Analysis

How Lehman Brothers’ collapse paved the way for MoneyLaw and the minimum wage

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2008 financial crisis shaped the legal profession as we know it

Lehman

Ahead of tomorrow’s anniversary of the collapse of investment bank Lehman Brothers, Legal Cheek‘s Alex Aldridge considers how the effect of those dramatic events continues to be felt.

Ten years ago as a junior hack at Legal Week I spent a fascinating and unsettling year covering the dramatic effect of the collapse of Lehman Brothers on the legal profession.

For a couple of weeks it looked like it might be over for corporate law firms — as their client base of banks and other financial institutions faced total wipe out. Then over the course of a bizarre fortnight governments bailed out said banks and the panic subsided.

Still, the change of mood was stark and lasting. Weeks before that fateful 15 September day you had big swinging dick partners at City law firms nonchalantly shrugging off talk of a ‘credit crunch’ as they looked ahead confidently to yet more profit and revenue rises — a happy journey that had continued more or less uninterrupted since the ‘Big Bang’ deregulation of the City (including legal services) in the late 1980s.

In the aftermath of Lehman’s fall — which no one seemed to think was possible, even as it was happening — these same individuals seemed shell-shocked. When they did surface at events, talk of growth was off the table and instead they mused about new topics such as the need for more regulation and how to deal with the coming declines in living standards. It felt surreal to hear them saying basically the opposite of what they’d been preaching a few months ago.

And then the job cuts began. Historically law has been a steady industry, protected during recession by litigation, which tends to increase in times of economic stress. But over the preceding two decades corporate law firms had significantly shifted their practices towards transactional work, which now accounted for between 70-80% of most big outfits’ revenue. With the deals having stopped flowing as financial markets seized up, there was only one solution.

For most of 2009 we wrote what felt like endless stories about big law firms cutting jobs and deferring training contracts. Trainee numbers plunged nearly 25% from a 2008 high of 6,303 to just 4,784 a year later. Some firms even dropped down to doing four-day weeks. Almost everything was bad news. My own job was reduced to a three day a week freelance contract. And, given what was happening elsewhere, I felt quite lucky.

Gradually the carnage eased. Looking back, the 2010 merger between London’s Lovells and America’s Hogan Hartson seems like a turning point as the corporate legal sector stopped shedding jobs and embarked on a period of global consolidation, which continues to this day.

But it was only getting started for the legal aid branch of the profession, which became one of the Cameron government’s number one targets for its signature policy of austerity. Funding was slashed by a third, plummeting from £2.1 billion to £1.5 billion, as the hated Lord Chancellor Chris Grayling — the first ever non-lawyer to be given the role — presided over an ideological money-saving experiment.

Whole swathes of practice areas lost state funding, while others endured squeezes so tight that they became unviable career options for most. Solicitors and barristers protested as part of the 2011-13 Occupy Movement but this resistance didn’t achieve much. Legal aid firms stopped hiring trainees, while the already struggling junior end of the legal aid bar was tipped over the edge into becoming the hobbyist quasi-profession that it mostly remains today. Wages in the sector — the minimum pupillage salary is still £12,000 while most legal aid firms start their trainees on the Law Society recommended minimum wage of £19,122-£21,561 — are still substantially below pre-financial crisis levels in real terms.

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In contrast, around 2013 corporate law wages started to rise again. A recovering US legal market created a new ‘MoneyLaw’ payscale that saw newly qualified lawyers at American firms paid $160,000 — a sum that rose over the course of a few years to $190,000. As these firms expanded in the UK, a weak pound meant that a handful of rookie solicitors started earning around the £140,000 mark. Magic circle and other top UK firms were pressured to up their salaries to keep attracting the best graduates. And a pay war that continues to rage saw English junior lawyer pay rise at levels that in some cases were sharply higher than inflation. Amid stagnating pay in other parts of the legal profession, a new elite was born: law’s own 0.1%.

Today, most law students — who since 2012 have of course been lumbered with £9k a year tuition fees — understandably aspire to join the corporate law firms that represent their only chance of getting on the hideously expensive London property ladder (another side effect of the 2008 financial crisis). Legal aid is the preserve of the independently wealthy or insane. Many chambers at the bar, meanwhile, are reporting a decline in interest from students, who associate them with media images of criminal barristers on strike and view the self-employed model as too risky. Training contract numbers have staged a recovery but remain lower than in 2008.

