U.K. Law Firms Face Their 'Greatest Turmoil'
It is hard to know just what the take-away should be from the PricewaterhouseCoopers 2009 survey of U.K. law firms. For the Times Online, the headline from the survey is that the economic downturn has not kept London's leading law firms from producing hundreds of millionaires among their partners. For Bloomberg.com, the headline is that profit at the U.K.'s 100 highest-grossing firms fell an average of 30 percent. For the Birmingham Post, the headline is that lawyers in that city are likely to face a continuing period of job losses and potential mergers.
Whatever you take away from reading this survey, you are unlikely to quibble with the conclusion of PWC partner Alistair Rose, who said, "This year has seen the greatest turmoil in the law firm sector since our survey began in 1991." But amidst that turmoil, the survey makes clear, there were winners as well as losers.
The winners were the U.K.'s top 10 grossing firms. Yes, they averaged a 21 percent drop in profits per partner. But even so, average profits per partner at the top 10 were £872,000, almost twice the average profits of £444,000 at the 11th- to 25th-ranked firms. In U.S. dollars, that means that partners at the top firms averaged profits of $1.4 million. In a global economic downturn, that's the breadline I want to be in.
Harder hit were the firms ranked 11 to 25, "with the result that there is now a much reduced difference in terms of profitability amongst the Top 11-25 firms and the Top 26-50 firms." These are the firms, PWC says, that have "been operating in the most competitive and depressed markets, e.g., transactions, property and UK corporate."
Back up at the top of the law-firm pack, the survey goes so far as to say, "We see clear daylight emerging." These firms, PWC predicts, will continue to do "significantly better than the chasing pack." The reason these top 10 firms stand on firmer economic ground is not that they are finding significant new sources of revenue growth. To the contrary, the survey found that business confidence remains weak among the managing partners at these firms.
Instead, the top 10 firms shored up their footing in two ways. For one, they focused early in the downturn on reducing their costs and restructuring their operations. "A relatively small number of firms rightly predicted the likely extent and severity of the economic recession and began to reduce headcount and take out cost early in the second half of FY09." Secondarily, the did a better job of penetrating existing markets, from which they continue to draw new business.
Looking to the future, the survey repeats the prediction that is now commonly heard throughout the legal industry, on whichever side of the pond you practice, that the structural changes firms have made are here to stay. "Fierce competition has made firms think hard about how to become distinctive in the eye of the client," says PWC's Alistair Rose. "Client relationship and engagement management, sustainability and innovative delivery models are all moving fast up the agenda as a result." If what Rose says is true, then those who stand to gain the most from these changes are clients.
Posted by Robert J. Ambrogi on November 12, 2009 at 12:49 PM | Permalink
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