Market Focus

A lot has happened since we reported on Spring retention rates in early March. Back then, while Covid-19 was clearly on the radar, nobody could accurately predict how the next six months would pan out. So, how has lockdown and the ongoing economic turmoil affected our leading law firms’ ability to retain the next generation?

Yours truly, for one, was expecting an absolute car crash in the run up to the Autumn retention rate season, and I’m delighted to admit that my prediction was overly pessimistic as the results announced to date indicate only a very minor deterioration. This holds for both large ‘City’ practices and national law firms.

In fact, one has to look very closely at the figures, and certainly consult a calculator, to see any difference between this autumn’s retention rates (85%) and the preceding three rounds – Spring ’19 (86%), Autumn ’19 (87%) and Spring ’20 (87%).

Scratch a little deeper and you’ll find that even this minor decrease of 1 or 2% depends on whether you count the offer of a fixed-term contract (FTC) to a newly qualified solicitor as a ’retention’ or not. If we chose to count an FTC as a retention, then there has been no fall in retention rates at all.

Honourable mentions:

Those performing particularly well include magic circle heavyweights, Allen & Overy and Slaughter and May, which both kept on 38 of 41 qualifiers (93%), Burges Salmon (29 of 30), Osborne Clarke (22 of 23) and Watson Farley & Williams (17 of 18).

Others British firms retaining at least 90% of their Autumn qualifiers include Ashurst (18 of 20), RPC (11 of 12) and Lewis Silkin (4 of 4).

US firms were well represented in the list of top performers with Covington & Burling (8 of 8) and Ropes & Gray (5 of 5) getting full marks and Latham & Watkins scoring an impressive 96% (23 of 24).

FTCs the order of the day?

In normal times law firms rarely offer fixed-term contracts to newly qualified solicitors; they have had two years to see their trainees in action and to work out whether they’re going to make the grade or not. But this year is far from normal, and while the number of qualifiers that have taken up offers of FTCs remain low, several firms have ‘retained’ at least one of their NQs on FTCs. Among them are magic circle firm Clifford Chance, City firm Stephenson Harwood, regional heavyweight Addleshaw Goddard and US firm Orrick, which offered FTCs to all 6 of its qualifying trainees.

What’s happening to NQ Salaries?

Should you be about to qualify at a large commercial law firm, the bad news is that several City firms have decided to cut NQ salaries with immediate effect.

Of the magic circle, only Freshfields have decided against cutting their NQ salary, while the others have all announced cuts of between 5 to 10%.

Other major players to announce a drop in NQ salaries include Norton Rose Fulbright, which has announced a cut of 5.5%, Reed Smith (12%) and Bryan Cave Leighton Paisner (12.5%).

While this will undoubtedly take a little gloss off for some NQs, we should remember that these law firms are simply reversing the significant hikes that they gave to their NQ salaries as recently last year, as we reported in our Autumn ’19 retention rate blog.

Looking ahead:

When you take a minute to consider everything that’s happened this year and the unprecedented economic impact of lockdown, this is a very positive set of results.

Now don’t get me wrong, tough times lie ahead, and those who have not been kept on are entering an extremely tough jobs market, but the fact that our largest law firms have chosen to retain NQs at essentially the same rate as the last two years is extremely encouraging.

It will be interesting to see what happens to those NQs who have accepted offers of fixed-term contracts and we will, of course, keep a close eye retention rates in the run up to March.

With the 2020 spring retention announcements well underway, here’s the first of our round-ups of how the top firms are performing in the season of new beginnings. 

Spring is in the air, (or would be if it ever stopped raining), and that means only one thing. Anxious trainees across the country are finding out whether they are being kept on as NQs by their training firm.

Magic Circle

As ever, we’ve been keeping a beady on how the top firms are performing. And where better place to start than with magic circle firm Clifford Chance, one of the first out of the blocks this year. The Canary Wharf-based outfit offered 34 of its 40 qualifiers NQ jobs and all accepted, a score of 85%. The firm was characteristically mum when making the announcement and did not comment on the results.

This year’s qualifying cohort is the smallest for many years and 11 fewer than last spring’s group. In autumn 2008, the firm took on its highest ever number of trainees, no less than 74.

This spring’s 85% figure compares to its 90% return this time last year and 87% last autumn. The newbies will start on a basic salary of £100,000 and will also be in line for a discretionary bonus.

Fellow magic circle firm Slaughter and May has posted another in a string of solid results. It is retaining 29 of its 31 qualifiers for a score of 94%, which is almost identical to its return of 97% last spring and 93% in the autumn. These new lawyers will start on £92,000, which could rise to over £100,000 depending on bonus.

