Hong Kong market update 2020
We hope you are staying safe and healthy in this unusual and difficult time.
Talking, as we do, to both law firms and lawyers, SSQ Hong Kong thought it would be helpful to provide a consultative market update from a slightly different angle.
Law firms in Hong Kong are taking various measures in response to the COVID-19 disruption. A number of “Magic Circle” and leading UK firms have announced freezes on salaries and delays to bonus distributions at associate level, with many deferring or limiting partner drawings as well. Some leading international (UK/US/AUS) firms have asked people to work four day weeks (in some cases up to a year) while others have asked fee-earners to take a temporary 10-20% pay cut. So far we have not seen many of the elite US firms, PRC firms or the legal arms of the Big Four take similar measures. This may be for a number of reasons – ranging from differing year ends to the immediate economic impact being mitigated by varied geographical/sector coverage or, in the case of the Big Four, their business diversity.
Generally, after the Chinese New Year break, most international law firms followed the advice from the HKSAR government and were either operating teams in shifts, with lawyers coming in on alternative days or weeks, or allowing their employees to decide whether to work remotely. With the situation improving over the past few weeks, the HKSAR government announced that public services would resume from 4 May 2020 and this was seen as an official indicator for law firms and other businesses to follow. From this date, an increasing number of international law firms have asked their employees to return to the office, though a number of firms are going to continue to operate shift teams for another few weeks before fully returning to normal.
Are people moving firms?
Lateral movement in Q1 this year, both at the partner and associate level, has decreased by two-thirds compared to previous years. The lateral partner moves we have seen this year have tended to be between the medium sized UK/US firms and often comprise small teams - typically a single partner plus one or two associates. Given the current climate, we anticipate this trend will continue through Q2 before gradually increasing in Q3 and Q4. Many international law firms have announced temporary hiring freezes and, whilst other firms are still recruiting, these tend to be replacement hires at associate level and, in the case of partners, driven by high book values and hot practice areas (such as restructuring/insolvency). So far in Hong Kong we have not seen law firms withdrawing offers (which has happened in other jurisdictions) but we are seeing short delays (up to one month) on start dates. There have also, of course, been some notable changes to the interview process since the lockdown period began. Interviews are being conducted remotely, over Zoom, WeChat and the like, far more than ever before, with relatively few face-to-face interviews taking place. Law firms are understandably taking more time in their decision making, particularly when it comes to senior hires. Please see table below for partner moves during the first quarter.
In early April, the HKSAR government announced that it would subsidize up to 50% of wage costs for eligible employers, capped at HKD $9,000 per month per employee for a period of six months; in return employers have to pledge not to make their staff redundant. From our observations, law firms have had very mixed views about whether or not to apply for this subsidy. Some firms are using it but others are choosing not to – whether it be because they feel they are financially healthy enough to not require it; they prefer not to be bound by the staff retention obligations; or they do not want to send out the wrong message to their staff or clients by having their name publicised in connection with using such a scheme.
In contrast to the last major recession following the 2008 Financial Crisis, and despite the distractions Hong Kong suffered prior to the pandemics, including the anti-government protests and the US-China trade war, we have not yet seen any mass redundancies this time round. The notable exceptions to this are, of course, Orrick and Osborne Clarke who have both decided to cease their HK operations this summer. Most other international law firms have reiterated their commitment to the region, as evidenced by the number of Hong Kong based senior associates/counsels we are seeing being admitted to partnership, especially in UK headquartered firms. While we have seen some inevitable and small scale layoffs, they have generally been performance based rather than business downsizing. We certainly have not see a culture of “last in, first out” with any of these decisions.
With the situation improving in China and Hong Kong, we are starting to see a bounce back in terms of both business and recruitment activities. If you would like to discuss further how the Coronavirus is impacting the market or would like to share what measures your firm has started to implement in response to it, please do reach out. We are always happy to compare notes on the market and assist with any potential recruitment needs.