Where do we go from here?

In terms of corporate law, the rise of lawtech and the drive it has given firms to re-appraise their service delivery models is an encouraging development that promises to create new opportunities. Similarly, big firms’ increasing investment outside London as they expand regional offices to take advantage of cheaper labour could have a positive effect.

Provided the new jobs created are real lawyer career paths, rather than just paralegal roles, wealth and opportunities will be spread around the country. Trainees earning normal salaries in Leeds have a similar chance of getting on the property ladder as MoneyLaw rookies do in London — and, barring a fresh crash, the appeal of this proposition is likely to increase.

Meanwhile, IT-assisted flexible working is offering new options for millennial lawyers stranded a long commute away from their firm’s glitzy London offices. Some are even moving to cheaper areas of the country and going completely freelance as gig economy lawyers.

For publicly funded law, there are signs that some of the Cameron government’s cuts to legal aid may end up being reversed. Last month’s High Court ruling that some reforms to criminal legal aid were unlawful has been hailed as “a ray of light” by the Law Society. How much life can be breathed into a creaking system without major surgery remains to be seen. The best hope for those in the sector may be a Labour government, if it sticks to previous campaign pledges.

Amid all of this a defining moment is approaching. Get a good Brexit deal that keeps the City’s trading ties intact and the UK legal profession in its current slightly distorted but still functioning form will muddle through. Crash out without a deal and we could be looking at another Lehman moment, with a potentially very different sort of shakeout.

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33 Comments

Dr Frankenstein

‘big swinging dick partners’…were you watching pornhub and writing this article?

(28)(7)

Jacob RM

Disgraceful gutter-journalism to use such language.

(13)(10)

Anonymous

Surprised this wasn’t moderated.

(2)(1)

Anonymous

It’s a common expression. Invented (or popularised) by Michael Lewis in Liar’s Poker.

(12)(3)

Anonymous

Excellent piece, frankly, Alex.

It’s worth taking stock of the enormous changes which have occurred, coinciding with increased automation and use of electronic databases that have deskilled the drafting process and put lawyers out of work.

The last ten years have been a perfect storm that has enormously reduced both the number of lawyers and their take home. Job security is at an all time low. Morale is at an all time low. Everyone hates their job, but keeps their head down because they know that it would be a life-ruining event to get fired.

And the correct response to all this is simple: silently embrace radical politics. Again, no one talks about this in the office because that would risk losing their job. But I am willing to bet lots of lawyers voted for Brexit or voted for Corbyn. Nothing will change for the better in this country unless there is a fundamental break with the past. Whether you’re on the right or the left, Corbyn and Brexit is the right way to bring about fundamental disruption. Otherwise the rich well connected London kids will continue to hoover up the best jobs off the back of reciprocal favours.

Bring the rain.

(44)(9)

Che Zedong

Quite right comrade, viva la revolution, no pasaran!

(10)(2)

Anonymous

This article is such shet, f*ck you Alex

(16)(26)

LC Team

Excellent article, Alex.

Keep up the good work!

(4)(3)

Dan, former legal cheek campus manager

Great article Alex, glad Legal Cheek is doing well.

(10)(4)

Anonymous

Have you guys seen the new RoF design?

(9)(1)

Anonymous

A straight copy and paste of Legal Cheek’s big pictures and headlines

Legal Cheek is the new legal news website, not Rollonfriday

LOL

(6)(7)

Anonymous

Spare a thought for those of us who aren’t in moneylaw yo

(3)(0)

Moneylaw W*nker

I’ll wave to you from my Porsche as I drive past the bus stop.

(5)(1)

Anonymous

Lol good luck, the tax man won’t leave you much

(4)(0)

Anonymous

Yeah you actually end up worse of pound for pound as a moneylaw solicitor

(4)(0)

Millionaire next door

It’s not how much money you make, it’s how much you keep.

(2)(0)

Trainee

Hey guys – any idea what the NQ rates for the fellas over at Mossack Fonseca are? Don’t fancy handing too much of that dolla to the tax man.

