Crisis Trigger
What happened?
The business was split into 3 Practice Areas, Personal Injury, Private Client and Public Law.
Private Client had the highest number of Products of all three divisions that failed to meet the 40% gross margin hurdle. This is because they are price sensitive in the consumer market and required a high-cost resource (solicitors / licensed conveyancers) to conduct them due to complexity.
As a result, we had to close 4 departments and make c. 150 redundant or look to redeploy them across the remaining areas.
Due to the number of staff put at risk, we had to do a collective consultation, with each Department nominating a representative. Coupled to this, we had to move through the consultation process with affected staff members in other Practice Areas.
During this collective consultation, we had a mass walkout of staff in one department who left to find alternative employment. This left the business with around 1,000 files with no fee earner and only a small residual amount of fee earners to coordinate across the files, which had immediate deadlines to be met.
Business areas affected?
- Legal
- Financial
- Operational
- Reputational
- Governance
- Communications
Complexity and consequences
Internal weakness:
We lost a significant number of staff due to the initial announcement, which created huge capacity issues in the affected department. However, it also drew in a substantial number of senior staff to attempt to manage and mitigate the issues.
The business still had aggressive targets to achieve to maintain Business as Usual (BAU) performance, which meant that a series of specific messages had to be crafted for the remaining Practice Areas and those that would be affected by redundancy.
We had to speak to certain senior individuals separately, as they did not agree with the decision to close the Practice Area and became extremely vocal in their dissent.
External pressures:
Clients who had instructed the firm and required us to complete our obligations. Many of these Clients were moving home and required us to complete transactions within a specified timeframe due to expiring mortgage offers.
We had several complaints due to decreased capacity, which meant that we had to actively engage with the regulator (SRA) to explain the current situation and what our plan was to resolve the ongoing issues.
We had a series of negative trade press coverage focusing on the loss of a significant number of staff and the corresponding effect that was having on Client service.
We had to manage the owners, who, despite issuing the instruction to close the Practice Area, still relied on us to conduct it well and manage client service and protect the firm’s brand/reputation
Risk of Collapse?
There was no risk of collapse however there was significant risk of reputational damage for the remaining Practice Areas of the business.
What happened in reality
Previous role action:
At the time I was the Director of the Practice Area being closed, so I was the controlling mind who had to lead on the collective consultation whilst also looking to manage the regulator obligations and fall out due to the high number of staff who had left the business without notice.
Actions taken:
The key aspect that we agreed on was that we needed to change track and split the redundancy process into two tracks: one that would go through the collective consultation process and remove the department that had been affected by the mass walkout.
The collective consultation followed the statutory timeframes, and the decisions were made to close off, and where possible, staff were deployed or, sadly, made redundant. Due to the nature of legal work, some staff were retained to deal with the runoff of matters for a period of up to 12- 15 months.
In the department where we had a mass walkout of staff, we had to look to immediately source a buyer for the department and its work-in-progress. This was achieved, and we did eventually transfer over c.800 cases to the new business, and TUPE transferred several staff members who had remained with the business.
During the negotiations before the sale, we needed to look to maintain Client service using the remaining staff that we had available. This required us to insource locum staff and then, in date order, prioritise matters that were going to be completed.
This meant that we had a huge number of matters spread across limited resources, we therefore had to incentivise the staff and reward their professionalism, as well as communicate with all Clients in this department what we were planning to do over the next 8-week period and allow them to transfer to alternative solicitors
Lessons learned:
When going through the planning phase, despite the pressure due to financial constraints, I don’t believe we should have conducted a collective consultation, but rather managed the closure of certain high-volume departments.
This would have required us to outline the plan to the owners and seek a small amount of funding; however, I believe it would have enabled a better outcome for all concerned.
Activities I would have implemented if given time and funding include:
- Reducing inception numbers for a period of 3 months.
- Freezing recruitment and not backfilling any leavers for a period of 3 months.
- Increasing incentives in the short term to increase completion rates and reduce the number of cases under management.
- Actively sort to sell the high volume department prior to starting the consultation process, as this would have meant that we could of walked the staff through a streamlined TUPE process which would have prevented the panic which caused so many to leave and seek alternative employment because they had been placed at risk.
How Arx Nova would approach it today
First 24 hours:
Speak to the Directors and ask them to explain their overall objectives and the rationale for the decision they are about to make.
Request details of the financial plan that underpins the next 3 months of the business.
Understand the Departments that are affected by the rationale and speak to the senior leaders in each, inclusive of HR, to establish their thoughts and understanding of how their departments will react to the challenge.
Request that HR and comms work with us to understand both internal and external communications of the proposed restructure. Depending on the relationship, you may want to include certain key external stakeholders
Stress test the plans that have been produced and look to suggest alternatives in methodology and outline the cost impact of these.
Review the BAU budget and see if this can be reduced so that the business can breathe and not create additional pressure in unaffected areas as it goes through change
Deployment plan:
- Crisis communications lead deployed immediately
- Legal coordination partner briefed in first hour
- Internal investigation advisor mobilised by end of day
- Front-line staff briefing materials produced overnight
Disciplines involved:
- Operational
- Legal
- Communications
- Governance
- Strategic Partners
What disciplines would be involved:
All divisions of Arx Nova including some strategic advisors would be brought in on this project
Stakeholder alignment:
The key is to communicate the plan effectively; however, you need to manage the message for each audience so that the people who are staying feel secure, the people at risk are clear of the timeframes and process and the people who are thought leaders are either onboard or out of the process as soon as possible to avoid conflict.
Outcome
Stabilisation achieved?
Yes. Stabilisation in this scenario involves closing the Practice Area with minimal disruption to Client Service, thereby maintaining the business’s reputation.
Financial runway or cost control?
The key is to examine the financial runway that has been set and challenge whether it is unrealistic or if it needs to be extended. Explain the alternative scenario and the direct cost impact versus the cost exposure of continuing in the proposed way.
Financial impact:
Short-term booking volume dropped, but legal costs and brand damage were mitigated by fast response and clear accountability.