Freshfields meanwhile has attained a score of 90% by making offers to 36 of its 39 qualifying trainees, with all but one accepting. Craig Montgomery, training principal and trainee development partner, said the results reflect the firm’s “ongoing commitment to recruiting, retaining and developing top talent for the future”. They will start on £100,000, and there is no bonus.

Another magic circle firm, Linklaters, has 41 trainees qualifying this spring and all but five will be staying with the firm (88%). They too will enjoy a salary of £100,000, which represents a combined basic salary and a discretionary performance bonus. In its last two rounds of results, the firm posted figures of 91% and 80%, and this season’s return is another positive score after a slight blip of 73% in autumn 2018.

Last of the magic circle firms to report this season was Allen & Overy, who have revealed a score of 81%, with 30 of 37 trainees signing on as NQs. This is a slight dip compared to the firm’s retention score last autumn of 89%. This spring’s newly qualifieds will receive a package worth £100,000, comprising salary and what is described as “a sign on bonus”.

Other Highlights

Elsewhere, Addleshaw Goddard has 11 qualifiers across its London, Leeds and Manchester offices and all are taking up NQ roles with the firm (100%). John Joyce, the firm’s managing partner, said the quality of work produced by the eight women and three men in the trainee group has been “exceptionally high and we are therefore very pleased to have been able to offer them all positions within their preferred teams”.

City firm Trowers & Hamlins is keeping on eight of its 10 qualifying trainees from its offices in London, Manchester, Birmingham, Exeter, Abu Dhabi and Dubai. Those in London will start on £68,000, compared to the £44,000 being paid to their fellow NQs based in the regions.

The two qualifiers (out of three) staying on at the London office of US firm Ropes & Gray will be on no less than £130,000 plus a bonus, putting them on a par with their counterparts at Latham & Watkins, and Weil Gotshal & Manges. In contrast, the four final seat trainees (out of five), being retained at Mayer Brown will be on £90,000.

We will update with further spring 2020 retention news as and when it comes in.

The Big 4 accounting firms are making aggressive inroads into the UK legal market and are committed to changing the sector’s landscape in the years ahead. In this blog, we examine their chances of success.

“The ambition is to be a significant player in the legal market.”

These were the words of Deloitte UK Legal’s new managing partner Michael Castle after he joined Deloitte from Allen & Overy earlier this year. His words echo similar sentiments in recent months from the other Big 4 accountancy firms, PwC, EY and KPMG.

The top law firms are taking the Big 4’s foray into the market seriously. Fieldfisher managing partner Michael Chissick admits “they are a threat to firms in my strata. I wouldn’t underestimate them in any way.” 

Memery Crystal’s managing partner Nick Davis has similar concerns. “They will be very, very serious players in the market,” he says. “They have got such a strong client base and they are so good at integrating business services into their offering.”

Haven’t we been here before?

Back in the 1990s, the then Big 5 (the same four plus Arthur Andersen) were making very similar noises. But their attempts foundered following the Enron scandal and the subsequent disintegration of Arthur Andersen in 2002.

By that time, Andersen Legal had become the world’s ninth largest law firm by revenue. The scandal and subsequent concerns about audit firms offering non-audit services led to the accounting giants pulling back (though not withdrawing totally) from the legal sector. The magic circle and large US firms expanded to fill the void, and it seemed that the rise of the Big 4 in the legal market had been seen off.

Not so, says Professor Wilkins, director of the Center on the Legal Profession at Harvard Law School. “The legal profession thought they’d banished [the Big 4] to Middle Earth, but in fact, they reformulated their strategy to take advantage of changing dynamics.”

So, what’s the strategy?

“Our model is not to go head to head with law firms. We offer something different,” says Nick Roome, head of KPMG’s UK legal services business. This is the same for all the Big 4, who seek to combine legal advice with advice across other disciplines such as accounting, tax, compliance and due diligence. It’s a service offering that law firms simply can’t compete with.

Financial muscle and investment in technology

The Big 4 have other enormous advantages over even the largest global law firms. One is financial muscle. The revenue of the world’s two largest law firms, Kirkland & Ellis and Latham & Watkins, is around US$3.5bn, a sum that is dwarfed by the Big 4, whose revenues are approximately ten times this amount.

The Big 4 have shown that they are willing to invest all this money is new technology, something law firms have been slow to do in comparison.

