The Impact of Recessions on Organizations:
Negative economic growth is not always dependent upon external contingencies such as the present ongoing “COVID-19 situation” which has led to most businesses, industries and professional practices like the legal field seeing an economic contraction[1] for an indefinite period. Economic Recessions have been a time-worn impact on the nature of deficit any organization may face, not limited to the fore-warned COVID-19 Recession, the 1930 fall in US GDP[2] due to Depression, or the “Lawson Boom and Bust” inflation of the 1980s[3], and may be caused by internal factors within an industry such as in the case of “Boom and Bust Recessions”[4] wherein the rise in economic growth within an organization in a particular period subsequently leads to the rise in interest rates on assets in the succeeding years, which later affects prices negatively, lowers consumer confidence and leads to a recession for organizations belonging to a particular industry.
This leads us to understand that industries are never truly protected from recession of any kind, simply because internal unpredictability is just as involuntary as external markets. This is also coupled with the fact that the legal profession doesn’t simply comprise one subject of practice, and a recession, irrespective of the economic safeguards guaranteed by the Government would still affect different segments of the field even as an industry.
This can be explained by examining the condition of lawyers in the US during the Great Recession[5] of 2008-2009. Despite the US Society Bar[6] making several preparations to ensure more financial and lucrative safeguards for law firms, it was understood that the attempts at providing better opportunities during such a period had no positive impact to negate the recession since it largely varied depending on the actual nature of the recession that hit contemporary practices in the field.
Since that particular recession affected housing and real estate, law firms dealing with mergers and acquisitions and housing security attorneys[7] were driven to unemployment, while insolvency and bankruptcy lawyers flourished[8] since there was a greater demand for their services.
When such examples are analysed, it is clear that the legal field would still greatly be affected by recession simply because the new “legal industry” would also face stratification[9] and this would mean variable responses to change in the scenario of Depression or Balance Sheet Recessions that primarily affect service industries[10].
The Way the Legal Sector Adapted to the COVID Recession:
As has been the new norm for most businesses and organizations since the start of the pandemic, meetings, events and conferences have been conducted online via webinars. This technological adaptation was also seen across the legal field as an unprecedented pivot to the traditional practice. Lawyers around the world realized that advancements in the field in the form of new Rules and Laws would continue irrespective of the global situation. An example of this is the CSR Policy Amendment Rules of 2021[11] which notified new rules and guidelines regarding how companies were to undertake CSR obligations. Under these Rules, companies have to create a separate CSR account, transfer unspent CSR money to certain specified funds under the Rules, and have to file a form with the Central Government regarding their CSR Committee and other disclosures. If lawyers and legal counsel remained unaware of the new Rules on the pretext of COVID-19, their corporate clients would suffer penal consequences due to non-compliance and the lawyers would have failed to fulfil their duty towards the client.
Overtime, the need for legal work grew despite presumptions that the sector would slow down due to a lack of physical demand. However, as people decided to venture into new fields and explore opportunities in diversified industries online, they seemed to require the expertise of lawyers in different areas. Similarly, insurance lawyers saw a hike in demand, including for Employment Insurance recovery where clients who had incurred medical expenses or lost their jobs during the pandemic sought to recover from insurance companies. Even litigation saw a gradual revival after the initial slow down once courts of law adopted new means of conducting proceedings online over zoom[12].
Law firms have implemented a hybrid model of working, with courts accepting filings and applications online, and some firms using paperless bills. While this was a move made out of necessity, it proved to be imperative.
Could the Legal Sector be protected from the Recession as an Industry?
If one was to propose that the so-called “legal industry” could be protected by federal schemes such as RBI liquidity schemes meant for small and medium industries in times of economic slowdown[13], it would mean that a law firm or independent practitioner would have to adopt comprehensive and aggressive approaches in their response to a downturn similar to the recovery and capitalization policies by existing industries such as the Healthcare, Education and Financial Advisory Industries. This poses certain challenges which make the comparative analogy redundant when one understands the structure and administration within the legal profession.
One issue is that, since the legal field is stratified, it creates a conflict of interest between elitist law firms and lawyers, and solo practitioners of smaller scales where the former few must focus on protecting their elevated status and market profitability, the latter majority must focus on surviving a recession[14]. This would lead to several different strategies of recovery and financial protection, which would also depend on the nature of recession and the particular subjects of law that it may affect. The concept of negating recession by falling under the bracket of an industry would require a single unified response across this “legal industry” which is not practically implementable, and would worsen conditions of intra-professional conflicts by economic stress amongst this new unified service by the “legal industry”[15].
This means that the comprehensive new response required would be tentative and delayed, and practices usually adopted by existing industries, such as extensive cost cutting across the market would damage the diverse segments of the legal profession as most small solo attorneys and medium law firms would struggle to cover this expensive recovery when the economy stabilized[16].
Further, if the legal sector was to become a self-sufficient industry protected against recession, it would have to also implement several risk mitigation and financial management mechanisms uniformly under the Bar, such as is the case with the Pharmaceutical Industry. Apart from having already explained why such unified singular policies cannot be implemented in the legal industry, the other issues would be that every law firm and legal chamber would have to hire risk managers or would have to allow these risk management mechanisms to be institutionalized[17] as is the way industries operate. This immediately becomes impractical because the legal profession is solely client oriented, and the work of a lawyer or law firm dynamically depends on the interests of each client which may come in conflict with the institutional policies and SOPs of their respective Risk Mitigation Departments. This could lead to an unprecedented change in the focus of the firm from its clients to its internal operations, or could lead to power struggles internally between the strategies and directive of the Risk Mitigation Department, and the Partners of a firm since client service is top priority[18]. Any of these above mentioned scenarios will severely damage the legal profession.
