Massive legal fees in a booming legal market have means that the deal closures and their accompanying fees are mere ’rounding numbers’ given the size of the deals, say legal commentators.
But the new fear is that the golden era for Big Law may be coming towards an end, with one leading figure, DLA Piper Chair Sir Nigel Knowles saying the ‘great resignation’ could become the ‘great redundancy’.
He said that lawyers who had chased the big salaries might face redundancy as the London Big Law firms seek to trim their overheads and it would be a ‘first in, first’ out’ situation for those who had joined the firms, he said.
The lawyers that jumped ship in “big numbers” in pursuit of six-figure salaries in London’s most prestigious firms could soon be laid off, as the top firms make seek to cut costs by making redundancies on a “first in, first out” basis, DWF chief executive Sir Nigel Knowles said in one report.
The huge pay increases that we relentlessly report on LawFuel, including those referencing the latest figures from the London legal market which have seen the deal flow of M&A and private equity deals lead to cash flow to the partners’ bottom line, along with pay increases for associates and junior lawyers at the big London law firms.
“The last few years have been a golden era,” according to Tony Williams, a former managing partner at Clifford Chance who founded Jomati, a legal profession consultancy who explained how low interest rates and monetary policies had lead to huge deals that had created a boom in mergers and acquisitions, the core work for some of the elite global practices.
The Times reported Christopher Digby-Bell, a former City of London representative on the council of the Law Society, took what the newspaper reported as a ‘somewhat jaundiced’ view about the earnings of the Magic Circle partners.
“The reality is that the magic circle firms operate more like a merchant bank than a law firm. It is all about delivering the deal and the fees are almost incidental.”
He was also somewhat jaundiced about whether his colleagues in the Square Mile merited their multimillion-pound pay packets. “You can wonder at the brilliance of the minds at work, but it doesn’t make you love them any more.”
Certainly the partners have reaped rich rewards at the major firms with equity partners at firms like Chicago-based Kirkland & Ellis, earning an average of about £6 million.
LA-based Latham & Watkins are paid about £3.26 million on average and the big firms like Akin Gump have lifted their associate pay rates massively as the competition for talent continues.
But there are some who believe the tide could turn as the economic headwinds mount, which could lead to problems for staffers who might face the redundancies that could come.
Sir Nigel Knowles, whose publicly listed firm has made £41.4m for the financial year 2021-22, believes it is somewhat protected from a major downturn because of its insurance practice, but also because it has a strong litigation practice.
In the US, there has been a boom in legal jobs with data for May 2022 also shows the sector cracked its previous 2007 record that month, with a total of 1,182,600 legal sector jobs, according to a Reuters report.
The pressure on firms through lateral moves and the thirst for legal talent in the current hot climate for law work could quickly dissipate with an economic slowdown, leading to a significant number of redundancies.
Nathan Peart, managing director of UK legal recruiter Major Lindsey & Africa believes that a slowdown would see firms using their associates to move into other areas like restructuring. “There’s a lot of awareness now around the lasting impact of lay-offs.”
Peart says that the large City law firms were “more mindful now about how the way they handle tricky economic challenges could have damaging implications for the perception of their brand”.
But, at the end of the day, whether the big law firms are in London or LA, their principle concern will be the focus of the equity partners on their own bottom lines. If they are threatened, then so to are the lower level legal jobs.