of the post-coronavirus world, currently pole position among things the legal industry abruptly realised will look radically different as of ten weeks ago are large-scale, grand, frightfully-expensive offices. It turns out that we were all used to the modern, shiny, flagship office and now realise we had only the most tenuous grasp of why we believed it so fundamental to the business of professional services all along.
Yet the office will never be the same.
What we do not know about the surreal period we’re in thanks to the coronavirus pandemic would fill the proverbial book for law firm leaders, or actually several. I won’t presume to speak to medical/scientific issues, desperate as we are to have some clarity; I’m sticking with the economic/business/strategic issues.
What we don’t know, or don’t know with any degree of confidence, are:
The issue no law firm leader wants to address right now is whether partner ranks need to be thinned. Polite conversations continue while everyone studiously avoids the issue everyone knows needs to be discussed.
Casting my mind back to the ancient history of mid-March when I penned my first piece assessing the impact that the coronavirus crisis would have on the profession, I was forced to rely on guess work and recent history as a guide. London was in semi-lockdown, the official death toll from the virus hovered around 10,000 globally – taking a view on how it would play out was a matter of gut, contacts and an anorak’s grounding in the business model of law.
My core case was that the profession would be one of the least-impacted major industries but would take a major hit in what was clearly going to be a deep recession. The other contention was that the pandemic would put the lofty values and soft issues that law firms have become increasingly inclined to promote to a brutal test, a benchmark many would fail.
Law firms around the world are being forced to contemplate something a good many have never had to face before, even during the 2008/09 financial crisis – letting partners and staff go at scale.
Fat profit margins and a paternalistic partnership ethos have traditionally insulated law firms from concerns that are relatively commonplace for their clients. Managing partners often recoil at such barbarous conduct. Yet the global coronavirus crisis is rapidly shredding that rulebook.
No-one knows the robustness or timing of the economic restart, but many now predict a deep second quarter contraction followed by a spluttering restart over the subsequent three. That may underestimate the impact of the shock and the reactions of both client businesses and households.
A dramatic surge in unemployment will encourage households to slash spending. Many clients are focused on conserving cash and rebuilding balance sheets. Aftershocks of reinfections, further lay-offs, tight working capital and insolvencies as businesses struggle to get in shape when activity starts to pick up seem probable.
Towards the end of 2019, Legal Business remarked that the issue at the heart of Allen & Overy (A&O)’s looming leadership election was if the process would resolve whether the winners could achieve the right to genuinely lead the City giant. Now that the election has concluded, with the re-election of Wim Dejonghe (pictured) as senior partner and the elevation of projects and energy head Gareth Price as managing partner in place of Andrew Ballheimer, it is far from clear that the point has been settled.
That is not a criticism of the calibre of the candidates and winners. Generally regarded as the best managed of the Magic Circle’s four internationalists, A&O certainly attracted a line-up of heavyweight candidates, by no means a given in law firm leadership run-offs. This was most obvious in the contest between Dejonghe and banking co-head Philip Bowden for senior partner and Price and litigation head Karen Seward for the managing partner brief.