Recession proof? How law firms are weathering COVID-19

With Australia in recession for the first time in almost three decades and growing numbers of Aussies being made redundant, times are definitely tough. Law firms across the country are not immune, with many rolling out a raft of measures aimed at surviving the economic downturn caused by COVID-19.

Legal profession hit by COVID-19 recession 

In a sign of just how serious the legal sector has been hit, some of Australia’s large and mid-tier firms have reportedly asked staff to accept reductions in pay and hours.

Despite such moves, Jennifer Dickfos, senior lecturer at Griffith University’s Business School, says the fallout from coronavirus will likely push some firms to the wall as work “dies away.” 

Dickfos points especially to those firms that rely on clients in sectors heavily impacted by the ongoing business disruption caused by COVID-19, such as leisure, travel and retail.

“In those areas, if firms are relying on transactional advice and contracts, they’re really going to have to look elsewhere,” she tells LSJ.

Dickfos also predicts downsizing to become more common among impacted firms as a way to stay operational, especially if Australia’s economic slump is long term.

“Downsizing is more likely to happen in a small practice than a big one,” she explains. 

“It could mean losing their paralegals and grad solicitors just because they can’t afford them anymore. Also, in firms where the partner might have been the client liaison, they might have to come back and do more grunt work simply because they need all hands on deck.” 

Disruption could last two years

On the front line, at CBP, managing partner Nick Crennan says the firm of around 500 lawyers moved fast to prepare for an economic shock as the virus took hold earlier this year.

He says when COVID-19 hit Australia, there were concerns about future workflow, credit risk, productivity levels of staff working remotely, and billing processes. For instance, when it came to clients, Crennan says he thought there would be credit risk as the firm’s customers faced the “recessionary impacts” of the pandemic. 

“We thought there would be difficulty on the timing or whether we’d get paid at all,” he says.

Thankfully, Crennan says good management – and a bit of luck – kept the firm in healthier-than-expected shape, meaning pay cuts from March and April are now being wound back.

However, he admits the Sydney-headquartered firm isn’t “out of the woods yet.”

While its transactional property and commercial work has held up “remarkably well”, Crennan is well aware things can easily change in a sustained economic downturn.

“There will be challenges as this thing continues and we are planning to face a pandemic disruption for at least 18 to 24 months,” he says.

“Over that period there will be some challenges to those transactions. We’re not entirely sure what they are, but there will be a different type of transaction. It will either be a restructuring transaction that we’ll see, or some distressed transactions.”

Small firms facing hard times

Boutique firms, like Sydney-based Bryks Lawyers, are also grappling with how to insulate themselves from the first recession to hit Australia since 1991.

Dorota Bryks, the firm’s principal, says there’s “no question” that its transactions, contracts, competition and consumer law practice has been affected by the downturn, especially by a “significant reduction in M&A and transactional commercial work.”

“In response to the change in the number of client instructions, we worked with our people to create flexibility in their hours and availability,” Bryks tells LSJ.

“We have been fortunate enough to retain our staff without any pay cuts, and we have utilised and worked with our team in tailoring flexible work hours.”

Like CBP, Bryks has already taken a proactive approach to managing costs. That process started, she says, in January when initial reports about the virus were coming out of China.

“We reduced expenses early, and ceased renewing subscriptions and other recurring costs that weren’t absolutely necessary in view of what was happening around the globe. This has had a significant impact to our bottom line.”

Looking ahead, the firm is diversifying its client base across a range of industries and markets, making that a “predominant focus” at the moment.

“Through COVID-19, many industries have suffered, while others, particularly those in the medical devices and PPE space, have expanded and have seen enormous growth. We are working with both groups, which balances the firm and allows us to assist businesses that are doing it tough as well as assist those that are thriving.”

Transactional practices most at risk

These anecdotal reports align with recent industry research, showing that while law firms, generally speaking, weather downturns better than the overall economy, the recession is likely to dent certain parts of the legal profession more than others.

The research, carried out by McKinsey and Company in May, suggests that litigation and restructuring practice areas will remain steady, but other transactional practices will suffer.

Transactional areas most at risk, the McKinsey report says, are those exposed to clients facing the biggest challenges like airlines, hotels, and storefront retail. By contrast, those servicing clients in spaces like medical supply, sanitation, grocery, and in-home entertainment could actually experience increases in demand.

