A&O's hard facts of life
On one hand so bold, on the other, so familiar. Here we are two years on, with Allen & Overy (A&O) announcing another restructuring that borrows ideas from rivals - with booster rockets attached. Consider the history. In February 2009, A&O unveils a comprehensive restructuring of its business pulling together measures that rivals were deploying piecemeal, including partner exits, firmwide job cuts, a capital injection and a freeze in billing rates. Then in February 2011 A&O unveils a comprehensive initiative to offshore swathes of its back-office and legal support work to become an outpost in Belfast set to grow to 300 members of staff by 2014.
February 03, 2011 at 08:17 AM
4 minute read
On one hand so bold, on the other, so familiar. Here we are two years on, with Allen & Overy (A&O) announcing another restructuring that borrows ideas from rivals – with booster rockets attached.
Consider the history. In February 2009, A&O unveils a comprehensive restructuring of its business pulling together measures that rivals were deploying piecemeal, including partner exits, firmwide job cuts, a capital injection and a freeze in billing rates. Then in February 2011 A&O unveils a comprehensive initiative to offshore swathes of its back-office and legal support work to become an outpost in Belfast set to grow to 300 members of staff by 2014.
The first thing to say is that, like the previous restructuring, you can't argue with the logic. City law firms' attachment to having huge ranks of staff in the heart of one of the most expensive cities in the world has become anachronistic as they have grown in scale and expanded abroad. With global law firms increasingly turning their attention to expansion in emerging economies, which have huge economic potential but far lower operating costs than the UK, providing centralised back-office support from the Square Mile doesn't stack up.
And the fashion a few years back for City law firm to offshore to remote countries – when the labour arbitrage benefits will be inevitably eroded hugely over time – always looked odd given that they have utterly failed to use lower-cost regional centres in their own backyard.
Obviously, A&O is not alone in seeing the potential of Belfast, with a number of banks running back-office teams from Northern Ireland and Herbert Smith already gearing up to launch a local office in April to provide litigation support. Such ventures allow firms to access a well-educated labour pool in regions in which they will be standout employers – a contrast to the huge, shiftless London market in which support staff move constantly between law firms.
Making it a fully-owned venture also makes clear sense. For all the hype regarding legal process outsourcing (LPO), major questions remain over who is guaranteeing the work. Given that being on the hook is a major part of what a City law firm is selling to clients, this is no minor detail. And while many commentators cheer the slicing and dicing of law, the prospect of law firms being pressured by clients into standing behind work done by LPOs strikes me as a rather ambiguous development to celebrate.
I also suspect these initiatives by A&O and Herbert Smith will be symptomatic of a trend in which law firms increasingly appropriate ideas from the LPO industry to update their own business model rather than outsourcing themselves. And while the cost savings of A&O's venture will be modest in the early years, due to start-up and redundancy costs, A&O knows it is sending a powerful signal to clients about its willingness to adapt to changing times.
But if the logic of A&O's announcement is inarguable, there are some hard facts to bear in mind. Going through a second major shake-up so quickly after a restructuring that was partly sold on the basis of being a one-off is a delicate business. The firm did an admirable job last time of protecting morale and drawing a line under its job cuts. But that was partly because the 2009 restructuring so clearly spread the pain across all levels and happened when the economy was in free-fall. This process doesn't pass those tests (though only the naive would expect much empathy from the associates for back-office staff).
In the wave of job cuts two years ago, top City firms rightly calculated that offering generous redundancy packages was not only morally the correct path for highly profitable businesses, it was a sound investment in their brand. A&O would be well advised to be similarly generous to the many staff that will take redundancy rather than relocate to Northern Ireland. Even in this much-changed world, it's still good business.
- For more, see A&O to launch 300-strong support centre in Belfast
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