Game of Thrones, talent wars, flexibility and control
This article is based on a roundtable discussion conducted under the Chatham House rule entitled “Will the War For Talent weaken an already fragile professional services sector?”, the second in the series, convened by Jericho Chambers and Stifel on the 29 November 2018. To read the first, click here.
"Lawyers used to be the poor cousins of bankers but rainmakers are increasingly indistinguishable, both in compensation and behaviour".
- John Gapper, The Financial Times
If lawyers are the new Masters of the Universe then their calling is now renowned as one of the most punishing professions to take on. The rewards can be high but so are the stakes. Rivalry can be intense not only between firms but also within them. No wonder one of the participants in our roundtable laughed: “they may appear refined, civilised and highly educated from the outside but people are amazed when they get a chance to see the inner working of top law firms it’s more like Game of Thrones.”There’s a human cost to all this high-level client service - working all weekend, keeping an unerring eye on the meter which bills by the fraction of the hour. “I fought the law and the law won: my burnout story,” is one typical headline from a Forbes magazine story. “Seven Reasons Why Practicing Law Might Be More Stressful Than Spending 18 Months in a POW Camp,” is an even more lurid example from the site of an American legal headhunter. According to an often-cited Johns Hopkins University study of more than 100 occupations, researchers found that lawyers lead the nation with the highest incidence of clinical depression.Professor Laura Empson of Cass Business school is probably the leading academic when it comes to close study of the professions and her book “Leading Professionals” caused quite a stir when it was published in 2017.
"I became a lawyer because I never wanted to have a boss"
The central point she makes is that groups of these high-performing individuals can be a nightmare to manage and lead: - “Individual professionals - highly educated, highly intelligent, and high opinionated - are generally reluctant to see themselves as followers and may be equally reluctant to put themselves forward as leaders. They value their autonomy and confer authority on their leaders on a highly contingent basis.” But they can be great at making the lives of those who try to lead them and suggest innovation, very difficult indeed. One anonymous lawyer told her - “I became a lawyer because I never wanted to have a boss.”
Her BBC programme on the subject was entitled Insecure Over-Achievers. In the programme, Sir Gerry Grimstone, the Chairman of Barclays comments: “The dynamics of the client relationship [are] well-suited to somebody who doesn’t have a very good sense of self, is prepared to put the client’s interests first but also does a very, very good job.”
There may be disruption and consolidation in the air - the largest IPO yet of a law firm, DWF, is expected soon - but for most lawyers, the partnership system still works. For large, international firms in the magic and silver circles there is plenty of work. Staff, including junior lawyers, earn attractive sums. The average turnover per partner of top firms at £800,000 is almost triple that of small firms, according to the Law Society. In the most sought-after firms, junior lawyers start on about £60,000 and they tend to rise to about £100,000 fairly quickly. Some will eventually make partner in the unforgiving tournament system of progress - in a very few of the big firms they might as partners earn up to £1m and in the case of one or two firms even £2m.
A disrupting force on the scene in London has been the advent during the last decade of US firms who make predatory lateral hires often of high earning partners from Magic Circle firms. “Another $10 million scalp for Kirkland as Freshfield star Maguire quits,” reads a typical headline from the legal trade media referring to a Premier League-style transfer of a highly valued, private equity expert Adrian Maguire from Freshfields Bruckhaus Deringer to American rival Kirkland & Ellis.
The conversation was opened by Dena McCullum, the founder of Eden McCallum. McCallum is not a lawyer but an ex-McKinsey consultant who co-founded a business that employs freelance consultants. Eden McCallum was a revolutionary idea in the pre-gig economy days. It’s often assumed that the gig economy is merely Deliveroo drivers but Dena reminded that 59% of freelance “giggers” are now in the knowledge economy as was stated in The Taylor Report.“I have a very specific take on the war for talent," said Dena. "What our consultants have is flexibility and control. Ninety per cent earn the same or more as they did within more conventional firms on between 35-38 weeks per year of work. What is even more important is that we know 85% of people are more satisfied professionally than their peers in traditional firms. We’re also proud of the fact that the gender pay gap, a serious problem within many professions especially law, is 30% but with days rates that gap for us is just 3%.”
Gareth Hunt from Stifel has been observing the legal sector closely for several years. Flexibility and control are not out there in abundance for the foot-soldiers. “Some law firms may have been around for over 100 years,” he noted, “But investors still want a discussion about how AI and changing lifestyle requirements will shape them on a 5 and 10-year horizon.
"Sit in this seat, work hard for a decade"
“For younger people, it seems partnership isn’t necessarily the safe, highly prized goal it was. ‘Sit in this seat, work hard for a decade, make partner and then work even harder for the next two decades’ isn’t the sell it once was.
“In our industry, investment banking, we’ve definitely seen a shift with new hires telling us that money isn’t everything. People ask about the ethics and quality of life and the meaning of the work they will be doing. Sure they want structure and to learn for the first few years but then they desire autonomy and this can be difficult to cater for.
“For young people, the prospect of eventually achieving partnership is even less assured than it used to be. Even in lockstep partnerships people who aren’t cutting the mustard move down as well as up if they aren’t keeping up with their peers. Some people seem to be asking whether it’s worth slogging away doing all-nighters if the goal at the end isn’t guaranteed. There is far more fragility out there than appears on the surface. There have also been some near-death for partnerships when high earners jump ship if there is a wobble in cash flows. We’ve heard of 2-3 large coming very close to the wire. All you need is to lose two key teams and your working capital is under stress and, while there is little on balance sheet debt in the sector there is plenty of shadow leverage via partner contributions.”Larissa Joy qualified as a solicitor but decided to step off the elevator to legal partnership to take on a more unorthodox career including private equity and marcomms. She is now a non-executive director at both law firm Charles Russell Speechlys LLP and search firm Saxton Bampfylde among others.
