Feeling the heat: how Spain's big four firms are coping with the economic crisis
25 March 2013 | By Joanne Harris
24 March 2014
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Spain’s big four law firms are serious players on the European scene, but tough times have called for tough coping strategies
Spain’s GDP has been in decline again for a year now and unemployment has hit 26 per cent, so news of another year of stagnant or declining financial results for the country’s biggest law firms was entirely expected. Cuatrecasas Gonçalves Pereira’s addition of a few million euros to its turnover last year, despite the economic malaise across the Iberian peninsular, was a major success.
Managing to survive
That any firms have managed to maintain turnover in the past few years is down to some tough management in what remains a competitive legal market. Spain is one of the biggest legal economies on the Continent, with its top three firms - Cuatrecasas, Garrigues and Uría Menéndez - among the top 10 independent European firms, ranked by turnover. The next biggest firm, Gómez-Acebo & Pombo, was ranked 50th in The Lawyer’s European 100 2012.
Last year proved harshest for Garrigues and Uría. Garrigues, which, unusually for a European firm, runs with a September to August financial year, reported a 5 per cent dip in turnover for 2011/12, while Uría reported a 4.5 per cent drop for 2012. Gómez-Acebo’s revenue fell by 1.4 per cent between 2011 and 2012.
The economic environment has led to a significant amount of strategic rethinking. All the big firms have adjusted their hiring policies or made redundancies in the past two or three years. They have examined every cost and looked at what they can cut. Fees are under pressure too - the extraordinary decision by Cuatrecasas and Uría to bid for a major financing mandate last year at a fee of just €1 was at the extreme end of the scale - but no firm can hope to charge what it used to.
The long view
Lawyers, like others involved in the business world, anticipated early on that the Spanish crisis would not be over in a matter of months.
“The management of the crisis in the case of Spain began four years ago,” relates Garrigues’ managing partner Fernando Vives, who was elected co-managing partner of the firm alongside Ricardo Gómez-Barreda in July 2009. The firm has since rejigged its management structure, with Gómez-Barreda becoming senior partner.
“When I was appointed by the partners’ meeting as managing partner my first message was that the Spanish economy in general would be in crisis and we need to anticipate our response,” Vives says. “That’s something we’ve been managing for the past four years.”
The firm, led by Vives, decided to focus its efforts on maintaining its client base and strengthening practice areas likely to perform more strongly in a time of crisis, such as employment and tax. Hires were made in these and other practice -areas, which, Vives believes, has paid off.
“In the past year and a half labour and tax legislation has changed dramatically in Spain and this has allowed us to render more services to our clients in these areas,” he says.
Garrigues also looked at its cost base. One of the firm’s big costs is property - it has 28 offices in Spain alone, plus a number of foreign ones. Vives says the firm has renegotiated 95 per cent of its leases in the past couple of years, helped by the fact it is “relatively easy” to reduce rents in Spain at the moment.
The firm has also cut its headcount. In 2008/09 Garrigues employed over 2,800 people but that number had dropped to just over 2,500 by 2010/11.
Vives says Garrigues has not had a major redundancy programme, instead cutting headcount through a combination of natural attrition and a significant slash in its newly qualifieds hiring programme. The number of young lawyers hired by the firm used to be as high as 250; now it is more like 120. Meanwhile, performance reviews have been stepped up.
“We’ve said to some people that their career isn’t with us,” admits Vives.
At Cuatrecasas, managing partner Rafael Fontana also denies -having to make redundancies, -although, like Garrigues, the firm has cut its hiring.
Both firms have also used the past few years to look at their partnership structures, with both moving to all-equity partnerships. Cuatrecasas had around 85 non-equity partners before it made the decision early last year, but not all partners were immediately promoted.
“They’re a big part of the firm,” says Fontana of the former non-equity partners. “We’d been discussing this for a long time and thought we should make a move to feel that we were pushing the firm towards the same goal. Now we’re a completely unified firm and I’m happy.”
