The Evolving Landscape: Mergers, Workforce Reductions, and Remote Work Dynamics

One of the most observed and anticipated events currently playing out in the London legal market is the merger between Allen & Overy and Shearman & Sterling. Partners from both firms are set to vote on the potential merger with the voting process anticipated to take place in either June or July. The major considerations are speculated to include concerns regarding achieving pay parity and addressing associate compensation discrepancies. However, Shearman’s declining position, and cultural integration may also be a point of contention.

Although these factors may pose a significant challenge, the merger would position the new firm, A&O Shearman, as a formidable global player, posing a potential threat to the existing Magic Circle firms and also international firms. Presently, it has been speculated that Allen & Overy and Shearman & Sterling have agreed to a merger with a modified lockstep remuneration model. The elongated lockstep model introduced by A&O in 2020 will be adopted, featuring higher bonuses with Shearman’s ‘eat-what-you-kill’ model coming to an end. The merged firm will have a significant global presence, with substantial revenue, lawyers, and partners. Commentators have noted that this will benefit junior partners, although it will place a question mark over the position of their senior counterparts.

Insiders have noted that the approval of the deal requires a minimum of 75% of partners from each firm. If the merger proceeds, it would result in the formation of one of the world’s largest law firms, boasting a revenue of $3.4 billion and a team of 3,900 lawyers. Shearman would benefit from essential financial support, while Allen & Overy would achieve its longstanding goal of establishing a presence in the United States, which has historically been difficult in relation to securing traction in U.S. financial and M&A work because companies would typically favour U.S. outfits.

In observing other developments in the market, it is worth turning to the recent wave of staff cuts and layoffs. A prominent example is Dechert’s recent decision to reduce its global workforce by 5%. The decision is said to reflect the need to align staffing levels with demand and address a profit dip. Similar cuts have been made by other law firms, including Cravath Swaine & Moore and Cadwalader Wickersham & Taft. These workforce reductions have raised concerns among associates regarding potential layoffs and reduced recruitment activity. Associates have noticed quieter workdays, leading to feelings of hypervigilance. Good communication from partners and actively showcasing skills and marketability are seen as strategies to mitigate fears and enhance career prospects. While the cuts may be challenging for those affected, the firm has also made notable partner hires in London, indicating ongoing investments in key practice areas. This strategic approach positions Dechert to adapt to market conditions and remain competitive.

Further significant happenings revolve around law firms revaluating their stance on remote work as the power dynamics favouring lawyers diminish. Some firms, such as Simpson Thacher & Bartlett and Sidley Austin, are tying bonuses to in-office attendance. While some firms hope their culture will entice employees back voluntarily, others are considering similar measures. The push for increased in-person attendance is also driven by clients and accounting firm leaders. This trend aligns with the broader movement towards four-day workweeks in various industries.

The London legal market is undoubtedly experiencing significant shifts and developments, from mergers and cultural integration challenges to workforce reductions and re-evaluations of remote work policies. As these events unfold, it is crucial for legal professionals to adapt, communicate effectively, and leverage their skills to navigate the changing landscape successfully.