Money is still being made in London and its environs, with a recent bellwether survey suggesting that large law firms – of which the region has more than its fair share – are ‘over the worst’ (see [2009] Gazette, 24 September, 1). However, the recession has hit the south-east of the country at least as hard as anywhere else, with even the biggest City firms laying off staff, deferring training contracts and freezing salaries.

There have been success stories, particularly those law firms whose strengths mirror market needs during a downturn: insolvency, recovery and employment have mostly held up well. Personal injury and private client work have also remained steady.

Counter-balancing this, hundreds of smaller commercial and high street firms have shed staff, sometimes making entire departments redundant. Others have gone bust and shut up shop altogether. The soaring cost of professional indemnity insurance, allied with falling revenues, has battered the smallest practices in particular. And as for those firms whose income depends upon publicly funded work, they were struggling to survive even during the boom times – and the government’s programme of cost-cutting reforms remains unrelenting.

It is clear, then, that the legal profession in London and the south-east has yet to emerge from under the credit crunch cloud – but is there a silver lining somewhere? Some commentators say the profession has learned lessons from the downturn and will emerge leaner and stronger. Others see doom and gloom all around, with still more bloodletting to come. All agree the profession has been changed forever. The good times will never roll in quite the same way again, as alternative business structures loom on the horizon worryingly close to where the upturn is supposed to be.

David Marshall, senior partner of 20-partner London firm Anthony Gold, says, candidly: ‘Touch wood, things have been OK.’ His firm, like most others, has experienced mixed fortunes during the downturn. Family work is down, as people hold off divorcing while their biggest asset, their home, is at its lowest saleable value. Commercial property and conveyancing have also dipped. Commercial litigation, employment and company restructuring, on the other hand, have all grown.

So far, so business as usual, but all firms have something that sets them apart. In the case of Anthony Gold it is the legal aid housing work that, Marshall says, is ‘pouring in’. This work is mainly referred to the firm by local advice agencies, as people out of a job face repossession or homelessness. ‘The work is marginally profitable, we couldn’t carry on doing it otherwise. Demand is growing, but the government is still cutting back on legal aid so there’s no telling how much longer it will last.’

But it’s not all going fine – Marshall’s does have problems: ‘Personal injury has held up, but the "tail" is long – claims can take years to come through.’ And there’s a sting in that tail; personal injury practices mostly work on conditional fee agreements. Fees can sometimes be ‘years down the line’, but members of staff want paying now. And with credit hard to come by during the crunch, cashflow is a ‘worry’, he says.

Cashflow is not so much of a problem that Anthony Gold is standing still, though. It has just recruited a personal injury partner, a family law associate and a ‘couple of others’.

Proof of the puddingSome 29 miles west of London, 25-partner Reading firm Boyes Turner is in a bullish mood. Chief executive and partner Andrew Chalkley says: ‘We are a diverse and therefore resilient firm, not by happy accident, but by deliberate strategy.’

The firm practises across such ‘diverse’ areas as M&A, banking and commercial litigation through to personal injury and clinical negligence.

A key element of its ‘deliberate strategy’, still undervalued even by some of the most ‘streetwise’ law firms, is a wholehearted commitment to marketing. That is to say, a commitment backed by senior management and by a substantial budget that is not cut during hard times. The proof of the pudding is that Boyes Turner has an award-winning marketing team which put together an internet strategy that ‘returned profits of 7,000% on investment’, Chalkley says.

The firm also makes use of more traditional selling avenues, such as direct marketing. The marketing team approaches it in textbook fashion, which is largely down to identifying and researching potential clients. They identify a target organisation, research it to identify the precise need, then research it still further to identify the individual within the organisation they should contact directly. This will be the person with both decision-making responsibilities and a budget, and who has the most pressing business need for Boyes Turner’s legal services.

Marketing apart, experience has also contributed to Boyes Turner’s resilience during the credit crunch. Some of the partners have been through recessionary times before, Chalkley says, and know not to be ‘complacent and smug’, but to keep things under constant review. One issue that demands constant watching is fees. ‘City firms sitting around with little work to do are dropping their charge rates. One of our advantages in Reading, outside London, is our competitive billing and that’s now being squeezed. Our tenders have to be exceptionally keen to compete.’

Time will tell whether this is a ‘transitory problem’, Chalkley says. Will City firms, in a classic case of ‘supply and demand’, return to their ‘heady rates’ once the upturn comes? Or will clients, now keener than ever before to negotiate fees, succeed in keeping rates down?