(8)(1)

Anonymous

Lame gag

MF has been closed and wound up

(0)(3)

Anonymous

If you’re only in a Porsche you cartainly are not moneylaw.

(0)(1)

Anonymous

Lol, yeah sure, because after tax you are left with how much from the MoneyLaw salary? 😂😂😂

(0)(0)

Anonymous

A good article for once. Well done Alex! More of this type of analysis of the market please.

(27)(1)

Anonymous

Seconded. Good analysis – please do more of this.

(11)(1)

Anonymous

Why does everyone seem so intent on comparing salaries and TC places to the pre-2008 bubble? It’s called a bubble for a reason.

(2)(1)

Anonymous

It’s to do with inflation, we need a bubble for wages for the the house price bubble. Duh inverse bubble

(1)(0)

Anonymous

Stop trying to make MoneyLaw happen. No one says MoneyLaw. It sounds so incredibly stupid.

Good article otherwise though. Easy to forget how bad it was at the time. Most incoming trainees now are too young to properly remember it.

(9)(1)

Dickon Charles

It was the best of times. It was the worst of times.

(0)(0)

Dickon Charles

Facebook confirmed that for me.

It’s just a pity I can’t remember most of it because of that stuff I took.

(0)(0)

Junior Barrister

I’m amazed to read that students are shunning the Bar because they think the “self employment model” is too risky. The highest salaries earned by NQ commercial solicitors are a pittance compared to the earnings of junior commercial barristers. You can easily earn over £100k in a single trial after a few years in practice. The numbers reported by Legal Cheek and others are much lower than the reality. Someone needs to make this clear to students.

(4)(1)

Anonymous

There are 5000 ways to become a solicitor of varying quality per year. Only 500 ways to become a barrister. 100k per trial is not going to come to any prospective barrister now unless they work at a set that requires the BCL or Harvard LLM as a recruitment policy. Is it really worth telling students that barristers who’ve been to oxbridge earn more than those who haven’t?

(3)(1)

Anonymous

Yes exactly. It’s extremely misleading to suggest the bar as a legitimate alternative to provide similar earning power for 99% of law students. For the most part, going to train as a solicitor provides much greater certainty, financial security and opportunity for the majority of law students. It’s not about the self-employment model, its about the numbers and the realities of who the London commercial sets take as pupils.

(2)(0)

Le sigh

Stop trying to make MoneyLaw a Thing.

(3)(1)

Barrister

I can’t speak for solicitors but there is a mad race for talent at the Bar for practitioners around 5- 10 years’ call. The only ones winning, apart from the recruitment companies, are the barristers themselves (who have a successful practice). I suspect that part of this was due to the crunch and the lull in recruitment around 2008 – 2011. Less lawyers qualifying has now matured so that there is a shortage of supply precisely around the call that have traditionally been the engine room of chambers – 7-15 years’ call.

Chambers have always been unstable entities but there are problems all the way through the Bar – right through the commercial/chancery side. Not only is there a lack of supply of barristers, there is probably less easy work around, competition from Solcitors, high issue fees, millennial mind set that means ppl are less loyal and the growth in recruitment firms whispering in barristers’ ears.

It is just so interesting how much things have changed so quickly. I predict a lot of collapses/mergers in the next couple of years. Rents are just so high in the Inn and central London generally. Being big is not safe – just look at the 39 Essex Street wobble. In fact, I have seen chambers recruiting the wrong sort of barrister (low earners) simply to boost the numbers in chambers. This can’t be good in the medium term. The only thing I know is that I would not be putting my name on a 10 year lease for a chambers anytime soon.

(1)(0)

Anonymous

Agreed.

They will blame Brexit, but in fact is that the litigation slide began with 2008.

Subsequently, the London Russian oligarch litigation bubble (memorably captured in McMafia) kept a lot of mediocre journeymen in work at the Bar, but this was a sort of fool’s paradise.

A related trend is the retirement or slackening off of super-QCs who could command extraordinarily high brief fees. Jonathan Sumption QC must have accounted for at least 30% of Brick’s turnover when he retired. It’s unlikely similar silks could command his fees.

It is amusing to see all the types who thought they were set for life at Brick Court now having to sing for their supper and do business development events.

All change.

And, in particular, the rent is too damn high in the Inn.

(3)(0)

Comments are closed.