By Brian Burlant

Law360 (September 18, 2020, 5:26 PM EDT )

Brian Burlant

With the onset of the COVID-19 pandemic in March, law firms faced an unprecedented set of circumstances and shocks to the economy.

As businesses needed to shut down physical spaces and people needed to quarantine on a global level, the greatest issue facing these firms was the plain uncertainty of the economic impact of COVID-19 — how businesses and consumers would adapt, and for how long the shutdown and any resultant economic fallout would persist.

In the short term, firms launched a number of rapid financial and operational responses to the crisis, including:

• Closely monitoring ongoing revenue and collections;
  
  
• Quickly marshalling information technology and other resources to facilitate continuity of service;
  
  
• Staying in close and regular contact with clients and employees; and
  
  
• Taking a keen eye to examining and reducing expenses in the near term to preserve cash flow.

Most firms have found that they have been able to seamlessly continue service to clients,[1] as investments made in IT systems and the teleconference technology generally available have proven capable of helping entire organizations navigate the transition to remote work. Still, firms have not been affected equally by the resultant economic changes.

Early on in the pandemic, we saw that many firms, after making a quick assessment of risk for the forthcoming year — albeit with imperfect knowledge — cut or suspended partner draws and associate compensation. Additionally, many firms paid close attention to bringing in collections and monitoring billed hours — often on a daily basis and with sanctions for those in violation of billing policies.

Those firms with presumably less of a financial cushion took additional steps to furlough staff and other employees. As firms gained experience and a better fix on their client demand and incoming collections for this year, many reversed compensation suspensions or reductions, or provided for these amounts to be earned back through hours billed for the remainder of the year.

However, a number of firms have unfortunately converted furloughs to terminations. Moreover, we now see even financially robust firms taking additional steps to strategically position themselves for a post-COVID-19 world by instituting permanent reductions in force in recognition of reduced staff needs from working remotely, and that take advantage of our current conditions to undertake a complete reassessment of attorney, staffing and real estate needs.

These reviews are being undertaken by firms of all sizes and at vastly different levels of profitability. Thus, regardless of any adverse impact to any particular firm from the COVID-19 crisis, there will likely be a rolling reorganization of some degree among firms to strategically strengthen themselves for the year ahead.

A key driver of this reorganization is the competition to retain and attract talent. We can call it an axiom of 21st century BigLaw. All client relationships are fluid. These client relationships are so fluid that we have witnessed in the last few years the crumbling of the last pillars of lockstep compensation at elite top 10 Am Law (and certain domestic Magic Circle) firms as they poach talent from each other.

Further, to retain and attract key rainmaking talent, firms may need to reallocate resources and cut where they can from their two biggest cost centers: personnel and real estate. COVID-19 has enabled a hard look at both.

For the former, this has come in the form of reducing support personnel enabled by increasing technological capability and adoption — particularly by partners, who increasingly became self-sufficient by working remotely and having to adopt to conferencing and other remote work technologies.

With regard to real estate footprint, a number of firms are reconsidering the physical footprint needed by a 21st century law firm, where at any given time 50% of the personnel may be working remotely and the other 50% on premises may be "hoteling" space.

Reflecting this competition for talent, we saw recruiting activity continue this year, with more financially secure firms taking advantage of the market disruption to recruit important rainmaking talent across practices, and not just bankruptcy or restructuring. More importantly, although the pace of new recruiting slowed in the early months of the pandemic, firms continued to close deals already in the pipeline, especially for strategically important hires, and continued to initiate discussions either to bolster areas of strength or to diversify and even out practice troughs.

Tellingly, over the past few months, new recruiting mandates both at law firms and at corporate clients have picked up significantly now that clients have seen that business is better than worst-case expectations. Conversely, those firms that remain on the sidelines when it comes to recruiting will be especially vulnerable to having their best talent poached.

What this means is that all categories of firms do their utmost to take care of their revenue-generating partners, but some just will not be able to do enough and will certainly have their cultural glue seriously tested. Those that can are entering the recruiting market aggressively knowing that dislocations like COVID-19 present rare competitive opportunities.

Consequently, we can expect to see the results of this movement over the next 18 months as this current skein of recruiting interviews finalizes in the fourth quarter, and 2020 financial results become clear in the first quarter of 2021, prompting another cycle of recruiting.

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Brian Burlant is a managing director at Major Lindsey & Africa.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] This is not to say it is perfect. Whether in training and mentoring young associates or in capturing the nuance of a negotiation or in conducting judicial hearings, there are real limitations to working remotely; not to mention the stress and strain of those adapting to do so with young families or other caregiver obligations.

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