Recruitment outlook: Origin Legal

Stuart Phillips, a law graduate, heads the London team of national recruitment company Origin Legal. He says the present recession has followed the same pattern as the downturns of the mid-1990s and 2001-2002, when law firms rushed to offload their corporate and commercial property lawyers. ‘If the pattern holds true, in two years’ time law firms will be looking for two to three years-qualified lawyers to plug the generation gap – although this recession was a lot deeper than the earlier ones.’

Simon Charles, a partner at 16-partner corporate and media City firm Marriott Harrison, says its ‘varied practice’ is key to the firm’s continued good performance during the recession. The firm has avoided relying upon the ‘critical revenue density’ which can arise from focusing on just one particularly profitable client or sector. It is tempting in boom times to ‘ride the crest of the wave’ in this way, Charles says, but you can be left high and dry when the crunch comes.

Marriott Harrison’s ‘varied practice’ includes the corporate areas of equity, debt, refinancing, restructuring and recovery. On the media side, it handles software procurement and implementation agreements, licensing, trademarks and intellectual property.

Another major strength of the firm, says Charles, is the quality of management. ‘The overwhelming majority of our partners have previously been partners at magic circle firms.’ This is one reason he can be so bullish about the future. ‘We see this point in the cycle as being all about growth. It is vital for us to remain focused on high-quality work and to continue to recruit the best people. This is what is contributing to Marriott Harrison’s growth across our core practice areas.’

‘Like everyone, we have been affected by the recession,’ says Nick Vaughan, senior partner of 29-partner Southampton commercial and private client practice Paris Smith. ‘The firm has been going for 200 years and this is the first time we have had to lose people. Single figures, but a tough call.’

Plot sales for development have held up, says Vaughan, because for people with money this is a good time to buy. Commercial property, which is a major part of the firm’s business, and the sale of ‘developed units’, such as apartments, are ‘very flat’. Building societies have reported improvements in the residential market, with house prices up a fraction of one percent, but this may be a ‘flash in the pan’.

Has much been learnt from the experience? ‘Management, not panic’ is the key, says Vaughan. A well-managed firm will win through. Client care, which he says is one of the firm’s strengths, is also crucial. ‘Some of our clients came to us because their previous firm, bigger than us, became blasé. At the start of the arrangement, everybody – partners and others – was keen to cosy up to them. And then the firm became complacent.’

For this reason, Paris Smith approaches client care with discipline. ‘We put it in the diary that we are going to call or visit to see what’s new. And we communicate through dedicated websites, not just through a monthly email.’

Recruitment outlook: Lipson Lloyd-Jones

Marian Lloyd-Jones, director and founding partner of UK and international recruiters Lipson Lloyd-Jones, says some areas of law are ‘buzzing’. ‘Litigation and employment are busy, some US firms are springing to life again and even commercial and residential property are showing signs of (revival), but there is still a long way to go before the market returns to the highs of two years ago.’ The market is still poor for newly-qualifieds, she adds.

Colleagues who had been put on shorter hours are back to normal working now, Vaughan says, and the firm is recruiting again. Hard lessons have been learned. ‘[The recession] has made us look at our overheads, which ones we can cut and which ones are important to our strategy.’ It has also given the firm ‘an opportunity to review the business and see if our management strategy is sustainable’.

Guildford, Surrey firm Stevens & Bolton’s managing partner, Richard Baxter, says he and his colleagues have focused on ensuring the firm emerges intact from the recession and ‘well-placed for the upturn’. The market has been difficult, however, with M&A, private equity, finance, real estate and investment all struggling. In contrast, employment work has been ‘very buoyant’, private client work ‘reliable’ and restructuring and pre-litigation advice has also been good.

There is no simple answer to the problems besetting the legal profession. ‘It’s no longer sufficient to say the south-east is expensive and the north is cheap. There is a more complex mix of overheads and price pressures affecting the market.’

The firm, Baxter says, has concentrated on three main areas to put itself in a strong position for the upturn. One area is maintaining relationships with clients and working hard to keep close to them. There is ‘intense competition, including on price’ from competitor firms wanting to poach the business.

A second area, Baxter says, is keeping on top of costs. The firm has made redundancies and, in some cases, put people on reduced working hours, but the issue of costs goes deeper than spending on staff. ‘We have reviewed our overall costs base and one (beneficial) effect of the recession is we have become more efficient and cost-effective.’

