Nathalie Tidman and Thomas Alan assess the impact of the pandemic on the profession as the world battens down for a health crisis
‘Things that are happening today you wouldn’t have believed a week ago,’ reflects David Patient, Travers Smith’s managing partner. Indeed. The outbreak and rapid spread of the coronavirus has in a matter of weeks transformed from background concern to a health crisis unknown in modern times, with countries scrambling worldwide to handle the outbreak.
At the time of writing in mid March, the disease has just been officially classed as a pandemic by the World Health Organisation, while US President Donald Trump declared a travel ban into the US from Europe. Global stocks, meanwhile, have plummeted to their lowest levels since the financial crisis of 2008. After initial reports emerged of the outbreak in the Wuhan region of China, as of 18 March there were over 200,000 confirmed cases worldwide and around 9,000 deaths, with Italy going on effective national lockdown on 9 March amid Europe’s most severe outbreak. Italy had suffered around 3,000 deaths related to the virus by 18 March with more than 35,000 confirmed cases, against 2,644 in the UK and 104 fatalities.
Events took a dramatic turn in the wake of Italy’s lockdown announcement, with European nations unveiling a string of travel restrictions, school closures and moves to curb mass gatherings. The UK saw the Bank of England slash the interest rate by 50 basis points to 0.25% – in the first non-scheduled move since the banking crisis – as the UK Budget on 11 March saw the unveiling of a £30bn investment package aimed heavily at softening the economic impact of COVID-19. The UK government officially moved to the ‘delay’ phase of its strategy in which it attempts to slow rather than contain the virus’s spread to manage impact on the NHS. Meanwhile, major sporting and cultural events are being cancelled or postponed by the day, with the English Premier League suspending all matches on 13 March.
Amid expectations that unconfirmed cases of coronavirus in the UK are in the tens of thousands, the UK government on 16 March announced a policy of widespread social distancing, with vulnerable groups pressed to self-quarantine through the spring, while most people were urged to work from home. The government on 17 March then set out an unprecedented package of measures to cushion the economic shock, including £330bn in loans and £20bn in other aid.
‘Things that are happening today you wouldn’t have believed a week ago.’
David Patient, Travers Smith
Such measures come amid the increasing realisation that coronavirus will represent a profound shock to the world economy that looks likely to decimate some industries and leave lasting changes to working patterns.
While far from the most exposed sector, the legal profession has mobilised since late February to mitigate what is expected to be a prolonged challenge to working lives, scaling back non-essential travel, scrapping partner conferences and ushering in unprecedented levels of homeworking.
Early direct impacts on the profession saw Baker McKenzie on 28 February evacuate its 100 Bridge Street offices following a suspected case, while early March saw news of infections in New York at Quinn Emanuel Urquhart & Sullivan and Wolf Theiss in Austria.
Meanwhile, Milan, one of mainland Europe’s largest legal hubs, is currently heavily impacted, with firms in mid-March forced to shut offices. Federico Sutti, Dentons’ Italy managing partner, on 11 March said that the firm has implemented remote working for some 130 lawyers as offices in Milan and Rome were shuttered with expectations that all offices in Milan’s Lombardy region would follow suit.
City law firm leaders see home working as a key tool in keeping their businesses going and are stress-testing IT to ensure it can handle wide-scale and sustained remote working in the event of an enforced shutdown in London.
Kirkland & Ellis, Slaughter and May, Clifford Chance, Bakers, Travers and Hogan Lovells are among the multitude of firms to put large-scale remote working to the test, while Reed Smith on 13 March confirmed that it has put all staff outside of Asia on homeworking until further notice on an ongoing basis.
Alex Chadwick, Bakers’ London managing partner, commented. ‘We are also looking at our working arrangements. We have a longstanding flexible working programme including advanced technology for homeworking, which will, when necessary, allow us to operate business-as-usual without impacting client service delivery.’
Travers’ Patient said his firm was providing additional support for employees to get to grips with agile working, with the firm’s workforce split in half for Thursday 12 and Friday 13 March between working from home and coming into the office in order to properly test systems and processes. Other firms have adopted a similar move but on a one-week-on, one-week-off basis.
With hand sanitisers now ubiquitous and business etiquette trialling elbow bumps in place of handshakes, law firms are rolling out other routine responses, such as increased cleaning of offices and clamping down on use of utensils in communal kitchens.