The consulting firm also predicts the downswing to accelerate long-term secular trends already underway. These include continued pressure on law firm pricing and shifts to alternative delivery models, which it argues will pose a challenge for law firms with “traditional service delivery models” like high-cost real estate and staffing pyramids.

NewLaw players to benefit from recession 

On the flipside, one legal disruptor doing well out of the downturn is Sydney-based Sprintlaw, a fixed-fee law firm geared towards small businesses and startups.

Entrepreneur Alex Solo, who co-founded the firm with Tomoyuki Hachigo in 2017, says demand for its around 100 legal products dipped initially when the pandemic reached Australia, but has since rebounded as more companies turn online for legal solutions.

“We’ve started to see more people in June and July looking online for legal services than ever before, so we’re in a good space,” he says. 

Operationally, too, Solo says the firm has dodged the impact of social distancing measures that sent traditional firms scrambling to set up ways for staff to work from home.

“Being a NewLaw firm, we’ve been operating a distributed workforce since the start of our business, so we’ve always had the infrastructure to support remote work,” he tells LSJ.

“Our whole system is set up for online delivery, so that’s meant that when everyone suddenly had to work from home, it didn’t have any impact on our operations at all in terms of delivery, because everything is already done online.”

In particular, he points to the firm’s online-based project management system that has enabled its team of 23 staff to log on from home and “self-manage” their work flow.   

The system also includes a dedicated project manager who makes sure work is allocated at a certain time each day, so the firm’s lawyers are good to go from home.

“Traditional law firms typically don’t have a concept of project management or necessarily any project managers,” he says. 

“They may have an intuitive concept of it, but work is often allocated through forwarding emails or one-on-one catch-ups, it’s very informal.”

For Sprintlaw, the challenges have mostly been cultural, says Solo, who concedes he’s still working out how to make up for its office being off limits due to social distancing measures.

The solution could be more video chats, the co-founder says, but admits he’s still “playing it by ear”, trying to figure out the best way to keep his team connected. 

“We’re a distributed workforce, but we rely on the office for people to get together, to hang out, to get that social aspect of work, so it’s trying to keep that alive through COVID-19.

“The longer that you have a team that’s fully remote the more emphasis there is on people not seeing each other, people communicating mostly in written form, on a chat, or on emails and losing that sense of personal connection.”

Mental health also needs ‘recession proofing’

It’s this loss of interpersonal connection, on top of financial pressure, that can lead to mental health issues for lawyers, especially as COVID-19 drags on, says Alex Kingsmill.

A former lawyer, Kingsmill runs Upstairs, which offers counselling and life coaching services to help combat issues like isolation, depression, anxiety, and lack of work-life balance. She says the first step to “recession proofing” the mind in challenging times, such as those at present, is for people to acknowledge the stress they may be experiencing.

“That can be scary to do, because then it’s like ‘something’s going on, maybe I need to do something about it’. That can be challenging, but it’s a first step that can be really helpful.”

The next thing to do, she advises, is to take time to distinguish between “what you do and don’t have control over”, followed by reaching out for help.

“I think often people try to deal with stress all on their own, they take it on board and keep it inside,” she says.

“There’s also the shame that can come with financial pressure. It can feel embarrassing to say, ‘Actually, stuff is not going so well and I’m under financial pressure. I’m worried about it’. Internalising all of that can be really dangerous.”

When it comes to picking the right person to lean on, Kingsmill’s in favour of getting professional help or speaking to a trusted friend.

“Be careful to choose the right people,” she says.

“Certainly, don’t pick the people who are judgy or gossipy or who are just going to talk about themselves. You want those empathic people who will actually listen and won’t judge.”

As she puts it: “People in your family and your close friends would prefer to know what’s going on, because if you get snappy and upset and don’t tell them they’re going to think they’ve done something wrong.”

Back at CBP, Crennan says his belief is that leaders inside firms also have a key role to play in supporting staff through difficult times with “honest, clear and timely communication.”

“Your response to something like this has to be grounded in your values. Ours are loyalty, respect, integrity and balance,” he says.

“If you use those as touchstones to guide every decision and every communication, it resonates with your team and your people.”