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Don’t furlough staff to protect profits, ex-magic circle partner warns

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Former Linklaters lawyer Trevor Clark warns bosses not to leap straight for taxpayer cash

City firms shouldn’t put staff on furlough with government money just to protect their profits, a former magic circle partner has warned.

Trevor Clark, formerly a banking and finance specialist at Linklaters who now teaches at University College London, says that partners should take a lesson from their fellow millionaires at Liverpool Football Club.

Liverpool recently rowed back on a plan to use the government furlough scheme to stop paying its non-playing staff. But other Premier League clubs such at Tottenham Hotspur are cracking on with furloughs — while keeping star players on full salaries.

Clark advises that “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)”.

During the 2008 financial crisis, partners made junior staff redundant rather than sees their profits fall. Clark reckons that law firm bigwigs are “dusting down the playbook from that era right now”.

This time around, law firm staff are being temporarily furloughed rather than made redundant, with the government paying 80% of their salaries.

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But Clark says that firms should avoid using the furlough scheme if the only aim is to maintain partner profitability, arguing among other things that solicitors have professional public interest duties that don’t apply in other industries.

He says:

“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.”

Writing on the Lawyer Watch blog, Clark says that taxpayers won’t be impressed to see their cash diverted to shoring up the profits of huge companies. “If accessed at all”, the ex-Links man says, “this should only be if a firm is facing collapse, having first tried other measures”.

And it may not come to that. The UCL academic points out that law firms will still be able to pick up work during the pandemic, which is a different beast to the 2008 crisis.

Earlier this month, former Clifford Chance Tony Williams called for partners to show leadership by “tightening their belts” rather than making others the hit.

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60 Comments

Anon

Too fucking right Trevor. This should not even need saying.

(83)(3)

anon

I wonder if he’d be saying this if he wasn’t a ‘former’ partner?

It’s easy to give advice when you’re a multi-millionaire with a cushy role in academia (no doubt he’s on a messianic mission to ‘give something back’).

(24)(31)

anonymouse

It’s been well publicized that Linklaters partners have decided to take the first hit against this quarter’s earnings and still pay out bonuses to associates.

So yes, probably he would.

(30)(2)

lol

His former firm admirably taking this step doesn’t necessarily mean that he “probably” would have supported it

(4)(7)

anonymouse

He supports it now and his former firm supports it, so it’s quite hard to see why he wouldn’t have supported it as a partner, given that clearly the majority of current Linklaters partners support it.

I’m currently in a negotiation with Dentons on the other side and this is still the stupidest argument I’ve had this week.

(29)(0)

Onlooker

Linklaters are delaying partner distributions not taking a hit. As soon as things are back to normal they will get made whole. The only way they won’t is if the business tanks, which would be pretty unexpected. Associates and other staff will not get made whole for the period their salaries are frozen which is the bigger story IMo.

Ga

They aren’t alone in doing that. Virtually every firm has cut partner drawings.

(0)(0)

Sunflower

Not all city firms are in the same position economically as some have seen a drop in profits and revenue and others have had a steady incremental increase or substantial growth over the fiscal year.

It’s not a straightforward black or white answer of what each firm should do. Some can survive with those on top taking a hit as they have a more comfortable profit margin whereas for others it might be those at the bottom who take the hit for the firm to not only survive but come out standing on its feet financially.

I guess it becomes controversial when firms are doing very well money wise but want to keep those on top making money and sacrificing the jobs for those at the bottom just for the sake of making more money for the partners.

(10)(4)

Tom

All true, but there’s also the element that a profitable company should not be capable of being brought low by a couple of months of leaner times – there should either be sufficient reserves or there should be a capital injection from partners as required.

(7)(0)

Anonymous

Why not? The successful are going to be hammered even more on tax after this is done. Sunak’s odious “levelling up” mantra was churned out at his briefing this week. He has already imposed more tax burdens on high earners in his budget to allow him to reduce even further the taxes paid by the “average hard worker”. The ever reducing income tax payments of the average earner is getting to the point of punishing the real economic difference makers, and at the same time means of reducing tax are closed down by stealth. So we might as well do what we can now knowing the punishment is coming ahead.

(20)(18)

Normal human

Certainly the only rational response if all you care about in this world is your own money. Suggested reading: A Christmas Carol by Charles Dickens.

