Only the strongest will survive

A wave of legal 'panel-beating' will only serve to boost the current trend of mergers and lateral hires, writes Philip Hoult.

The news last week, revealed by The Lawyer, that BP is reducing its panel of law firms from 120 worldwide to 12, will have been received with dread by senior partners at a number of City firms.

The prospect of having to go through the inevitable selection process, with all the costs it entails and with a good chance of losing out, will stick in their craws.

For the successful firms, a greater share of the estimated #40m in legal fees BP spends annually will be as much of a relief as it will be a boost - given that the work is likely to be gained at the expense of tighter control on fees.

For the firms who miss out, the loss of a client like BP will be a massive blow, not just in fee income, but also in prestige.

The current wave of panel reduction exercises like BP's poses a greater threat to the long-term well-being of these firms than the supposed march to "globalisation".

In the future, fewer firms will do more work because the business logic for smaller panels - they are easier to manage and nearly always produce cost-savings - is undeniable.

Few companies will follow the celebrated and controversial Dupont model and only appoint one firm to their panel - but reducing panels to a fifth of their previous size is not uncommon.

This can only mean that the process of mergers and lateral hires, as firms and teams look for safety in size, will carry on apace. Firms that lose out more often than others will be vulnerable, as the successful firms look to pick off their best talent.

The insurance law market has been at the forefront of this consolidation, with the merger of Berrymans Lace Mawer and the proposed tie-up between Wansbroughs Willey Hargrave and Beachcroft Stanleys.

Only last week healthcare practice The Lewington Partnership merged with Mills & Reeve, following the National Health Service Litigation Authority's decision to reduce its panel from 90 to 18 firms, when Lewingtons missed out.

But with large companies from industries as diverse as banking (Barclays), retail (Kingfisher) and pharmaceuticals (Zeneca), having cut panels, it's not just insurance firms that are faced with losing major clients practically overnight. And with a recession looming, for some firms the timing of BP's panel reduction could not be worse.