As the global pandemic reaches even greater uncertainly, we provide below an update to our clients on the Asian legal private practice markets namely within our core locations of recruitment- Hong Kong, Singapore, and China. Casting our eye back to the world before the virus, it is reasonable to say that these legal markets had already been weathering some challenges. At the end of 2019, the US-China trade war had seen no sign of abating and we saw Hong Kong’s position as a global legal hub come into question as the city was plunged into unrest with the pro-democracy protests. Despite these evident challenges, the Hong Kong, Singapore, and China markets remained strong throughout 2019 and we entered 2020 with active hiring from law firms and reasonable optimism from candidates about prospects ahead. The position has now changed seismically, and the reality is that Covid-19 has now gone global, and international law firms based in Asia face continued uncertainty as they experience business volatility in many of their key practice areas. For areas that remain busy, the concern of some law firms is that this business flow was generated towards the end of last year/ beginning of this year and the pipeline for new work is proving underwhelming. Factor into this the challenges for some of the remote working, anxiety about recovering legal fees from clients, and no evident end to this crisis, law firms have been revolutionizing how they work to remain on the cutting edge.
How have practice areas been affected?
Corporate work which constitutes the key income stream for most international law firms in Asia has slowed down for many law firms. Whilst for many, mergers and acquisitions work has been patchy, we are pleased to report some uptick in capital markets to work particularly in relation to law firms with a deep footprint within the China market. When the virus was contained within Asia, law firms absorbed deal flow from other offices and were able to leverage work from other clients outside Asia who remained busy and unaffected. As the virus has spread globally and law firm headquarters (especially London and New York) have been materially impacted, some corporate transactions have taken a backseat and many of our law firm partner clients are citing a notable reduction in associate utilization levels. In difficult economic times, many law firms operate a countercyclical model, compensating for a drop-in, for example, corporate revenue by learning on another practice is but this had been difficult in firms where all practice areas have been adversely affected.
After the global economic crisis in 2008, we saw a hike in litigation work, and it is anticipated that increased litigation work will be a by-product of this downturn especially in relation to restructuring and construction disputes work. That said, we have consulted with our law firm litigation partner clients and the timing of such litigation instructions remains a further uncertainty. Initial litigation fees can be sizeable, and clients are reluctant to make such an outlay during such difficult times. Earlier this year, we saw partners pitching arbitration to clients as a means to resolve disputes given the backlog with the courts. Finance work has been reasonably stable, but we have seen a notable uptick in restructuring finance work. To accommodate this business flow, traditional finance lawyers have been deployed into picking up non-contentious restructuring work. This is particularly the case in Asia where there are relatively few lawyers who can truly hold themselves out as restructuring specialists (compared to, for example, the UK or the US). Practice areas such as fintech, data privacy, and regulatory and investment funds are busy. Employment law practices have been very buoyant and ironically, Covid-19 itself has given
Finance work has depleted as new investments have generally slowed down, but we have seen an uptick in restructuring finance work. To accommodate this business flow, traditional finance lawyers have been deployed into picking up non-contentious restructuring work. This is particularly the case in Hong Kong where there are relatively few lawyers who can truly hold themselves out as restructuring specialists. Practice areas such as TMT, regulatory, and investment funds are stable but there has been an understandable drop in business traction from 2019. On a positive note, employment law practices have been very busy and ironically, Covid-19 itself has given rise to an increase in work as employers are seeking counsel on how to manage the pandemic both in terms of their risk portfolio and employee well-being.
How have law firms accommodated working arrangements?
On employee well-being, it is fair to say that international law firms in Asia have not been in past times universally applauded for their capacity to accommodate flexible working. In terms of accommodating working from home arrangements when the virus broke out, the response from law firms has been largely mixed depending on location. For example, law firms in Singapore took a more robust approach than Hong Kong. Some law firms announced immediate lockdown and all lawyers and support staff have been working from home. Most law firms operated a mixed regime (both working from home and the office) making an assessment based on both business needs and a lawyer’s personal circumstances. Feedback has generally been positive, and lawyers felt law firms responded quickly to provide adequate support. We had feedback from law firm partners that the working from home model did present challenges in terms of supervising junior lawyers. As the infection rates for Covid-19 started to decrease, we saw law firms move towards encouraging lawyers to return to the office. When infection rates started to peak again following an influx of travelers from overseas, many law firms went into complete lockdown.
How is recruitment?
All is not entirely lost for those in pursuit of a new role. Although law firm recruitment is slower, it is ongoing particularly in relation to the busier practice areas highlighted above namely employment, restructuring, litigation, and arbitration. We continue to be instructed on some select corporate and litigation roles and offshore law firm hiring remains stable. Law firms have however really raised the bar and are only willing to look at candidates who are fully meeting their criterion. Most law firm interview processes have been conducted remotely due to virus sensitivity. This has slowed down processes as there is often a preference to have a face-to-face meeting before making a final decision on a hire. For many law firms in China, they resumed some degree of normality with their working schedule which is encouraging.
Most active hiring has been at the mid-level range. At the senior end, we have received calls from senior associate/ counsel level candidates on track to partnership who have found themselves in a vulnerable position. Their business plan/ client following has been materially compromised by the economic conditions. They are largely in limbo pending an uptick in the market. Prior to the virus going global, we received a number of calls from ex-pat lawyers (especially those with children) enquiring about relocating to another location. Australia and the UK were locations of particular interest. With present conditions, relocation is almost beyond contemplation and with continuing uncertainty, lawyers are redoubling their efforts to protect their current position.
What measures are law firms making to cut costs?
During the 2008 economic downturn, some international law firms were widely criticized for making redundancies and when the market picked up and they were back on the market for lawyers again, they often struggled to obtain the best talent due to the negative reputation they had acquired. To avoid such reputational damage, international law firms are trying (where possible) to seek alternative cost-saving measures. Some law firms have reduced lawyers to a 4-day work and are paying them on a pro-rata basis especially in practice areas where there has been a dip in work. Some lawyers have been furloughed until conditions improve. This is of course not ideal, but it prevents the scenario whereby lawyers find themselves jobless in a difficult market and the expectation is that they can resume employment when the business resumes. Some law firms have asked partners to contribute capital during these difficult times and other firms have cut equity partner compensation. For most international law firms, associate salaries have been frozen for the time being. Some law firms have paid full bonus albeit on a deferred basis. For other law firms, perhaps those not performing as well, no bonus will be paid this year. For some law firms sadly, they have been obliged to make lawyers redundant. Practice areas that have been affected include corporate M&A, litigation, capital markets, and real estate. In some instances, international law firms have even taken the step of closing down their offices in certain Asian locations. The market is proving particularly fragile for trainee solicitors completing their training contract this summer. By their very nature, lateral newly qualified opportunities are an investment proposition which law firms are understandably unwilling to make. We are already seeing trainee solicitors who will be on the lateral market as they have not been retained by their firms.
Some final thoughts
In the above commentary, we strive to do justice to the gravity of the Covid-19 pandemic especially as it remains uncertain when we will see an end to this situation. We however would like to balance the present uncertainty with the knowledge that the Asian legal industry has endured tough times before and those who properly adapt will persevere. The Hong Kong legal market bounced back robustly following the SARS outbreak in 2003 and the Asian legal market recovered from the global downturn in 2008 and we are confident we will see the same again. We have also seen a business return to some semblance of normality in China and Singapore and law firms have become busier and we will hopefully see similar traction in Hong Kong. On a final positive note, it is a very opportune time for lawyers and law firms alike to truly take stock and reflect on their current position and consider their long-term goals in line with their interests and ambition.