Big Firms Should Follow Liverpool, Not Tottenham

TREVOR CLARK

Liverpool FC has reversed its initial publicly announced decision to put many of its lower paid, non-playing, staff on government funded furlough. [https://www.theguardian.com/football/2020/apr/06/liverpool-reverse-decision-to-furlough-staff-after-fierce-criticism-coronavirus]  

This was after its first announcement was met with widespread disapproval, not least from its own fans and former players (among others). The general sentiment seemed to be that keeping highly paid players on full pay whilst low paid staff were put on furlough was inherently wrong, and not in accordance with the spirit and purpose of the UK government’s scheme. A fairly minor pay cut for the players, the argument goes, can easily fund the salary costs of lower paid staff during this difficult period (let’s leave to one side the question of whether clubs actually have the power to renegotiate player contacts in this way). Some Premier League clubs still intend to put staff on furlough though; Tottenham, Newcastle and Norwich among them. Meanwhile, an initiative led by the Liverpool captain, Jordan Henderson, seeks to encourage highly paid players to make donations to the NHS [https://www.theguardian.com/football/2020/apr/03/liverpool-jordan-henderson-sets-up-premier-league-coronavirus-fund-for-nhs .]

Large corporate law firms in London are currently formulating their own responses to the COVID-19 pandemic. Many have announced partner pay deferrals, and cuts to distributions [https://www.thelawyer.com/hsf-to-split-out-bonus-payments-for-2019-20-financial-year/], and/or flexible working and other measures, [such as Norton Rose’s four day week plan, https://www.legalcheek.com/2020/04/norton-rose-fulbright-asks-lawyers-to-work-four-day-week-in-response-to-covid-19-crisis/ ].

But at least one large law firm has announced that they are taking advantage of the government’s scheme and placing non-fee earner staff on furlough [https://www.thelawyer.com/pinsent-masons-furloughs-staff-amid-coronavirus-shutdown/]. Those firms that are yet to decide what to do about furlough might take a leaf out of Liverpool’s, rather than Tottenham’s, book. I say this as a both a fan and a former player (of big corporate law firms in London).

Are parallels between Premier League football clubs and big City law firms particularly helpful right now? Well, partners of big, corporate law firms in London are also highly paid, by any measure, and certainly by comparison with the employees of their firm. The response of many big City firms to the global financial crisis was to implement often multiple rounds of redundancies in the period 2008-2011. Some were on a pretty large scale [https://www.thelawyer.com/issues/9-february-2009/revealed-linklaters-redundancy-package/]. The purpose of the redundancies was to broadly maintain partner profitability, i.e. partner pay,  at, or close to,  pre-financial crisis levels. Partners (to the extent they weren’t not themselves terminated) didn’t take too much pain. It is likely that the leadership of these firms, who lived through that period, are dusting down the playbook from that era right now.

However, they might think about the following points before they opt for either furlough, or widespread redundancies, where these are primarily aimed at maintaining partner profitability levels:

1. Lawyers and law firms have public interest duties [solicitors must act in a way which upholds public trust in the legal profession https://www.sra.org.uk/solicitors/standards-regulations/principles/.] Alright, the SRA probably did not have this unprecedented situation in mind when drafting its code of conduct, but the existence of this rule, as well as other formal and informal norms of professionalism, requires them to take a broader perspective at times like these, and to not just focus on the bottom line.

2. The government’s furlough scheme should not be accessed as a first step. And if accessed at all, this should only be if a firm is facing collapse, having first tried other measures. This scheme is not aimed at large City law firms, for the same reason is not aimed at Premier League football clubs. Taxpayers will be left with the bill for these measures, and there is likely to be limited appetite for the bill to be larger because big law firms locked into the scheme as well as small local shops and restaurants, for example. these business often face a binary choice between furlough and insolvency. Law firms have other choices. There are alternatives to redundancy. Deferring partner pay to retain much needed cash to pay employees for example, and maybe cutting partner drawings or even accepting lower partner profitability (likely only for a temporary period, see below).

3. Big law firms are not as badly affected by this crisis as other businesses. There are plenty of corporate rescue work opportunities arising out of the crisis [https://www.thelawyer.com/freshfields-and-kirkland-in-action-as-debenhams-lines-up-administrators/], and for those businesses that can’t be saved, an orderly winding up also requires good lawyers, for them to be involved in. Just as they did post-2008, nimble firms are currently respraying their finance and corporate lawyers to turn them into restructuring and insolvency practitioners [https://www.ft.com/content/f330a309-7159-4979-9791-f66ff442c70b]. And private equity firms are starting to eye bargains and will need the help of their lawyers to execute these plans [https://www.ft.com/content/432a696f-00ed-4bb7-99d8-51616447eea2]. Ok, so corporate M&A, capital raising, and other staples may be down for a bit, but this is why many firms have invested heavily in downside R&I capability, as a hedge against downturns.

4. As a final point, and this is pretty speculative, the global financial crisis of 2008 is not necessarily the best guide to how this current crisis, caused by a virus pandemic, will play out in the wider economy. That was a financial crisis, and this is not, at least not yet. In 2008, some firms drew 50% or more of their revenues from their financial institution clients. By 2009 it was becoming pretty clear that many FIs would not recover, either at all, or would recover in a way that meant that they would never get back to their global transaction doing best anytime soon. So, law firms that depended on those clients needed to contemplate a permanently changed landscape. This current crisis may, we all hope, yet prove to be a painful but mostly temporary economic downturn. Some are arguing this already [https://www.legalcheek.com/2020/04/coronavirus-has-got-nothing-on-the-2008-financial-crisis-says-ex-clifford-chance-boss/]. So, rafts of redundancies and headcount reduction may not be the right remedy this time around, indeed if it ever was.

Events are fast moving, so who knows how this will COVID-19 crisis will ultimately play out. For the time being, big law firms might look to Liverpool’s example, and not tap into the furlough scheme, or implement mass redundancies. Apart from anything else, they will want to protect their brand and avoid the negative publicity and ill feeling that either of these measures might provoke. And partners might, in the spirit of the hour, volunteer to take a bit of pain to prevent that becoming necessary. Perhaps they might even give Jordan Henderson a call.