When the UK went into Covid lockdown, city law firms cut salaries and asked staff to cut one day of the week, a drastic spending cuts not seen since the financial crisis.
The shortened workweek returned today as overstaffed City firms try to avoid mass layoffs amid a deep downturn in dealmaking.
City law firm Fladgate last month asked its property team colleagues to switch to a shorter working week and cut pay.
As part of the firm's cost-saving initiative, the team of about 30 lawyers could work four-day weeks starting this month until March, legal news website Roll first reported on Friday.
The voluntary scheme is expected to reduce pressure on the company as it grapples with a severe downturn in the commercial real estate sector, which has been hit by higher borrowing costs, inflationary pressures and hybrid work.
Daniel Norris, head of property at international law firm Hogan Lovells, says: “This has caused investors to slow down or pause decisions to buy and/or sell; and tenants will think twice before entering into new leases.”
Large asset managers who had previously invested in commercial real estate were instead looking for higher returns elsewhere, including bonds and stocks.
The reduction in Fladgate's part-time week comes as professional services firms, which hired too many staff during the post-pandemic flurry of M&A deals, have spent the past year cutting costs amid slowing revenue growth and declining profits.
City workers returning to the office after the Christmas break now face a reckoning with Fiona Cherniavskaya, chief executive of Source Global Research, a research and consulting firm, who expects cost cuts to continue into 2024.
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“Right now we don't see any sign of a sudden change in the market that would mean they don't have to think about profitability,” she says.
The Big Four accountants – EY, Deloitte, PwC and KPMG – announced hundreds of layoffs in advisory and advisory divisions last year after a sharp decline in the rate of churn – the number of people leaving firms each year – firms with overstaffed staff face high costs.
However, Chernyavskaya expects audit firms will want to avoid further mass cuts to their deal teams this year. Abrupt layoffs not only damage reputations, but also leave companies without labor if deals resume earlier than expected.
“Every time there has been a downturn (if you go back to the financial crisis and think about Covid), the recovery in professional services has been incredibly fast.
“Nobody wants to be without enough employees when the market recovers,” she says.
Instead, Cherniavskaya expects professional services firms to take temporary measures to save money, including delaying the start of graduate training and apprenticeships, reducing working hours or quietly eliminating underperforming employees who are not meeting targets. paid working time.
Advisory firms are more likely to consider more discrete and flexible measures, especially as the private equity industry enters 2024 with trillions of pounds of untapped investor cash.
Alex Hamilton-Bailey, partner and head of legal and professional services at headhunting firm Odgers Berndtson, says: “There is a lot of cautious optimism due to the continued build-up of private capital waiting to be released.
“It's certainly going to lead to more deal flow at some point, so all sorts of advisory firms aren't cutting back as much as they could.”
While investors brace for a recovery in private markets, bankers and wealth managers are still reeling from last year's culling, when Goldman Sachs, Citi and BlackRock joined the firms that cut thousands of jobs in global finance sector.
While investment firms' asset management and commodities divisions have more or less taken inflationary pressures on the chin, equity finance teams have been among the hardest hit by job cuts.
“Share prices, generally speaking, fell across the board last year, meaning there was less money to be made in the stock markets,” says Tom Andrew, a senior manager at recruitment firm Robert Walters .
Today, younger investment bankers are more likely to get new jobs than their older colleagues due to fewer job opportunities and firms' preference for promoting from within.
“If you're early in your career, you'll probably have an easier time getting back into the market than if you have 15 to 20 years of experience,” says Michael Henning. head of investment at recruiter Mason Blake.
Size matters when it comes to cutting costs: Commentators argue that the size of Fladgate, a mid-sized firm that employs about 200 people, including 93 partners, means it lacks the scale of larger full-service rivals that better protected from the market. recessions.
Christopher Clarke, director of legal recruiter Definitum Search, says: “Any firm offering a four-day week or shorter hours is clearly under some financial pressure.
“You're not going to offer a shorter workweek if everyone is working beyond their capacity. If everyone performs above their capabilities, you will hire employees.”
While some law firms are offering part-time work in response to the deal slowdown, others have cut hours as a means of retaining talent.
Slaughter and May, one of the city's most conservative law firms, also announced last month that it would permanently allow employees to work shorter hours for less pay. Employees at this prestigious institution, where wearing brown shoes was once frowned upon, can reduce their overall work hours by as much as 20 percent.
These lawyers will continue to work five days a week as usual, but will accrue days off work in addition to the holiday allowance, which they can use for two pre-agreed blocks throughout the year.
In 2021, the prestigious firm began trials of a so-called “On/Off” scheme, as well as separate schemes involving job sharing among staff and unpaid leave for lawyers working on projects that never materialized.
The pilots were unveiled amid concerns of rising burnout among junior lawyers working remotely as they struggled to cope with the growing workload brought on by the post-pandemic mergers and acquisitions boom.
It is clear that Slaughter and May's time-cutting scheme is not aimed at cutting costs or launched in response to short-term market conditions, even though the M&A specialist is likely to have been hit by the ongoing global crisis. deals with drought.
Instead, the scheme will help differentiate Slaughter and May, which typically expects lawyers to work about 1,800 billable hours each year, from deep-pocketed US rivals who typically demand longer hours for much higher six-figure salaries and bonuses.
Jonathan Clarke, HR director at Slaughter and May, said at the time: “The new way of working provides our lawyers with a different approach that allows them to develop their careers and provide value to our clients, while still having time to pursue other interests. and maintaining greater work-life balance.”
However, critics have raised concerns about whether volunteering for such schemes could hamper future career prospects.
One former Slaughter and May lawyer says: “The question that most staff will have is whether I value yourself in a negative light. way? Am I erasing my text saying I want to reduce my workload by 20 percent?”
According to legal news site Legal Cheek, the elite firm, founded in 1883, takes on about 95 trainee lawyers each year.
However, only a small proportion have a chance of eventually joining it . partnership. Another former Slaughter and May lawyer says, “I don't think anyone who signs up for the short-time program will become a partner, which is probably not what [Slaughter and May] are talking about.”
“They'll pretend it doesn't affect your career prospects, but it will affect your career prospects because that's what these firms are like. It's tough competition.”
Fladgate declined to comment. Slaughter and May have been approached for comment.
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