The third area is ‘communicating well within the organisation so as to keep staff and partners onside’. It is important, he says, to ensure people are aware of what the firm is doing and why: ‘Chinese whispers can make even the best people wobbly and unsettled and begin to think they are at the wrong firm.’ Those who retained their jobs were able to see for themselves that the partners had dealt ‘fairly and compassionately’ with those they had made redundant and that the ‘settlement terms were generous.’

Still looking to the future, Baxter talks about ‘productisation’, which he defines as sharpening up your act to provide what clients actually want and need. ‘There’s room in the profession for lots of different models,’ he says, ‘although generalist firms will continue to feel the pressure because they are working at the commoditised end of the market.’

Two small firms have found their own ways to survive and grow during the recession.

Pam Loch, principal and managing director of Tunbridge Wells, Kent and City employment firm Loch Associates, set up shop in April 2007 and six months later the chill wind of recession began to blow. She has managed to expand the practice since then because, she says, hers is a ‘niche area’ that grows in difficult economic times. The firm has just recruited a third lawyer and is moving to a bigger office in Tunbridge Wells.

‘We have clients in Scotland, the northeast, Midlands, London and Kent,’ says Loch, ‘and I’m happy to travel to see them and work face to face in partnership. We also have a human resources advisory arm and have recently appointed a director to head it up.’

Loch’s clients used to be mostly employers, but she is now increasingly helping employees, including senior lawyers, with compromise agreements and other recession-related problems. She has noted an ‘uplift in claims’, in particular spurious claims from individuals who have lost their jobs and feel they have nothing to lose by going to the employment tribunal: ‘Jobseekers allowance just can’t compare with a good salary.’

London employment practice Partners Law also practises in a sector that has held steady, even grown, during the recession. It is structured to ‘develop, expand and survive’, says Gordon Turner, one of the firm’s two partners. ‘There is often a misalignment between what lawyers and their clients want. We show willing and go to our clients, not vice versa.’ Turner will sometimes meet clients outside office hours so they are not paying twice – once for their lawyer’s time and once for their own time, when they should be busy running their business.

‘Some business people are frightened of lawyers and avoid us in case they find themselves embroiled in a seven-day hearing in court. They then get into problems precisely because they do avoid us.’ The firm’s lawyers try to reassure clients they are not intent on prolonging proceedings. ‘Anything to minimise disruption and the impact of litigation on their business.’

Turner also offers his clients a unique online service that records details of litigants who make thousands of pounds from multiple claims of discrimination. The litigants scour recruitment advertisements for evidence of discrimination, usually the result of sloppy phrasing, then threaten to take prospective employers to an employment tribunal. The employers often settle rather than risk the expense of defending the claim. The online service helps identify these multiple litigants, allowing the tribunal to dismiss the charges before they come to a hearing. Turner says: ‘It’s proved a popular service and nobody else is doing it.’

So there you have it: south-east and London law firms are trying hard to adapt to hard times and have adopted a range of innovative solutions to survive and prepare for the upturn. Let’s just hope the upturn doesn’t u-turn.

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Recruitment outlook: g2legal

Annette Thorpe, partner in 10-year-old recruitment consultancy g2legal, says her team is seeing light at the end of the tunnel. ‘We’re cautious about talking of an upturn too soon, but we’ve started picking up vacancies on the property front again. The market was completely flat six months ago. The banks are loosening their hold on money at last and those firms that had drastically cut down on conveyancers are now beginning to recruit again.

‘On the commercial side, mid-tier and bigger high street firms are picking up. But not the corporate side – that’s still a long way off how it was two years ago.

‘It’s not enough just to be a law firm anymore. You need to be an astute businessperson, too. But we’re optimistic things are going to improve in the New Year.’

World leader

  • In September London recorded the fastest increase in manufacturing output in 18 months. London's central business district (CBD), which includes Canary Wharf, is home to three of the top four law firms in the world and more than 200 foreign law firms.
  • Activities such as fund management, banking, insurance and other finance (located mostly in the CBD) generate over £7.8bn of exports per annum.
  • Business services including consulting, legal, advertising, computing, architecture, engineering and media (again, mostly located in the CBD) generate over £7.7bn of exports per annum.
  • The region is a leading centre for foreign banks and is the number one location for international finance in general. In 2007, 245 foreign banks were present in London compared to 210 in New York and 67 in Tokyo.
  • Total CBD employment is equivalent to the whole of Greater Manchester and well in excess of any North American CBD with the exception of New York.
  • Along with London, the south-east is one of only three areas in the country where household income is above average.