EY calls itself as “a leading disruptor of legal industries” and put its money where its mouth is last year when it bought legal innovation company Riverside Law for an undisclosed amount. Riverview is best known for developing an AI programme that can perform legal tasks normally performed by paralegals. It will, says EY, “help clients to increase efficiency, manage risk, improve service transparency and reduce costs of routine legal activities”.

KMPG meanwhile employs nearly 200 software developers whose sole job is to develop digital software. And PwC has a joint innovation lab with Google in Belfast whose goal is to develop new global client solutions. Even the largest law firms can’t come close to competing with this.

A client base to die for

Another key advantage the Big 4 have is the fact that between them they control 60% of the accounting sector and their clients include 95% of  FTSE 350 companies. In other words, they already act for most of the clients the leading law firms are fighting over.

They have a geographic advantage too. The Big 4 have a presence in more than 80 legal markets around the world, whereas the top 10 law firms are only represented in 31. Not satisfied with this, in recent years the Big 4 have made a sustained push into the legal sectors of emerging economies, with EY and PwC, in particular, recruiting heavily in Asian jurisdictions.

So, should junior lawyers think about joining a Big 4 firm? They would be wise to consider it. PwC currently employers 2,500 lawyers worldwide, a similar number to Clifford Chance. KPMG employs 2,200, EY 2,100 and Deloitte 1,800. And numbers are rising. The Big 4 are starting to poach lawyers from leading firms and have made lateral hires in recent years from several top UK firms including Allen & Overy, Addleshaw Goddard and Clifford Chance.

Deloitte’s Michael Castle said following his appointment as managing partner in March that the firm is in sustained hiring mode. The firm is seeking lawyers across its corporate, employment and tax litigation practices, all areas where the firm is already strong and getting stronger.

“The immediate plan is to build the legal capability,” says Castle, “and to tie that up with other aspects of Deloitte Legal like the consulting, the alternative legal services and the technology products to deliver legal solutions to clients.”

Traditional firms have been warned. It will be interesting to see if the Big 4 get it right this time around and, if they do, how the world’s leading law firms react.

Two of the SRA’s aims for the new Solicitors Qualifying Exam (SQE) are to create a more diverse profession and drive up standards. In this blog, we examine whether the SRA will succeed in its quest or whether it will have the opposite effect as some critics are predicting. 

The legal profession has a diversity problem. A report published by the SRA in 2017 found that partnerships remain dominated by white males. “Females, and BAME females especially, appear disadvantaged when it comes to career progression in the solicitors’ profession,” it said.

A strong, diverse profession

The new SQE examination forms part of the SRA’s commitment to creating a strong, diverse and effective profession reflecting the communities it serves, however, many in the profession doubt the SQE will help the SRA meet this goal.

A “devastating effect” on individuals?

The junior lawyers division (JLD) of the Law Society has been vociferous in its criticism of the new exam. Its chair, Amy Clowry, believes the cost of taking the exam of around £3,000 to £4,500 will have “a negative social mobility impact”.

Similarly, two university academics claim that the new exam will have “a devastating effect” on many individuals.

University academics Dr Jessica Guth of Leeds Beckett University and Dr Kathryn Dutton of York St John University wrote about the exam in The Law Teacher journal and said: “For many, equality of opportunity remains a distant dream… The inequalities inherent in the higher education system – the route which most still take to becoming a solicitor – are perpetuated in the profession.”

They laud the SRA for its aims but say unless firms change their recruitment practices they are excluding “very talented young minds” due to where they are born and who their parents are. One suggestion they make to overcome this problem is to introduce genuinely blind recruitment practices.

Revolutionising access to the profession

Others take the opposite view about the potential effect of the SQE. Susan Pearlman is a former head of legal knowledge at Herbert Smith Freehills and a tutor at the University of Law. In an article in The Lawyer she says she was initially sceptical about the new exam but says she “realised that to truly consider the merits of the SQE, you have to look beyond the exams themselves”.

“Allowing candidates to gain qualifying work experience in a far wider range of settings will be revolutionary in opening up access to the profession,” she says. Not so argues Clowly, who contends that this will simply move the current training contract bottleneck to those seeking newly qualified positions.

One thing seems inevitable, and this is that more solicitors will qualify each year. If so, is this necessarily a bad thing?

Not according to Mark Edwards, senior vice-president of online legal services provider Rocket Lawyer. He thinks that in a few years there will probably be four times as many qualified solicitors and that this is a positive as these new lawyers “are going to be able to help all those people currently not able to access justice”.

A wider talent pool

Susan Pearlman also sees the upside of more lawyers qualifying. She says that teaching at the University of Law has shown her that many “bright and committed students” were being lost to the profession as a result of failure to secure a training contract.

