Will the restructuring of the financial services sector be reflected by a similar process within the City’s legal infrastructure?

Frankly, it’s anyone’s guess. Normally self-assured gurus of the legal world admit that they don’t know where it all goes from here. They may not be shell-shocked, but they certainly know people who are.

Professor Laura Empson, director of the Centre for Professional Service Firms at Cass Business School, says that the top partners in leading firms are now feeling “utterly bemused” by what is going on.

“Back in the spring and summer they were expecting tough times ahead, but in the past month or so they have see a sharp split in their firms between the departments that are extremely busy in dealing with the financial crisis and the other departments that have nothing to do. In effect, we are seeing a bifurcation within major firms between the ‘haves’ and ‘have-nots’ — that is, whether or not they have work.”

This is not good for morale. Tony Williams of Jomati, the legal management consultancy, says: “These are extremely difficult times to lead an organisation through. The physical and mental stresses can be staggering. City law firms have done extremely well in recent years but it requires a completely different set of skills to be managing in a bear rather than a bull market. And the downside of a culture of high salaries, which is what we have had, is that the ability to carry these for long periods is much reduced.”

City law firms have binged in recent years on too much work and easy money. As Laura Empson puts it: “A lot of firms will acknowledge that they weren’t in equilibrium. They were growing at an extraordinary rate and they were struggling with that. Many would have welcomed an easing off by being, say, 10 per cent less busy. The question now, though, is what do you do when you are 100 per cent less busy?”

As usual, the pain will not be spread equally. It is not just overexposure to, say, property or mergers and acquistions which is harmful, but where you are in the pecking order. “The top ten firms are still going to do well but by the time you get towards the bottom of the top twenty there is going to be real hurt,” says Tony Williams. “And for firms in the third tier and downwards, it will become very difficult.”

So what are the critical decisions that senior managers must take? According to Laura Empson, the most difficult is about time scales. “No one really knows what the future holds,” she says, “but you have to make a judgment about the future to shape which practice areas you stay in and the people you keep or continue to recruit. No one wants to make cuts and then find themselves wondering in four to five years time where the next generation of partners will come from.”

In surveying the future, Tony Williams reckons that the realistic horizon is three years. “When you look at your people — especially your associates — you have to ask yourself, ‘Who do we want to have with us then?’”

Associates working outside the UK may be the easiest to let go, as shown by the cutback of 20 Clifford Chance associates in its New York office (although the biggest surprise was that they came from litigation, usually a growth area in recessionary times). However, there will be losses in London too and those anxious about the future will need to start weighing up the options.

Going in-house may be regarded as an obvious alternative if you think that you may be excess to your firm’s long-term requirements.

However, Julian Stone, of recruitment agency Taylor Root, counsels that this should not be taken for granted. “In-house is a popular career choice,” he says. “Everyone wants to train with Clifford Chance in their early twenties but once they have a few years experience behind them, they want to leave and go in-house because they enjoy the idea of being part of a business. Moreover the idea that in-house is a cushy number is completely outdated.”

New figures from Incomes Data Services Limited (IDS), the industrial relations research centre, for its first report on in-house lawyers’ pay, confirms that the structures of in-house teams are increasingly sophisticated.

IDS estimates that about 6,000 lawyers now work in-house in the UK with the basic pay for those at the top of the tree as high as £400,0000 — with the possibility of a bonus of £150,000. While this is about half the £1 million-plus which is now commonplace amongst the Magic Circle firms, it is still potentially attractive given that the pressure to attract work (a partner’s key responsibility) will have been removed.

So while in-house jobs are still being advertised, it would be a false presumption that they are just there for the taking. Managing a top law firm in these troubled times may be regarded as a tough assignment, but managing your career in this uncertain economy could be even more nerve-wracking.

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