(17)(19)

Anonymous

When you are paying income tax on most of your income 45 per cent, when you have zero personal allowance and when you are capped at £4k pension contribution relief then get back to me. Otherwise, stop scrounging of the likes of me.

(19)(18)

Anon

Lmao touched a nerve have we? If you want zero/low income tax, p*ss off to Dubai or Singapore brah

(15)(12)

Anonymous

Given your leap to straw man argumentation, I can understand why you were unable to reach high levels of remuneration within the profession.

Cockcheese

Lol good luck with the upcoming redundancy rounds brah, won’t have any more salary issues then 😂😂😂

el

Off*

(0)(0)

Germaine

What we need right now is a level up.

Any salary over £100k is repulsive.

(9)(41)

Anonymous

The mantra of the mediocre.

(26)(6)

Bob

Envy is a sin Germaine. And a telling one.

(3)(0)

Tom

Ahh yes, the “successful” whose success is never the rest of the benefits given to them by wider society: the education of their colleagues and employees, the security provided by the police, the rule of law, the health service, etc.

Why should the “successful” pay for all that? It’s nothing to do with them, right?

(14)(13)

Bob

The “successful”, as you put it, already do pay for “all that”.

The top 1% of taxpayers pay almost 30% of all income tax. The top half of taxpayers pay about 90% of income tax, meaning the bottom half pay only 10%.

The personal allowance continues to rise, meaning more people pay less or nothing at all.

University loans are also structured progressively. Many graduates pay nothing back, and only those who go on to earn high amounts will ever have a chance of paying it all back.

(16)(2)

Tom

Why are you focusing on income tax? In principle you would expect higher earners to pay more – it’s a progressive tax.

There are reams of other taxes that could be increased / levied. Loopholes could be closed. Workers pay too high a share of our tax take.

(5)(5)

Bob

They do already pay. A lot more than a mediocrity like you does I suspect.

(4)(3)

Disgruntled

Are you actually complaining about normal workers getting an extra 40 quid a month, not accounting for inflation?

Furthermore, the more people claiming the free money, the more money disproportionately higher earners are going to be paying back in tax to cover it down the line; your logic is the circle mediocrity.

If it bothers you that much, put down that extra unit you were debating was chargeable or not, and stop whining.

(7)(1)

Anonymous

Dis, first, that £40 is multiplied millions of times over. The cost burden of that, and the concomitant failure of the government to increase taxation of those in the lower 65% of earners while piling more and more tax burden on higher earners, is translated to about 10% of income of higher earners going on additional taxes.

Second, while I am opposed to the handout bonanza of the government, if the cash is being handed out the benefit of taking it directly for a firm’s use far outweighs the marginal increase in the extent to which partners would be expected to contribute to the costs of this magic money tree down the line.

The problem is that you have what you think have clever ideas, but you do not follow through the thinking to its natural conclusion.

(5)(1)

Disgruntled

What additional taxes? The tax rate for additional rate payers has been what it is for a number of years now – you won’t suddenly pay less tax if others have to pay more. I don’t see any coherence in your points; if your point is that high earners pay a greater proportion of tax, then yes they do; people who earn more, are expected to pay more because their earnings are higher.

If you feel so strongly about the injustice of it all, reduce your income to £100K or less so you too can have the personal allowance.

(1)(5)

Anonymous

The burden on higher earners has gone up and up while lower earners have seen cut after cut. Pension contribution relief is down to £4k max now, zero personal allowance, rafts of tax benefits introduced but not applicable to higher earners to any material extent, such as income tax on interest earned etc. And don’t get me started on punitive stamp duty. Cuts after cuts to stamp duty for Northerners, while Londoners are paying £500k in stamp duty for a townhouse, more tax than a whole street in the provinces will pay in their lifetimes. There is paying more because we can afford it, and there is being screwed over by the scrounging working class.

Disgruntled

We will probably need to agree to disagree.

I still find serious issue with your points, but I think the most simple answer to the main one is that we complete with oligarchs on the housing market in London whereas this is not the case for Yorkshire (with a poorer populous – because they’re not London). The desirability and war chest available for these buyers make the property prices soar, with the corresponding stamp duty following, and that’s an unfortunate token of living locally to work which I accede is an issue.

There are tax benefits available; the real issue is whether you want to face HMRC if they decide to push back.

