16 October 2000
Of the multitude of tasks that fall to a managing partner's lot, one of the least recognised is the ceaseless combing of the horizon for harbingers of 'The Downturn'. The sight last week of Jodie Kidd wearing a tiny diamond-encrusted dress said to have cost £1m registered high on my Richter Scale of reasons to be fearful. Reports of West End lobsters being seen with gold filigree embossed on their shells only increases my alarm. All we now need is the grinning cove in a Mickey Mouse tie on the front page of the Sunday Times business news bragging about his "exit", and the direst possible picture will be complete.
And just what sort of a downturn will law firms have of it when
All the signs are that it will be even worse than last time. In recent years, law firms all over the country have gone large in property. City firms, even those which are most obviously struggling, are clamouring to move into ever-larger and more luxurious premises, paying
boom-time rents with upwards-only reviews. Regional law firms have become the developers' delight and the toast of the surveyors' profession, with the Pandora's Jar of property overheads lying lidless right across the country.
There's another threat, too. Since the last recession, law firms have spent capital like never before. The fit-outs of these splendid offices are being financed and written down over anything up to a decade or more. Add in the endless cycle of IT renewal and development likely to be financed and written off over three years, and you can
see that a frightening proportion of law firm expenditure is
To make things worse this time, firms will not have the cushion of oceans of work in progress to bill and shedloads of debt to collect that they had last time . Almost all firms are managed much closer to best practice now and, paradoxically, this makes them that much more immediately vulnerable to a decline in the amount of work available to them. Firms will not be able to survive the
early months of a downturn by living off the fat built up by their failings.
And then there are the managers of law firms - pretty much all of them a new generation, raised on an uninterrupted diet of good times. Management gurus are united in their view that negative learning experiences are the most potent ones. From where are the majority of today's law firm leaders to draw their experience for The Downturn when it comes?
Last, but by no means least, are the salary bills firms are now paying. Of course, this does not necessarily make the firms more vulnerable to recession, but it sure as hell is going to make a vulnerable class out of those to whom the salaries are being paid. All the other factors mean that the only room for manoeuvre firms will have is to cut their people and cut them hard. Salaries are by far the largest component of law firm costs and almost the only area that can readily be cut.
So be careful out there.
Leslie Perrin is managing partner of Osborne Clarke.