Much of the outrage has come from those in other major firms disgusted at their own peers. Photo / 123RF
Much of the outrage has come from those in other major firms disgusted at their own peers. Photo / 123RF
COMMENT:
Major law firms who applied and then reversed decisions on government wage subsidies badly misread the public mood and will be remembered for it.
Whether or not people believe Bell Gully, MinterEllisonRuddWatts and Simpson Grierson could genuinely forecast a 30 per cent revenue drop or not, the damage has been done.
Together the three "big six" law firms refunded $6.2 million in subsidies this week.
The awkward timing of a report from controversial former Labour finance minister Roger Douglas and comments from National Party leader Simon Bridges saying law firms shouldn't get these subsidies made matters worse, even if, for example, Simpson Grierson had already put the money back by then.
While there has been a lot of outrage expressed online, much has also come from those in other major firms disgusted at their own peers.
Professional services firms have long enjoyed a background role as 'trusted advisers' to their clients but they are increasingly learning to be accountable in the newer realm of corporate social responsibility.
If Russell McVeagh - which is still tainted from the summer intern sex scandal of 2018 - had dared submit an application for government help, the outrage would have been off the charts, regardless of its eligibility. It was wise not to do so.
Outlook fuzzy
If the applications were genuine, should the firms involved be embarrassed their Covid-19 crystal balls failed them?
A McKinsey report prepared this month on the impact of Covid-19, written for US firms, notes in general law firms weather economic downturns better than the rest of the economy does. The general rule is that in full-service firms, litigation practices pick up when merger and acquisitions activity falls away.
However, this report noted the Covid-19 crisis was different because stimulus programmes and regulatory responses could still provide work for the corporate department.
The recession rulebook has also gone out the window as courts were closed, meaning disputes teams were billing less.
A partner from one of the firms who gave back the subsidy was adamant its financial team had been too pessimistic in its original forecasts. Property and financial services had remained busy.
"We don't ask for any sympathy," the partner said – but pointed out that a 30 per cent drop in revenue for a firm on about 35 per cent gross profit margin equated to a 90 per cent drop in annual income for the partner.
'It's groceries'
"This is not about skiing trips, it's not just staying home," the partner asserted, "it's groceries."
For partners with highly leveraged assets, a 90 per cent decline in income in a year is a drastic reduction, especially for junior partners.
Of course, partners are expected to take the good with the bad and can make between $500,000 to $1m a year, so are they expected to sell their baches and boats?
Some say there's nothing wrong taking the free lunch when offered – after all, lawyers work within the law.
Former Simpson Grierson partner Graeme Christie was happy to defend taking wage subsidies and said firms were too quick to bow to social media pressure.
"Why should they take a pay cut when the government is handing out subsidies?" he asked.
Indeed, the Aotearoa Legal Workers' Union has defended its use to save jobs.
"Despite backlash on this issue, ALWU is of the belief that wage subsidies should be used when required. Much better for a legal workplace to take the wage subsidy and support their workers during this time than initiate pay cuts," the union declared.
The problem with this is that it suggests there are only two options: either use the government subsidy or not pay for workers. The third option is getting partners to pay up.
For example, in Bell Gully's case, it has 45 partners. To self-fund the $1.8m it took from the wage subsidy scheme would have cost partners $40,000 each.
What about the accountants?
It appears lawyers' number-crunching counterparts were more cautious about the subsidy. Accounting firms PwC and KPMG have said publicly they do not qualify but are implementing measures for the downturn: partners' distributions have been cut, options for four-day weeks are in play, and in KPMG's case staff have seen a 15 per cent pay cut.
Deloitte and EY also do not appear to have taken the government help.
My view is that these big four international firms are more alive to the reputational issues associated with taking the lolly, even if offered.
By not taking the subsidy, they distinguish themselves from Grant Thornton, BakerTillyStaplesRodway and some BDO offices, which are taking the money.
Lawyers in the big six should have taken a lead from their UK Magic Circle counterparts and not gone near the scheme. In London, the government furlough scheme is so far only for the mid-tier firms.
