Every sector has provided Scotland’s law firms with challenges, but projects lawyers have been feeling the recession most keenly. By Margaret Taylor
Scotland was top of the news agenda in the latest financial year thanks to the near collapse of the two banks that bear its name.
For the Scottish firms, practically all of which act for RBS and HBOS in some capacity, the banking crisis had a marked effect.
“There’s no doubt that 2008-09 was a very hard year,” points out Burness chairman Philip Rodney. “The issue was that the specific markets and sectors in Scotland that we’d benefited from in past years – property and banking – were challenging. There’s been an inability or an unwillingness for funding to be provided and an inability for businesses to transact.”
Burness, like most of its Scottish peers, experienced a drop in turnover over the year, with fees falling by 7 per cent, from £21.8m to £20.2m, and profit taking an even bigger battering, with the average profit per equity partner (PEP) figure 39 per cent down.
For Rodney, while the banking crisis had repercussions on every segment of the economy, the impact was most keenly felt in Scotland. While businesses around the globe have been wounded, the fact that Scotland’s reputation for financial prudence was left in tatters by RBS resulted in some serious naval gazing by the nation’s business community.
“There’s no doubt that the Scottish psyche has taken a bashing over the past year,” he says, “although I think maybe we’re kicking ourselves more than the rest of the world is kicking us. RBS and HBOS are still here; the world didn’t come to an end as people thought it would. We have great people and great clients, they just weren’t active last year.”
This opinion is not shared by Brodies managing partner Bill Drummond, one of the few law firm chiefs who can boast a turnover rise in 2008-09 after the firm reported a 5 per cent increase to £39.1m. Despite the rise the firm’s profitability fell, with PEP slipping by 18 per cent to £333,000, the same level as two years ago.
In Drummond’s view, while the banking situation has been bad for business, it has been bad for all businesses, not just those in Scotland.
“The Scottish economy is part of the UK economy and the global economy,” he says. “That’s been the point of this period – it’s been the first big global recession. Clearly, businesses that were being supported by these banks were affected, but there were issues for all areas.”
Certainly the largest Scottish firms that also have London bases – Dundas & Wilson, Maclay Murray & Spens, McGrigors and Shepherd & Wedderburn – were also affected by the recession.
Dundas’s turnover fell by 12 per cent, while Maclays, McGrigors and Shepherds had respective falls of 9, 2 and 7 per cent.
“We, with many other businesses, have faced a challenging year,” says Patrick Andrews, chief executive at Shepherds, “particularly in real estate and capital markets, which have been hit hardest by the financial crisis and resulting recession.”
The bigger picture
Another area that remained challenging for Scottish firms in 2008-09 was projects, with those following the conventional PFI/PPP model largely put on hold after the Scottish government set up the Scottish Futures Trust (SFT). The purpose of the SFT is to help shape future public sector infrastructure procurement in Scotland, but as the trust has a wide remit and a small team, the flow of public-private deals has been seriously restricted.
Which is not to say it is all doom and gloom in Scotland. As Rodney at Burness points out, creative industries have grown by 10 per cent over the past year, while there has also been a lot of activity in the renewable energy sector.
Drummond adds that the retail sector has been stronger than expected, with retailers adapting to economic conditions.
That said, Drummond is realistic about the business landscape for the current year. “I’m not feeling hugely optimistic,” he says. “The truth is we’re still in recession and unemployment is rising, although there is some confidence in the markets.”
Despite that confidence, Maclays chief executive Magnus Swanson feels a difficult 2008-09 will be repeated. “It was a pretty tricky year,” he says. “And we’re budgeting for another very tough year.”