‘Magic circle’ has lost its aura as City law firms feel pain of recession

Joshua Rozenberg
10 Feb 2009

What affects our clients affects us, the global managing partner of the world's biggest law firm tells me.

David Childs is explaining why Clifford Chance is the first of the "magic circle" of leading City firms to propose redundancies among partners, the lawyers who own the business.

Announcing a review of its 30 offices last week, the firm was brutally frank. "If approved by the partnership, the firm-wide review is likely to result in an overall reduction in partner numbers."

In January, the London office of Clifford Chance announced redundancies at "associate" level - qualified lawyers who are not yet partners.

"The proposal could lead to job losses for approximately 70-80 lawyers," it said. An announcement about business services, as support staff are now called, will be made in a week or two.

Clifford Chance may be the first of the big legal practices to make cuts, but it will not be the last.

Linklaters, the second-largest, announced a redundancy consultation at the end of last month that is expected to lead to heavy job losses for up to 120 lawyers and 150 business services staff.

It is vital for the firm to be in the best shape to meet the challenges ahead, says Simon Davies, managing partner at Linklaters. "We are acting now to reduce our headcount because of changing demand from our clients."

And what of the other magic circle firms? "Like any business, says Wim Dejonghe, managing partner of Allen & Overy, "we cannot rule out the possibility of having to make targeted redundancies in particular practice groups or offices if there is a sustained downturn or if there are exceptional business reasons."

Ted Burke, chief executive of Freshfields, is also ruling nothing out. "These are very challenging times and we are not immune to those challenges," he says. "We realise that we must adapt to the different markets but we have not made a decision to run a redundancy programme in any of our offices."

And there was an equally cautious response from David Gold, senior partner at Herbert Smith - often regarded as the sixth member of the five-firm magic circle.

"We are considering how a sustained global economic downturn might affect our business and have not ruled out any options," says Gold, "but at this stage we have not had to consider implementing any redundancy programme."

Still, one member of the magic circle is more optimistic. Slaughter and May has a different business model from its rivals, establishing close working relationships with other law firms around the world rather than a huge network of branch offices.

"Current work levels overall remain reasonably strong," says Paul Olney, the firm's practice partner. "Our international strategy of working with the leading independent firms is a robust one, working well in good times and bad."

No slaughter at Slaughters, then? "Our strong client base, our multi-specialist approach and the cautious management of the firm means that we have not, in previous downturns, ever had to announce a round of redundancies and we have no current plans to do so," says Olney.

Back at Clifford Chance, they believe few law firms will escape the recession unchanged. "Very many business organisations are having to review their size and scale," says Childs.

"Law firms are no different. They may not need to do the sort of exercise we are about to embark on but I am sure their managements will be doing some thinking around these areas."

And Childs says it's better not to put off the inevitable.

"You'd expect that organisations which look ahead, foresee changes in demand and react quickly to get themselves in the right position would be more successful than people who react very slowly to changing market conditions."

Law firms and their policy on job losses

Clifford Chance - Set to axe 70-80 lawyers, plus support staff

Linklaters - Set to axe up to 120 lawyers, plus 150 support staff

Allen & Overy - "Cannot rule out targeted redundancies"

Freshfields - No redundancy programme but "not immune"

Herbert Smith - No redundancy programme but "not ruled out"

Slaughter & May - Working well - "no current plans" for redundancies