How the south-west legal market is battling recession

The south-west’s economy has recently brightened after the gloom of the recession, recording a rise in the Business Activity Index at the end of the summer from 52.8 to 54.1. This is good news for the large, commercial firms in the region, which confirm that their own numbers have improved in the last quarter.

Yet the prevailing economic climate is forcing substantial changes to both the private and public sectors in the region. There are law firm mergers, as one might expect, but there is also increasing talk of internal structural change to deal with the fallout from the recession, including the spending cuts, and one eye on the future as the challenge of alternative business structures (ABSs) becomes a reality.

For those unfamiliar with it, the south-west legal market is, perhaps surprisingly, very competitive. As one marketing spokesperson puts it: ‘In attitude we are more like London than anywhere else.’ Irwin Mitchell’s decision to move into Bristol in 2010, focusing on personal injury and clinical negligence work, is recognition of the continuing attractions which Bristol and the wider region hold.

Irwin Mitchell joins the big local players – Burges Salmon, Osborne Clarke and TLT Solicitors – in Bristol, and the likes of Ashfords, Bond Pearce and Foot Anstey spread over the region’s other major cities such as Exeter, Plymouth and Taunton. There is also Stephens Scown in Truro.

Most of the larger commercial firms confess to having had a tough 18 months. However, like the south-west economy as a whole, they have seen a small improvement in the first quarter of 2010/11 compared with the same period last year. Burges Salmon, for instance, has recorded an 8% increase in activity levels and a 5% increase in billing. This is despite the fact that it has had two new managing partners in the same year and also moved to new offices in Temple Quays, the business area in the east of Bristol.

Similarly, Clarke Willmott, which also found 2009/10 challenging, is seeing an increase in profitability. The firm completed its largest corporate deal recently, acting for M3, a venture capital group, in its takeover of the Extra Group, which owns eight motorway service stations across the country.

The legal recruitment market is also beginning to see some movement. Rosie Torre, legal recruitment and business manager at the Bristol Law Society, says: ‘Firms are beginning, albeit very cautiously, to recruit, such as in commercial property and corporate, and this is better than no recruitment at all.’

Structural changesLawyers in the south-west are also focused on turning the recession to their advantage and making deeper, structural changes, particularly in light of the imminent launch of ABSs. Clarke Willmott’s chief executive Stephen Rosser says: ‘We are using the recession to change things.’

In practice this may mean: assessing professional support, legal processing work, sorting legal from non-legal tasks, addressing partner remuneration and financing. Clarke Willmott has chosen to outsource ‘pure’ secretarial typing work to South Africa-based outsourcing outfit, Exigent, following the likes of Eversheds. It is also putting together a new board to democratise the business. ‘We are making it a bit more representative with more elected members,’ says Rosser. In addition, the firm is capitalising on particular specialisms and this month opened a small office in Manchester to house IP specialist Roy Crozier.

Rosser adds: ‘In light of the challenges of the recession and ABSs next year, we are looking across all sectors to see what might be done differently, and to see how we operate in terms of doing the work for the client and selling work to the client. Perhaps there could be a practice area with a separate corporate ‘wrap’, such as personal injury and private client. In real estate and construction we have looked at rationalising our services with specific products, providing fixed-price menus and a certain level of standardisation.’

‘Efficiency’ is the gospel according to TLT. David Pester, managing partner at the firm, says: ‘This is not a new thing for us. As a firm, TLT is always looking at cost efficiencies. It’s in our DNA’. Pester notes that it was this concentration on efficiencies which led to the firm recently winning a place on the Co-operative Group’s panel. It is also borne out by the fact that TLT did not opt for new-build when it moved into its current premises. Instead, it found a pre-existing refurbished building which cost far less. The firm has also dabbled in outsourcing, handing over its library to Integreon, the US-owned professional services outsourcing provider.

Client powerPart and parcel of the challenge of ‘hard times’ is that the client becomes ever more powerful, as Michael Lind, outgoing president of the Bristol Law Society, says: ‘Clients are now cost savvy and they shop around.’

So firms are focusing resources on their client relationships, says Pester: ‘The recent turbulence has made us all revisit how to add value to the client.’ Many firms in the region talk of ‘getting closer to the client’ and ‘listening to the client’. Client relationship management is nothing new. But what is new is that firms are increasingly employing innovative IT tools.

Clarke Willmott’s new front-end financial management tool – the first of its kind to be adopted outside London, according to the firm – looks at client trends and picks up on the profitability of a particular client relationship management project. It is a means of measuring a firm’s marketing, in effect. As Rosser explains: ‘If we put a certain amount into a relationship, it can show us whether we are getting that back and, if so, how long it takes’.

Client management also means client access – the firm getting access to the client, of course, but now also the client getting access to the firm with increased use of extranets and client-facing systems.

Pester says: ‘General counsel’s importance within a commercial organisation has risen over the past 10 years, but so has the pressure on them to deliver; external law firms cannot carry on operating in the same old ways. Two particular issues are important: you have to make it easy for the client to get access to you; and you must have transparency in cost and reporting.’

One of the ways TLT achieves these imperatives is by developing bespoke extranets for clients. The basis of TLT’s pensions extranet, which came highly commended in the Financial Times Innovative Lawyer awards, is an interactive trust deed which the client can access. There is then the facility to click on related rules, tap into a vault of other deeds and documents, as well as organise trustee meetings and publish agendas.

Public sector revolutionCommercial firms in the south-west’s private sector appear, then, to be squaring up to the double whammy of a recession and the introduction of ABSs – what Pester calls the legal market’s ‘industrial revolution’. Yet the public sector is also about to undergo its own revolution. We all know about the 28% cuts announced in the comprehensive spending review, but that figure is for local government as a whole. With frontline services being prioritised, the cuts are likely to be felt most by support services – including legal departments.

