As reported by Tabby Kinder in the FT this week, the Big Four recently got together for a pow-wow as to how it would look if they opted for furlough for some of their people. For safety sake, they invited Grant Thornton and BDO along too. Would it be ‘appropriate’ they asked, given their reputational issues over recent months. I’ll leave you to make your own mind up having read Tabby’s article.
Last Friday, Matt Hancock (Secretary of State for Health and Social Care) asked Premier League footballers to sacrifice some portion of their earnings to prevent non-playing staff from needing to go into furlough. The problem is that, although both MPs and footballers often have short careers in common, MPs often earn much less than footballers and MPs have not collectively agreed on the kind of pay drop that they were requesting footballers take. So Hancock’s proclamation looked more like Hancock’s Half Hour than a values-driven and “we’re all in this together”. An own goal said Barbara Ellen in The Guardian.
Why does this matter to law firms?
Today, a heap of firms have announced their reaction to the changed economic environment. The Lawyer carries news of Bird & Bird creating an emergency fund to protect the firm. Others have declared that partner quarterly profit allocations are being postponed and/or changed working hours, furlough and redundancy.
What is the right thing to do?
There is no hard and fast ‘right thing to do’.
But what looks like the right thing to do is:
First, Partners delay a profit draw
(and then after a suitable pause and when appropriate)
The firm considers working at 80% time/furlough for its people; and
Then, it moves towards redundancies
All firms should be considering all options, of course, and the timings of the above steps may be quicker in some areas rather than others. But to make redundancies when furlough is in place or when partners have not taken the hit is, in my view, shortsighted.
Why should firms do things in this order?
Firms spend years building intellectual capital. Partners are well paid and should be able to withstand the shock for at least one financial quarter. If firms rush to furlough staff without having deployed partner profits delay, it looks poor in the short term and is unlikely to be forgotten for a long time afterwards.
If Matt Hancock had said “This is what we as a group of MPs are doing to relieve the burden on Treasury, and we’re calling on business leaders and elite sportspeople to do the same” then his message would have been better received.
Linklaters and Slaughters have, as usual, got it right (see my prior piece on the economic cycle over here). Partner drawings are being withheld, and it’s being communicated clearly to the market.
Right now, law firms need to think about both the short- and medium-term implications of their actions, and if they are in line with their stated values.
We’ve had years of firms telling us that they are values-driven. Now is the time to prove it.