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Who's sorry now? The GFC that wasn't

Who's sorry now? The GFC that wasn't

In the turmoil of the GFC, firms have rid themselves of precisely the people they're going to need in an upswing. Michael Bradley talks post-recessionary planning and how it all went wrong

As it becomes apparent that the GFC didn’t reallyhappen, or at least it didn’t really happen to law firms in Australia, there isa proliferation of articles dedicated to the topic of post-recessionary planning.

In particular, how to motivate staff, who’ve justspent 18 months on a salary freeze, in circumstances where they’ve probablynoticed by now that their employers didn’t actually suffer a fall inprofitability at all, to not express their disappointment by no longer turningup for work.

This is a tough one. Certainly there was a lot ofoverreacting going on last year, not that anyone should be criticised forthinking that things were going to be a lot worse than they turned out. We allgot that wrong. It’s how we planned for and reacted to it that matters.

How do law firms manage a downturn? Same as they domost things, in a very predictable way. Here’s the conventional approach:

1.     Give the finalyear law students, who have already received and accepted a graduate offer fornext year, a lesson in basic contract law by cancelling them. If you’re nice,sling them some money so they can go backpacking in Europe instead.

2.     Change theChristmas party from a masked ball at the Westin to a $40 a head limit for eachteam to go to the pub. And remove the free soap from the showers (true story).

3.     First round ofretrenchments – junior lawyers lacking patronage from influential partners.

4.     Second round ofretrenchments – some mid-level lawyers who weren’t going anywhere anyway.

5.     Third round – “voluntary”– some of the more expensive senior associates and everyone who works parttime.

6.     Fourth round -surplus admin staff. HR goes last.

After that, in a real recession, the partners wouldhave no choice but to turn on each other. That’s a genuine spectator sport.

What’s interesting is the order of priorities. Graduatesand juniors are always the first victims because it’s well known that they areunprofitable. And very replaceable, given the endless supply of new graduates.

However, it tends to be forgotten that today’sgraduate is the year after next’s two year-out lawyer, which we know is amythical beast for whom firms are willing to pay recruiters outrageous feeswhen things are good.

Therefore, what the firms have just done is to get ridof precisely the resource they’re most going to want, and find it hardest toacquire, when the market rebounds. While at the same time alienating everyonewho didn’t get sacked by asking them to wear (from their perspective) the wholecost of the GFC.

But what was the alternative? Loyalty? Actual, notjust notional, sharing of risk?  The partners (gasp) taking a pay cutthemselves? Or even accepting, as owners of a business, that part of thecapital risk of ownership in the real world is the possibility in bad times ofhaving to reinvest most or all of the profit back into the business itself?

You’re right, that’s crazy talk.  Better to cashout now, but then at least spare us the disingenuous hand-wringing about how toconvince the remaining employees that you valued them more than your parkingspace.

 

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