Likewise, Vives says Garrigues was aiming for a more collegiate, unified atmosphere when it decided to bring all the partners into the equity. But profitability was also a factor.
“It’s difficult to manage a partnership in which half the partners are aligned towards more profitability, as it affects their remuneration,” he points out. “The culture of this firm is more aligned with the majority of partners being equity partners.”
The change has also helped the firm’s finances, adds Vives. Garrigues has introduced a new financing system that includes an annual contribution from equity partners to reinforce the firm’s cash holdings. Although Garrigues has some bank loans it rarely uses them.
The measures taken by Gómez-Acebo to help it through the crisis have been more significant than those employed by its larger rivals. In 2011 the firm wrote off bad debts and reduced headcount, and saw revenue fall by 7.7 per cent on the previous year. In 2012 the firm further reduced its headcount - by 9 per cent - and managed to cut costs overall by 4.5 per cent.
Managing partner Manuel Martín says the firm has managed to increase productivity and the average value of newly opened files has risen by 24 per cent. He is hopeful that the firm’s decisions in the past two years will help it to a better 2013.
“Internally, we’ve done our homework this year,” he asserts. “We’ve done what we said we were going to do and our predictions proved quite accurate.”
Martín says Gómez-Acebo has -focused on the quality of its clients to give it a stronger position in the market. The firm also launched in New York last year to target the US market, relocating corporate partner Rubén Ferrer Ferrer from Madrid. According to Martín the biggest investment made in the launch was moving Ferrer, who he describes as “valuable”, away from Spain.
Internationalisation was also important for Cuatrecasas in 2012. While Fontana says the firm’s non-Iberian offices represent only a small portion of total turnover - around €5m (£4.4m) - they performed well in 2012, particularly Shanghai and São Paulo.
In contrast to the other three firms Uría has made few major strategic changes in the past few years. It has renegotiated leases and cut overheads, and overall headcount is down compared with before the crisis, but managing partner Luis de Carlos says the firm has been trying to keep its leverage at four associates to every partner.
“If people leave we try to replace them,” de Carlos says. “We’ve tried to build an elite firm - we’ve applied strict recruitment criteria and we have very good lawyers.”
De Carlos points out that Uría has always had a heavier reliance on corporate work than other Spanish firms, which is one factor in its decline in turnover in 2012. Like the other firms, he reports a busy year for departments such as tax, but this represents a smaller portion of turnover than at Uría’s competitors.
However, the main reason de Carlos gives for the firm’s 2012 results is pressure on fees. Billable hours were broadly flat on 2011, but pricing has contributed to a decrease in turnover as well as profitability.
“The Spanish and Portuguese economies are gaining competitiveness and there are internal price pressures - we’re not immune to those,” says de Carlos.
Sunshine after the rain?
While fee pressure is likely to remain a feature of the Spanish - and, indeed, the Iberian - legal market, the managing partners all see hints of optimism in the first months of this year. However, they remain intensely cautious.
“I hope it’s going to be business as usual,” says Martín, adding that for him, this means making strategic lateral hires and growing the firm.
Vives believes the crisis could prove beneficial for Garrigues’ workforce in the long run.
“My objective is to be more powerful after the crisis,” he says. “The crisis is good training for lawyers. You need to reinforce commercial skills and keep the ability to understand clients,” he says.
“It’s dangerous to make any forecast,” says Fontana. “It’s a big question mark, but it’s true there are signals in the Spanish economy that things are a little bit better.”
That question mark is reinforced by the mixed messages from firms; while Vives says Garrigues is slightly below last year with around seven months of its financial year to go, de Carlos reports a solid January.
There is no doubt that the past few years have been tough for Spain’s lawyers. But, as Fontana observes, things could be worse. He says his message to colleagues is simple: “Take a minute to look out of the window and see what’s going on outside the firm. We have work, that’s enough.”
Key figures: Spain
Inflation (Jan 2013): 2.7%
Population (2011): 46.8m
Life expectancy at birth: 82
Unemployment (Q4 2012): 26%
Source: World Bank, Instituto Nacional de Estadística