Anonymous

Disgruntled, you obviously have not bought a decently priced property. The problem is not the price per se, it is the punitive 10%, 12 % and 15% rates at the higher end of the market. That is not just a function of price, which your point was based on, but also a conscious effort by the state to extract value from the higher earners to pass tax breaks on the great unwashed.

Tom

I’ve been a higher rate earner for years and while in cash terms the tax I pay each year has increased with my salary, almost every budget has seen my level of tax liability fall (where I to remain on that salary into the next tax year).

That does not seem fair assuming we are all in it together as we have been told. I could have afforded to lose my personal allowance at a much lower salary level.

(2)(4)

Anon

Ashurst just announced 20%pay cut and furloughed staff

(2)(0)

Tom

Unsurprising. Any opportunity for the partners there to save a few quid and they’ll take it.

(10)(0)

anon.

Agreed.

Lashursts partners are a bunch of utter weapons.

Mediocre shop.

(6)(1)

Ashurst Equity Partner

Lolzies, too late.

(5)(0)

Anon

When will the big profit US firms announce redundancies?

(1)(0)

Nostradamus

Possibly in Q3, definitely in Q4 2020 if economic pain deepens. It’s gonna be Biblical.

(8)(2)

Anonymous

By “Biblical” do you mean “fictional”?

(6)(6)

Anonymous

The GFC of 2008-2010 had 6,000+ lawyers in the US thrown out the door. This’ll be even bigger, but by all means keep your head in the sand little man.

(5)(1)

Anonymous

You cannot look to the US. The US has a labour market that makes it far easier for businesses to fire employees to meet economic demands. What did US firms do with UK employees?

Realist

I wouldn’t say biblical, but firms are very reactive and will cut heads. If you think about it, an average City firm can cut 10 mid level associates and save over £1 million in cash. Why would they not do that? What risk is it to them? Redundancy payments will not be more than 25% of what those staff were earning, and no pension payments nor benefits. So the savings will be huge. Hence why firms cut quickly if they forecast less work in the market. Then if things pick up again, they can recruit easily, particularly at the junior level.

(8)(1)

Anon

Simply not true. Most of the US firms in London are very strong and very profitable. They won’t all see catastrophic dips in work because they do work at the very top end of the spectrum and those clients will still need to be serviced perhaps in some areas more than ever for example the finance guys may not be doing new deals but I can bet they’re busy with advice on existing loans and amending and restructuring existing deals. It’s the large international and mid level firms who do medium ticket work/silver circle and smaller firms which are in trouble and that’s what we’re seeing now. Also, in 2008, work stopped overnight whereas here there is still work to be done and there is going to be a massive spike in new work towards the end of the year and law firms will be very short sighted to get rid of their people who can service that work quickly as soon as it comes in.

It’s a common narrative people bashing US firms to make themselves feel better about not working there. Fact is their people get paid far more , do more interesting work and the firms are more profitable.

(23)(13)

Anon

This is quite right – there may be a temporary slowdown in new M&A/PE deals but there will be a flurry of buying activity as asset prices fall. Fundraising is still very busy too, and the billions being raised will need deploying somewhere (i.e. in PE deals worked-on by US law firms – among some UK firms). Restructuring will obviously be very busy.

Anon

I see – pointing out the obvious with regards to the complete economic meltdown the world is rapidly heading into, and all we get is “hurr hur you’re a jealous b*tch who wishes he worked at a US shop”. Gotcha.

Mark my words: the US is going to be by far the worst hit economy of them all, and your “very strong and very profitable US firm” will be pulled down into the sh*tter like the rest of us.

Anon

Top end of US firms are also seeing a slow down and getting rid of people or saving costs in other ways they just don’t need to make that public. Simply not true to say that “top” US firms are fairing better. They have already started binning people, you may be too blind to see that. Bigger pay cheques also means higher expenses – they are profitable in the good times but this is certainly not one of those moments and many of them are now burning cash. Has nothing to do with US firm bashing as I work for one too.

Realist

I’m sure that most of the US law firms are very strong. However the idea that companies and firms that have basically lost a quarter (by the end of the lockdown in May/June) of solid income, will still go ahead with acquisitions, investments and other growth type activity at previous levels, this year or the next is quite crazy. If the basis for your argument is that rich investors will remain rich after this event and will be looking for bargains which will prop up activity at the top level of the market, then I’m afraid you are deluding yourself. Which banks will have the appetite to lend to the same extent post this crisis? Which company will tell their shareholders to pipe down and not expect any dividends for a while so that they can go out there and pick up assets on the cheap? Are you watching what is happening to the aviation industry, the retail industry, the entertainment industry, newspapers and luxury goods? We are expecting the GDPs of countries to contract this year by between 5-10% and you think activity will remain the same, but only at the top end for you Latham/Kirkland big boy associates of course.