Also, when an industry needs to prepare for any economic crisis, it invariably attempts to predict the kind of recession, i.e., whether it is a minor slowdown, a severe inflation or a complete depression. This means that the possible time period and the extent of impact on the entire industry will have to be studied for the industry to protect itself[19]. Following this, the market experts within the industry have to determine how the specific kind and severity of recession will generally impact its growth.
This cannot be the case for the legal profession. When the Asian Financial Crisis of 1998 began, there was a severe loans and savings crisis that emerged[20] and most industries in South Asia were forced to understand how the demand for their products and services would be affected by the limited buying capabilities of consumers[21]. Once each industry was able to study these, the ones who successfully understood and uniformly implemented strategies to deal with the changing demand-supply, such as the food, essential goods and health care industries were unaffected by the recession of 1998-99. However, this was not possible for the “legal industry” since the impact of a single kind of recession varies greatly, as explained before. Without the ability to conduct such a necessary study, the industry would fail to implement combative strategies and this could create job insecurity as the client demand would now bend towards banking lawyers, leading to a deflation in the client-centered prices of other disciplines of law[22].
Conclusion:
All of these suggest that the idea of bracketing the vast legal profession into a self-reliant industry would, in no way, protects law firms and solo advocates from the recession, simply because of the contemporary structuring of each organization, the vast distinctiveness between each subject of practice, and the administrative nature in which each practitioner runs their practice. The hope is that life, in general, will return to normal after the pandemic subsides. However, for sectors such as the legal field, “normal” will mean a new version of traditional practice with firms and organizations getting used to a transformative approach. The sector needs to better understand and recognize the need for change, which will help deal with the pandemic and its aftermath.
Industries have to largely focus on ensuring stable financial goals, making their businesses financially viable with firm decisive operations uniformly across departments. The legal profession cannot focus on this since it is a client-driven service which must essentially focus on ideals of justice and legal conduciveness[23].
While there are some common policies that large law firms and existing industries adopt in times of recession such as streamlining and reducing the number of employees, and centralizing essential operations to cut expenses, this cannot be an universally adopted practice as most law firms with a sufficiently large clientele require manpower, and could lead to the need for more expenditure on rehiring and restructuring within individual firms at the time of recovery.
In theory, only self-preserving industries that have indefinite demand such as food and medicines can be free from recession, and the legal world does not fall under that category, because of which each firm must focus more on their own client retention strategies, and on disengaging subjects of practice that are not as feasible and economically successful for the firm or advocate as other more prominent areas of law. This will ensure a far better reaction to the slow economy than as a “legal industry” would be able to.
[1] Statistics of US Businesses, 2020; Federal Reserve Banks’ Small Business Credit Survey, 2019; Annual Business Survey, 2020
[2] St. Louis Federal Reserve, 1932 – A101RL1A225NBEA
[3] Economic Growth, UK – Economics Help ONS, 1992
[4] ibid
[5] Richard A. Posner, “When Does a Depression or a Recession End?”, Atlantic, 2009
[6] Russell G. Pearce, “Lawyers as America’s Governing Class: The Formation and Dissolution of the Original Understanding of the American Lawyer’s Role”, 2007.
[7] John P. Heinz & Edward Laumann, “Chicago Lawyers: The Social Structure Of The Bar”, 2009
[8] ibid
[9] Ronen Shamir, “Professionalism And Monopoly Of Expertise: Lawyers And Administrative Law”, 1933-1937, 27 Law and Society Rev. 361, 363, 378
[10] Tejvan Pettinger, “Types of Recession”, ONS 2019
[11] Companies (CSR Policy) Amendment Rules 2021 – Ministry of Corporate Affairs Notification dated 22nd January, 2021
[12] Eric Scigliano, “Zoom Court is Changing How Justice is Served”, 2021, The Atlantic, https://www.theatlantic.com/magazine/archive/2021/05/can-justice-be-served-on-zoom/618392/
[13] Ritika Agarwal, “Industries Least Affected by Recession”, Finology, 2019
[14] Robert L. Nelson, “Partners With Power: The Social Transformation Of The Large Law Firm”, 1988
[15] Harry W. Arthurs & Robert Kreklewich, “Law, Legal Institutions, and The Legal Profession in the New Economy”, Osgoode Hall L.J, 1996
[16] Global Report by the Boston Consultancy Group, 2018
[17] Jacques Derrida, “Force of Law: The “Mystical Foundation of Authority”, Cardozo L. REV. 919, 955, 1990
[18] L. Cummings & Deborah L. Rhode, “Managing Pro Bono: Doing Well by Doing Better”, Fordam L. REV. 2357, 2010
[19] Stephan Landsman, “The Risk of Risk Management”, Fordam L. REV. 2315, 2010
[20] Paul D. Paton, “Multidisciplinary Practice Redux: Globalization, Core Values”, 2010
[21] ibid
[22] Milton C. Regan, Jr. & Palmer T. Heenan, “Supply Chains and Porous Boundaries: The Disaggregation of Legal Services”, 2010
[23] John C. Coffee, Jr., “Gatekeepers: The Professions and Corporate Governance”, 2006
YLCC would like to thank Dylan Sharma for his valuable inputs in this article.