Addleshaws redundancies provoke debate

Law firms have traditionally trotted out the well-worn cliché that “our people are our most important assets”, but in recent months that is starting to ring increasingly hollow. 

Redundancies are a sad fact of life in difficult economic times, and many firms have found themselves in a position of having to let good people go in order to dig the firm out of a deteriorating financial situation.  It is sometimes undoubtedly the right thing to do in the interests of the firm as a whole, and whilst those impacted may feel aggrieved at losing their positions, by and large even they understand that the action is motivated by necessity. 

However, in the last couple of years we have seen redundancy programmes being put in place by firms whose profits are rising strongly, apparently with the sole motivation of maximising already healthy profits per equity partner (PEP).  And I can’t help but wonder whether firms will, in time, rue the day that they decided to do so.

It was reported this week that Addleshaw Goddard is to make around 24 senior (non-partner) fee-earners across its offices redundant to “rebalance the mix and skills and experience across each UK office” because their staff attrition, particularly at more senior levels, has been lower than they anticipated.   Of itself, this is not particularly remarkable, but it comes at the same time as the firm has posted a 5% rise in turnover for 2011/12, and a whopping 30% rise in profit.  Average PEP rose 37% from £328,000 to £450,000.

These figures are not as stellar as they might at first appear – they need to be read in the context that the rises come after a disappointing 2010/11, when profit fell by 17% and PEP dropped by 23%.  In response to the problems in 2010/11 the firm cut around 40 support staff jobs in May 2011 – in my view a reasonable and sensible response to the decline.  However, as an outsider looking in, whilst it seems to me that the measures taken in 2011 were proportionate and undoubtedly effective (the gains posted in 2011/12 have more than made up for any lost ground caused by the drop in the prior year), implementing a further round of redundancies now will be a bitter pill to swallow for people for those affected by the cuts and could cause long term damage to the morale of those who remain.   

Law firms are businesses, and as such the partners are entitled to try and make them very profitable.  I am not trying to espouse some socialist ethic whereby the spoils of business must be shared equally between the workers.  But to make someone redundant is a big step – particularly in a harsh economic climate such as this – and something which should be done only where really necessary.  Senior people may find it particularly difficult to secure new roles elsewhere, as firms tend to try to keep their bright young (and cheaper) talent, rather than hire senior (and therefore relatively expensive) lawyers from outside.  Staffing levels can be rebalanced over time through natural attrition, and redundancies should in my view be reserved for situations where there is insufficient time for this mechanism to work without damaging the economic health of the firm.

I personally would find it quite difficult to look someone in the eye and tell them that they are to lose their job when I had benefited from a 37% increase in my profits.  And I would also worry about the impact that it will have on those who remain.  It is a moot point whether we have reached a point in the legal business where the old days where there was a constant war for talent have gone.  Some would argue that there are now too many lawyers in the market, and that we are unlikely to return to the old days where the biggest head-ache that firms had was how to recruit and retain enough people.  Others think that once the economic situation has recovered, then we will be right back into the talent war.  I don’t know which view is right, but if indeed it does turn out to be the latter then those firms who chose to sacrifice the careers of good people even whilst PEP was rising steeply may live to regret the day they did so.  When people chose where to work money is a significant factor, but another is the culture of support and working together through hard times.  That will be a difficult story to spin for firms who have over-used the redundancy tool when times got tough.

I am perhaps being a little unfair in singling Addleshaws out here – they are certainly not the only firm who are taking similar steps to maximise PEP and in one sense you could commend them for not trying to bury the PEP statistics whilst they go through this process, or to hide the job cuts through compromise agreements with tight confidentiality clauses.  However, they are a very clear example from which to launch a debate about the right balance between profitability and a wider responsibility to employees.