She also has three young children and three stepsons.“It’s a big advantage to be able to use legal training as a grounding to do many other things,” she said. “As a partner in a private equity firm, I gained insight into what it means to be a partner. After child number three I wanted to do something different. Being a NED at several businesses including a law firm is fascinating. You see and can use the craft skills of law on a regular basis but also bring an outsider’s perspective.“Recent research suggests that across professional services the trend is for incorporation. Law firms need to be mindful that by 2020 50% of the global workforce will be millennial. There is much that can be done to understand the aspirations of the millennial generation and an authentic purpose-driven culture is key to retention and motivation.”
Owen Bowcott, the legal affairs correspondent of The Guardian stressed that what was going on in the rarefied atmosphere of The Magic Circle bears little resemblance to law as it affects normal citizens who are caught up with it. The market is now in two parts. At one end are the sort of firms able to service high-value cases from countries like Russia. At the other, previously solid high street firms that were reliant on Legal Aid to make a good living were now suffering. Many such solicitors coming towards the end of their working careers are finding that their businesses are next to worthless to pass on to the next generation of solicitors. The goodwill and the numbers simply aren’t there. Many are closing because there is nothing to sell on.
Bowcott also pointed out that there is even now a shortage of High Court judges one of the reasons for which is that the pay cannot compete with work in private practice.
Brexit could prove a grave threat to the UK legal business sector
He also stressed that Brexit could prove a grave threat to the UK legal business sector. He said that cities such as Paris and Amsterdam are well aware that UK law is worth £26 billion to the government and so are setting up rival English language courts to compete. Dubai and Singapore are also ready to take even more business.
Another speaker agreed threats were not just on the horizon but already here: “For the lucky ones in the legal profession the machine works and some can take out £1.5-2 million each year. But further down the market, the disruptors are at work. There are many more intelligent ‘niche’ ways to buy legal services and there is a growing market to supply this need.“An added threat is a cultural change - young people are making far less than partners but are even less like to make it to the top. The irony is that the biggest investors in AI/legal tech are big firms who are all thinking why do we need to employ so many costly associates? This is already having marked negative implications for culture.
“But you just try pointing out the dangers. Conservative firms are in danger but it’s hard to tell a room filled with multi-millionaires they are on a burning platform. (Especially if they first heard it back in 2008.) Why would they want to change? They are entirely self-referencing. They have no non-execs. They should be worried on the talent side about the next generation because Millennials have far more options than they did. The whole engine in these professional service firms risks running out of fuel but, at the moment, as the top law firms only need 10,000 recruits globally each year and it remains a career path many are keen to follow - we haven’t come to the crunch.”
Another speaker agreed: “Partners of law firms are very cautious. They combine this with being divisive when it comes to internal competition. Partnership can be such a misnomer!”Most of the concerns around the table were expressed for mid-tier legal partnerships. “Many of them are going to be forced into amalgamation and marriage where they have to undergo a cultural adaptation,” noted one speaker. “As a cost-saving device this can work well but partners are often averse to this sort of change, citing cultural difficulties as an obstacle. The irony of this is that many perpetuate myths about ‘unique culture’ but you see/hear the same from partners of sixteen different firms. Perhaps they aren’t so unique. So the vast majority of mergers don’t work and the majority won’t be able to come to capital markets. ”Our roundtable contained two young female lawyers - Adele Edwin-Lamerton, a solicitor and immediate past chair of the Junior Lawyers Division of the Law Society of England and Chantale Phindar - neither of whom appeared enamoured with the system that was being discussed.
Adele commented: “I was a career-changer into law and I’m not alone in that: twenty-nine is the average age of qualifying lawyers now and they want and expect more. The hierarchical structures and unpleasant training contracts can be very unattractive. More are asking why do we do things in this way? It’s no longer up there on a pedestal as a profession. There are many opportunities, many places where they understand the meaning of working smarter not harder. This awareness of what a good culture looks like means firms are going to have to take more of a look at themselves in the mirror.”
Chantale who has recently graduated with her LLB from Exeter University and is currently working as a legal assistant concluded - “It’s all about choice of lifestyle I think many young people feel an aversion to corporate structures as they currently are. In law, there is such a wild disparity in terms of pay. Some young people are being paid huge sums but many aren’t. However, we have to earn a living. I didn’t dare open my student loan letter. Maybe I’m just destined to live a more humble life…”
The panel members included:
Dena McCallum, Founding Partner, Eden McCallum LLP
Rachel Holmes, CEO Matrix Law
Gareth Hunt, Managing Director, Corporate Broking, Stifel
Owen Bowcott, Legal Affairs Correspondent, The Guardian
Larissa Joy, Non-executive director, Charles Russell Speechlys LLP
Alan Leaman, Chief Executive, Management Consultancies Association
Anthony May, Hedley May LLP
Chantale Phinda, Exeter University Graduate
Robin Mann, Head of European Investment Banking, Stifel
Stewart Wallace, Director, Business Services Stifel.
It was chaired by Matthew Gwyther from Jericho Chambers.
Further reading:
Leading Professionals: Power, politics, and Prima Donnas By Professor Laura Empson. Oxford University Press
The FT’s Andrew Hill on Insecure Over-Achievers
An interesting study on “Professionalising Professional Services” by Hedley May
Article “No more long work hours for millennial lawyers". FT 2016.
Stress and mental health advice from The Law Society