Like the private sector, local government lawyers are asking themselves how to do things differently to save costs rather than merely resorting to slashing headcount. Dave Shepperd, head of legal services at Plymouth City Council, says: ‘We know we can’t carry on in the same way, so we need to get on and be proactive about finding alternatives.’

One of the main innovations is the use of ‘shared services’, which is being employed by a growing number of councils across the country. These range from formal shared arrangements, such as between the South Hams district and West Devon borough councils, to more ad hoc arrangements.

Shared service ethosAcross Devon an informal shared service ethos has been established between heads of legal services, who now meet regularly to find ways to save costs. Baan Al-Khafaji, chair of the South West Solicitors in Local Government Group and head of legal services at Exeter City Council, says: ‘We are currently trying to agree a joint contract for our respective electronic law libraries and are also aiming to share training costs.’ He hopes to do this by sourcing CPD-accredited courses with local law firms and chambers.

In addition, Plymouth City Council’s legal services department is coming up with what its head refers to as ‘income-generating’ measures to complement the services it provides internally. This means offering its services to other public sector organisations.

Shepperd explains: ‘We have a huge amount of expertise here. Other councils or public bodies who have surplus work or particular needs can obtain high-quality work from us at better rates than if they went externally, so we are picking up this work. We have approached a number of other public bodies in this regard.’

However, this upbeat commentary should not belie the pressure on local government lawyers. Shepperd says that budget forecasting is ‘all that we are doing at the moment’. The forthcoming Decentralisation and Localism Bill, which aims to shake up responsibilities and decision-making within local government, will also have a huge impact on public sector lawyers’ workloads as they are likely to have to refashion local government structures, amend constitutions and train council staff in new ways of working.

Problems deriving from the spending squeeze are also the backdrop to many of the challenges facing the south-west’s high street firms and sole practitioners. But for them, the chaos of legal aid contracting and recent problems with indemnity insurance renewal are adding to challenges posed by the economic climate.

Rebecca Parkman, president of the Devon and Somerset Law Society, which has more than 1,100 members, most of whom are from smaller practices, says a number of sole practitioners (how many is unknown) have been forced to close because of the lack of affordable insurance cover after Quinn pulled out of the market.

Meanwhile, the tendering fiasco has meant that local firms have been unable to run their businesses effectively because the outlook has been so uncertain. ‘There have been firms who have made staff redundant and stopped doing certain types of work, only to find the decision overturned,’ says Parkham. ‘But there have also been firms who had thought they were successful and have not taken people on and are now finding out that they may not get the work.’

There has also been some consolidation. Kirby Simcox, for example, a six-partner private client practice in Bristol, has recently decided to merge with Sheppards Solicitors to form Kirby Sheppard. Amanda Firth, the new firm’s managing partner, says that the merger was partly about expansion but also about ‘looking at ways of doing things more efficiently and gaining economies of size’.

The first firm in the south-west to join the QualitySolicitors (QS) national brand is Burroughs Day, which won the Bristol Law Society’s Regional Law Firm of the Year Award recently. Currently, Burroughs Day is the only firm in the region to have taken and passed the QS test. Sally Price, marketing manager at the firm, says: ‘QS is making legal services more accessible to the public, and making lawyers more approachable. As a firm, we will have a greater marketing advantage because QS is a national standard across the country. This will give us recognition and increase our profile’.

If Pester is right and we are on the brink of an ‘industrial revolution’, time will tell whether Burroughs may have stolen a march on some of its rivals.

This month marks the first anniversary of the merger between south-west firm Veale Wasbrough and London private client and private wealth boutique Vizards Tweedie, to form Veale Wasbrough Vizards. Simon Heald, managing partner at the merged firm, says: ‘We wanted to grow from the south-west outwards, and nationally, to develop our expertise and client base such as in education and public sector law’.

A number of south-west-based firms have opened offices in London, such as TLT (which recently relocated its London office to the City) and Michelmores, which has a West End presence. Heald says: ‘These firms would once have been termed "provincial". How far we have all come.’

In addition, and driven in part by cost-conscious clients, there are some interesting collaborations between south-west firms and magic circle or City firms on specific projects. TLT has been involved in a number of these, collaborating in areas such as real estate and commercial dispute resolution, though it will not divulge with whom. Pester (pictured) says: ‘This is not with any one particular magic circle firm. It is client-led and alumni-led and can be on an informal or formal basis depending on the project. Other firms are doing it but we are being proactive about it’.

Though BPP has been established in the city for some time it has a new law centre which opened this autumn. One of its students, Tom Palmer, has recently moved west to study for the LPC after completing the GDL in London and is well-placed to make comparisons.

He says: ‘Studying in Bristol has considerable financial advantages over studying in London. Course fees, rent and day-to-day living expenses are all lower. I knew Bristol reasonably well before starting the LPC and was excited by the opportunity to move here to study. It’s a vibrant and dynamic city, an emerging legal hub and a great place to be a student.’

There is concern, however, expressed on the bulletin boards of the Law Society’s Junior Lawyers Division, about the shortage of training contracts and the current oversupply of LPC students. But Leon Smith, a junior lawyer in construction and engineering dispute resolution at Beachcrofts in Bristol, who is also a council member for the Bristol Law Society, is relatively upbeat.

He says that this is a ‘temporary mismatch’ and that the new schools in Bristol simply ‘recognise Bristol’s importance outside London, and increase the choice for potential law students in the region, adding to the University of West England. Many of the students will be able to stay here rather than move to London’. He believes that these two new offerings make Bristol ‘a centre of excellence outside London and will keep talent in the city’.

Polly Botsford is a freelance journalist