Aside from sustained professional disruption, senior lawyers are currently attempting to gauge what is expected to be a major shock to the economy reverberating through 2020 and potentially beyond. Major deal work, the lifeblood of top law firms, is set to plummet in the first half of the year, while industries including retail, travel and energy are facing a dramatic impact, potentially pushing a string of debt-laden corporates into insolvency.
‘How do you price a company with share prices going up and down like a yo-yo?’ asks one City M&A partner, who predicts that deals will most likely be postponed until later in the year rather than abandoned altogether.
‘We have a flexible working programme including advanced technology for homeworking, which will allow us to operate business-as-usual without impacting client service.’
Alex Chadwick, Baker McKenzie
Another corporate head sees a similar impact: ‘Clients are nervous. One of the reasons I’m up against it today is that a client is accelerating a deal to limit the adverse impact to changes in the debt markets. At least one other client was contemplating a disposal but has put it off until they have a better understanding of what is happening with the virus.’
Chris Brown, head of banking and finance at Norton Rose Fulbright, points to a range of concerns including supply chains drying up with Chinese manufacturers and, amid restricted travel, liquidity issues for cruiseliner, airline and hospitality businesses.
Brown notes: ‘We’ve been anticipating a fairly large financial readjustment and this could be a trigger for it. It depends whether it will be a U-shaped or a V-shaped readjustment, whether people will bounce right back or if it will take a while to recover. There is more debt now than in the last financial crisis.’
For context, the OECD recently put the global outstanding level of corporate bonds at $13.5trn, twice the level in real terms that it stood at in December 2008. ‘In 2009 companies raised equity to pay down debt. We could see that happening again. That plus restructuring could provide a counter-cyclical balance,’ says Ashurst M&A partner Tom Mercer.
Eversheds Sutherland corporate partner Richard Moulton agrees: ‘It’s not a liquidity crunch. The impact is nervousness, the unknown and instability. But businesses close to a restructuring – this could tip them over.’
Notes one City rainmaker: ‘There will be challenges for PE clients invested in online holiday-booking businesses or those with supply chain issues in China, but they will also be looking at where the bargains are. They are cash rich and will be able to buy businesses at a price they couldn’t have got them a year ago.’
Yet with law firms facing a slump in lucrative transactional activity and amid fears that ongoing disruption will trigger a sharp downturn, managing partners are now facing the most challenging outlook since the banking crisis gripped the market in 2009. Patient’s conclusion sums up the sentiments for many senior figures in the profession as Legal Business goes to press: ‘These are uncharted waters. We’re taking everything day by day.’
Respecting no law – coronavirus hits the profession
- 28 February – Baker McKenzie becomes the first major firm in the City to respond to coronavirus fears, closing its London office as a precaution after a member of its staff was taken ill following a return from Italy. The office reopened on 2 March.
- 2 March – Latham & Watkins suspends its partner conference in New York amid safety concerns.
- 3 March – Sidley Austin cancels its partner conference in Boca Raton, Florida, with some meetings taking place virtually.
- 4 March – Coronavirus hits central Europe after a Wolf Theiss partner was hospitalised while three more employees tested positive for the disease.
- 5 March – More partner conferences are suspended following a spike in cases across Europe. Simmons & Simmons cancelled its conference due to take place in Monaco over two days, while Linklaters suspended its conference set to take place on 24 April. Paul Hastings postpones its conference in Miami.
- 9 March – Quinn Emanuel Urquhart & Sullivan temporarily closes its New York arm after a partner tested positive for coronavirus. The FTSE 100 plunges over 8.5%, on track for its worst fall since 2008.
- 11 March – Osborne Clarke postpones its international partner conference, which was due to take place between 30 and 31 March. Spanish law firm Garrigues tells all its Madrid staff to work from home.
- 12 March – The UK government moves into the ‘delay’ phase of its strategy, hoping to postpone the virus’s peak rather than containing its spread, leading business to step up efforts to encourage homeworking. King & Wood Mallesons closes its 800-staff Sydney office due to a suspected case of the virus, with staff told to work from home. Markets suffer another hit as President Trump bans travel from Europe to the US for 30 days.
- 13 March – Reed Smith begins homeworking in all its offices outside of Asia on an ongoing basis while Taylor Wessing shuts its London arm after a staff member tested positive for coronavirus.
- 16 March – Allen & Overy, Slaughter and May and Clifford Chance ask City staff to work from home; Bakers moves London and Belfast to full remote working.