The legal profession is as I write a matter of weeks into the lightning-fast escalation of the coronavirus outbreak from background concern to the biggest shock to hit the global economy since World War Two. With the outbreak by mid-March having sent European nations and economies into lockdown-induced convulsions, some assessment can be made of the legal industry’s initial response. And it is clear that sizeable commercial law firms have so far gotten off comparatively lightly in the first stages of an onslaught that is estimated to have shut a third of economic activity in the UK and major European counterparts. As with the banking crisis, the profession has at least benefited from emergency triage work for major clients, triggering strong demand for employment, finance and restructuring work as companies struggle with crisis response. Even cash flow and collections were holding up surprisingly well by late March at most top 30 UK law firms.
Yet the lesson of the banking crisis is that an early surge in emergency mitigation work will soon pass leaving a deep transactional slump as clients stop doing deals and start hoarding cash. Even if the coronavirus pandemic proves as short-lived as it is already severe, it will inflict considerable pain on the profession over the next six months and probably far longer. Still, the good news is that law firms have remembered many lessons of the banking crisis, remaining in lean shape and with much-improved financial management. Leaders at the major firms are in the main acutely aware that pain must be spread fairly, while those that opt for crass early job cuts risk lasting damage to their reputation. Most firms have rightly opted to first delay partner distributions, with subsequent measures like voluntary cuts to hours and relatively modest pay cuts being generally favoured over redundancies, though the line of furloughed staff is now rapidly extending among mid-tier advisers.
How long such measured patience lasts will be very quickly put to the test but for the moment, there has been less to fuel my well-earned cynicism than expected. At smaller law firms more exposed to SME clients, the situation is obviously far worse with cash flow already coming under intense pressure.
What does all this mean for GCs? Obviously this is hugely defined by sector: industries that can keep ticking over with wide-scale remote working, particularly major plcs, are, in highly-relative terms, fine for now. Those sectors that cannot, like leisure, travel and hospitality, are about to become business school case studies.
But apart from such casualties, in-house legal teams as a breed are sure to be among the corporate beneficiaries of this crisis. Rampant risk, contractual nightmares and business triage are a potent combination to propel GCs nearer to the seats of power. The post-Lehman dynamic and escalating focus on risk unquestionably raised the status of GCs, this crisis and its fallout will have a similar impact. In-house counsel will also benefit from a further reset in the dynamic between outside advisers and clients and a new willingness among law firms to embrace technology and new ways of working. Whether GCs will be able to maintain the size of their much-expanded teams is another matter but I suspect the in-house profession will be among the select club of corporate winners from this calamity.