“Not only will [the SQE] mean a career in law becomes a realistic ambition for a far more diverse range of people, but it will widen the pool of talent of new joiners, which will result in benefits to the legal profession and therefore the clients, the people and the communities lawyers work with,” she says.

No one can argue against the benefits of diversity and the SRA is to be applauded for this assuming the concerns about the cost of the exam and recruitment mentioned above are overcome.

Improved standards

What about the SRA’s goal of driving up standards?

On this, there is also some disquiet with the JLD saying the removal of the requirement to study academic law and the inclusion of multiple-choice questions in the exam “will lead to a lowering of professional standards”.

This is echoed by the House of Commons Justice Select Committee, who have written to the Legal Services Board saying that it has “significant concerns” about the new exam. In particular, it said it is “unconvinced that enough attention has been paid to the potential long-term impact of removing the requirement for academic study of law”.

Are the JLD and select committee right? Will the new exam lower standards rather than raise them? This is something we will examine further in a future blog.

In part two of our autumn 2019 retentions round-up, we report on the latest announcements by leading firms, some notable NQ salary increases and an interesting statistic revealed by Eversheds Sutherland. (read part one here)

Global firm Eversheds Sutherland added some attention-grabbing spin to its retention announcement this autumn. As well as stating that 39 out of its 49 NQs are staying put (80%), the firm revealed that 70% of these are female and 26% are Black, Asian and Minority Ethnic (BAME). This compares to its BAME figure of 18% in 2018.

Evershed Sutherland’s HR director Lorraine Kilborn said: “We strive to attract individuals from a range of backgrounds and perspectives, unlocking talent that can provide us with a competitive edge in an increasingly global legal market.”

Perhaps this announcement is a sign of things to come and something other firms will follow. Or perhaps not.

Macfarlanes has repeated its perfect spring 2019 retention score, with all 25 of its NQs remaining at the firm. They will start on a newly boosted basic salary of £85,000 per annum with the opportunity to earn between £98,600 and £110,250 once individual and firm-wide bonuses are taken into account. The firm says 98% of its staff received bonuses last year.

International firm Hogan Lovells is retaining 28 out of 31 of its qualifying lawyers this autumn (90%), two in Birmingham and the remainder in London. The London qualifiers will start on £90,000.

The London office of Ashurst is keeping on 20 out its 24 NQs (83%), a slight dip from its 93% this time last year. They will start on £84,000 although this could rise to £105,000 depending on bonuses.

International outfit Stephenson Harwood has revealed an impressive score of 92% in its London office, with all but one of its 13 qualifiers accepting offers to stay with the firm. They will start on £75,000, a figure that could go as high as £97,500 once bonuses are factored in.

Clyde & Co meanwhile is retaining 37 of its 43 trainees (86%) of whom 33 will be based in London, three in Manchester and one in Guildford. It too is upping NQ pay, in this case to £70,000 (an uplift from £65,000).

There has been a flurry of pay hikes for NQs in recent weeks. There will be smiling faces at US firm Dechert, which has boosted salaries for its London-based NQs to £116,000 from an already impressive £100,000. As if things couldn’t get any better, lawyers at the firm are now allowed to wear jeans to work. The firm believes this is about “inclusivity, empowering our people, and attracting the best talent”.

NQs at Addleshaw Goddard will now be on £75,000, which places themselves alongside their counterparts at Bryan Cave Leighton Paisner, Dentons, K&L Gates and Stephenson Harwood and £2,000 ahead of those at CMS and Squire Patton Boggs.

Gowling WLG has raised NQ pay to slightly below this level for its London lawyers (£71,000 from £66,000) and £44,000 for those in Birmingham (up from £42,500). This brings its London NQs alongside Bird & Bird, who recently announced an uplift to £71,000 (a bump of 15%).

These improved pay packets are certainly good news for NQs but an article in the Financial Times suggests they could be causing tensions to rise at some firms.

The FT reports that anonymous senior associates at Slaughter and May and Clifford Chance are unhappy about uneven pay rises. One unnamed Slaughter and May associate is quoted as saying: “We are seeing real compression in pay. The headlines are all about the newly-qualified pay, but there’s been very little uplift for lawyers who are two, three, four and five-years qualified.”

Clients are also said to be unhappy about it. Linklaters managing partner Gideon Moore commented on Freshfields’ decision to increase NQ pay in May by saying: “Clients have been clear that they don’t want to pay for the increases.” “But,” he added, “like it or not you have to be seen to be competitive in that first wave of salaries.”