Anon

RUBBISH – it’s also a common narrative that lawyers at US firms like to think everyone envies them and that they do the most interesting work etc…, yet they are also the ones who were failures at their Magic Circles and are now just dishing out second rate advice to US clients (with some minor exceptions who’ve been parachuted in).

It is a reality that many associates at US firms are currently being booted because their US firms, the same that boasted of the large amounts of cash they’ve made in the good times, are trying to keep up appearances.

Interesting that the guy below mentions Latham and Kirkland. I’ve heard one of these firms is doing so well right now! Just call a recruiter and they’ll fill you in.

The truth is that you are trying to re-write your own narrative by giving the false impression that US firms are doing better than their U.K. counterparts in London. Yes, the headlines will indeed include the names of many U.K. law firms because the US ones are busy firing people in the shadows and shifting blame onto their staff to save their face.

Anon

Just as an FYI – don’t assume US firms in London haven’t already started, because they have. Were you expecting them to publish a press release? Ever heard of stealth layoffs? Will US firms want to be bashed like Latham was when it let go of Associates in 2009 with the market coining the term “Lathamed” that still haunts the firm to this very day? US firms have learnt a lot about protecting their reputation and are very unlikely to go public or will leave this as a last resort.

The person saying that US firms in London are doing well and are not being impacted by the outbreak resulting in slowdown of work and layoffs is living in cuckoo-land. I am not bashing US firms for the sake of it at all. It is a fact that US firms in London are highly exposed to M&A/Corporate/PE work which is no where near the levels of previous years and made even worse with the virus outbreak. Yes, restructuring, employment and some litigation work will do well but good luck with trying to fit THE REST OF YOUR FIRM into those areas.

I am bashing US firms because they are first in line to boast about big pay cheques in the good times and first to start throwing people out in the bad without being held to account in the same way as U.K. firms are. U.K. firms are simply being more transparent and upfront about the need to save costs. US firms are doing much worse in the shadows because that is how they operate.

(16)(4)

Anon

@ US BigLaw firms comment:

Redundancies are currently not being “announced” and neither will they be “announced” to the public. They are only being “announced” privately to the individuals in question.

(1)(0)

Anonymous

The number priority for all staff has to be to protect PEP as much as possible, and this is clear from the business school data on what law firms need to do to survive in times of crisis. Short term PEP protection is everything. Law firms are among the most fragile structures when it comes to reduction in profits for owners. A company can reduce profits or move from profit to loss and the impact on shareholders may be limited, a drop of as little as 25% in PEP and firms are at risk of losing profit generating partners and swiftly collapse. So right now, a well managed law firm ought to focus every decision on PEP, more than ever. If that means furloughing fine, but cutting head count straight off the bat is probably better.

(9)(5)

Anon

OK boomer

(6)(4)

Anonymous

1:36, you lack the wit to come up with your own stuff? How dull. Still if you are going to resort to cliche aim it at someone who is a Boomer. 80% plus of equity is now owned by post Boomer generations.

(1)(1)

Anonymous

Ok boomer

(8)(3)

Anon

Interesting. Will he be giving back all the fees from tax-payer bailed out banks?

(0)(0)

Lightbulb Moment!

Good one Trevor! Wise pearls of wisdom! Maybe laying them off instead of furlough will save tax payer money too if they’re instead using up their savings?

(0)(0)

Partna

The equity partners are the business. The staff can come and go and be fired and hired. Keeping profits as high as possible in difficult times has to be the number one goal. Everything else is secondary.

(8)(5)

Stallonah

Ok boomah.

(0)(0)

Anonymous

How is lock down in your flat rented from a Boomer?

(0)(0)

Lilly

Boomer died from COVID. Unsure if I should continue paying rent.

(0)(0)

Why u mad

Lol why people mad that most US firms are still doing, Morgan lewis even increased their salaries in last few days..loll

(0)(1)

Whocares

People who have been furloughed and working in other jobs is a disgrace currently working with 3 and they are not only on the same wage as me but have another wage from the government each month.. disgusting

(0)(0)

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