COMPLACENT: practices warned about failure to plan ahead amid fears of recession


Law firms are too complacent about the current economic climate - with medium-sized and small firms at greatest risk, law firm management consultants warned this week.



Experts told the Gazette that too many firms are assuming the downturn will be over by Easter and are failing to plan ahead.



Tony Williams, consultant at Jomati and former Clifford Chance managing partner, said: 'Law firms tend to lag behind the main economy and it can be six to nine months before they notice a downturn. They can plan ahead, but usually waste that period because they think it is not going to be that bad and "it won't apply to us".



'People had been hoping this would be a six-month phenomenon. Now the view seems to be increasingly that it will be a wobbly 2008.'



Mr Williams added that while the largest firms could survive a downturn by doing smaller deals, 'the middle and lower-tier firms in London tend to be hit quite hard.



'There is less work around, but the big boys try very hard to keep their market share. The smaller firms have still got high premises costs and are relying on keeping these fully occupied. If that doesn't happen, it has a disproportionate effect on profitability.'



Nick Jarrett-Kerr, founder of consultancy Kerma Partners and former Bevan Ashford chief executive, said: 'There is a great hope that [the credit crunch] will all go away and, by the time firms run out of work, it will have picked up. That is dangerous. The better-run firms are thinking about this much more carefully, but a lot of firms are assuming the cycle will come back again.'



Alan Hodgart, founder of consultancy H4, said: 'UK firms are not as counter-cyclical as in the US where there is a lot more litigation in a downturn. In the early 1990s it was the medium-sized and more generalist firms that got really hit. If there was a significant downturn we could see a 25% to 40% drop in profitability.'



See Editorial, page 14



Rachel Rothwell