James Knight, Keystone Law's CEO
The chief executive of listed UK practice Keystone Law has criticised UK law firms for using the government-assisted furlough scheme as it unveiled a 16% increase in revenue in its full year results.
James Knight today said Keystone — a top 100 UK law firm which operates a virtual law firm model — would not join the government-backed scheme despite having “eligible” and “relevant” employees as it was in a strong position to deal with the crisis with an operating cash balance of more than £4m.
“Like many conventional law firms, Keystone Law is in a good position to weather this storm,” he said.
“We are very likely to see a meaningful reduction in client instructions, particularly in terms of corporate transactions, and a consequential drop in anticipated earnings.
“However, I do not believe it is ethically responsible to take government money designed for genuinely cash strapped businesses, in order to maximise our own profits.”
Although a swathe of top 100 UK law firms are taking advantage of the UK’s Job Retention Scheme under which 80% of furloughed staff's salaries are paid up to a cap of £2,500 per month, others, including Clifford Chance, Allen & Overy, Linklaters and Freshfields Bruckhaus Deringer, did not include furloughing staff in the measures they set out in response to the crisis.
Commentator and former Linklaters partner Trevor Clark strongly criticised the practice in the Lawyer Watch blog in which he drew parallels with Premier League Football clubs, some of which backed down amid criticism from fans after initially announcing they would trigger the scheme.
However, the City of London Law Society’s president, Edward Sparrow, has defended the practice, telling The Law Society Gazette that it was unfair to single out law firms for "taking legitimate advantage of a government scheme intended to avoid employee lay-offs".
Meanwhile, Keystone’s financial results for the ended 31 January saw revenue up by 16.3% to £46.6m with profit before tax up by 10.1% to £5.2m.
The firm said its model, under which 325 mainly senior, self-employed lawyers work from home and use support services provided by 45 employees, made it well-suited to cope with the Covid-19 lockdown.
However, it warned that ‘in the month since the pandemic broke in the UK, whilst billing and cash generation have remained strong, we have seen a meaningful decline in the number of new instructions received'.
It added: ‘We have modelled a range of scenarios, including some which are more negative than what we currently consider the most likely outcome for the group, and under all of these scenarios the business remains profitable and cash generative for this financial year.’
In March, the firm cancelled its final dividend payment as a result of the crisis.
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