Desperate partners spell redundancies

MCGRIGORS, a top Scots law firm, stunned the profession last week by announcing the first market-driven redundancies in the sector in the last 18 months. Some 40 staff – most of them lawyers – will lose their jobs. McGrigors has tried pretty much everything to avoid this: pay cuts, enforced unpaid holiday etc. But there is still not enough work to meet the wage bill.

McGrigors is not alone in this, and corporate solicitors throughout the City are worrying that they will be the next to get the tap on the shoulder. And with good reason, given the unprecedented pressure on law firm profits.

Most firms tend to divide their revenue into one third for lawyers’ salaries, another third for offices and support staff, and the rest for the partners. This works very well in a boom but rather less so in a bust, given that a relatively small fall in turnover can have a catastrophic effect on what partners take home.

Corporate boutique SJ Berwin saw its turnover fall 14 per cent in the midst of the credit crunch. Given that this was after the firm’s best year in history, it was hardly a shabby result. But it meant a 50 per cent fall in partner profits, and the firm has been trying to secure a US merger ever since.

Law firms have done all they can to avoid this and keep their profits high. Eversheds has gone through five rounds of redundancies – all bar one paid at statutory minimum. DLA Piper has gone through three – again, all at the statutory minimum. This is a short term fix. Ultimately there is far less law around, and buyers can afford to be picky. Top firms and mid-sized outfits with a USP will be fine, although they will have to work harder for their wedge. The mid-market may find itself in dire straits.

Firms have to accept that the days of paying partners over half a million a year for doing leases for Boots are gone for good. Partners will have to get used to their drawings reflecting the value that they add to the deal, and many will see their pay tumble. But before they are forced to accept this unpalatable reality they will cut everything possible in a bid to artificially inflate their profits. McGrigors will not be the only redundancies this side of Christmas.

Matthew Rhodes is a director of RollOnFriday