Recession:let's twist again
11 October 1998
27 January 2014
18 November 2013
7 October 2013
22 August 2013
16 April 2014
With a UK recession likely to follow hard on the heels of financial turmoil in Russia and the Far East, Alison Laferla says lawyers must remember the harsh lessons of the early 1990s. Andrew Tylee is a partner at Sterling Associates.
The word recession might get insolvency solicitors rubbing their hands together in anticipation, but for many lawyers it has less pleasing ramifications: redundancies, voluntary arrangements, low profits and few jobs.
There have been rumblings about an impending recession for months now. Most people agree that the first signs of one are here, but nobody can predict how bad it will be.
Last time the crash came suddenly and most lawyers, like most other people, were taken by surprise. This time around the question is whether firms will be better prepared.
ZMB recruitment consultancy director Joe Macrae says there has been a recruitment drive of insolvency lawyers by major firms over the past two years, which indicates that law firms are preparing for a recession.
"It is certainly the case that as long as two years ago, several of the major firms were looking to recruit insolvency lawyers.Between 1990 and 1992 there was bucketloads of insolvency work around but it was not possible to hire insolvency lawyers because they were busy and happy.
"So firms have since been prepared to invest and get in, even when insolvency work is quite quiet," says Macrae.
"There have been several significant movements over the last few years," he adds. "Linklaters, Freshfields and Herbert Smith have all gone out and hired insolvency lawyers or teams over the last two years."
Litigators, he says, are also in demand. But recruitment of corporate lawyers is limited to natural staff turnover at the moment.
"Certainly if you talk to clients they say they don't anticipate 1999 will be a boom year like 1998 has been," he says.
In the north of England, the marketplace is smaller and firms are traditionally cautious not to expand - though they have built up the level of insolvency lawyers.
Catherine Boyle, managing partner of Cavendish Boyle in Leeds, says that after four years of growth, firms in the North are aware there might be a downturn in the marketplace, and there are signs they are preparing for it.
She says there has been a shift in emphasis towards setting up insolvency departments in the past few years, but adds that the major firms are still extremely busy with corporate and commercial property work. There is also still a demand for lawyers in specialist areas such as corporate tax and banking, says Boyle.
"Law firms are very aware of what happened last time and that the barometer could be set on change," she says.
Although his 13-partner firm was one of the few to grow during the last recession, Christopher Branson, head of the insolvency group at Reading form Boyes Turner & Burrows, remembers how bad the situation was for many firms in his area.
"We are in an area that was particularly hit by the last recession. Property lawyers were hit badly, and many small practices went out of business. Brain & Brain, a Reading firm established for 200 years, went into voluntary arrangement. It was dire."
But, he says, although people have been talking about another recession for some time, he does not see much evidence locally that law firms are preparing for one, and there is still a recruitment crisis in the area.
The feeling among insolvency lawyers, he says, is that a recession would not be as bad as last time because banks have not been so rash in lending money and interest rates are not particularly high.
Property lawyers, he says, are worried because developers are not buying new land, but commercial lawyers in the region are not unduly concerned.
In his own firm, the property, litigation and corporate lawyers all have experience of the last recession and can tailor their work accordingly to, for example, receivership work.
Macrae at ZMB agrees that good medium-sized firms are not especially vulnerable to a recession. "The received wisdom is that medium-sized firms will suffer more than the larger ones, but I am not sure that is a valid generalisation. Good middle-sized firms will have quality clients who will continue to do business."
He says there is concern that medium-sized firms who have stretched themselves in recent years, by opening international offices for example, will find a recession difficult to weather.
"But the general feeling, particularly in large firms, is that they now have a bigger international spread and can weather a domestic recession much better as a result."
He adds: "In some ways a recession may be an opportunity for the strongest, best-managed firms to pick up good lawyers from the weaker firms."
His advice to law firms is that it would be prudent to hang on to their best people during a recession, even if they are not operating to their full capacity. "There was quite a lot of laying off during the last recession. It then took many years to rebuild those practice areas."
This is a message strongly echoed by young solicitors, who are concerned that they will be one of the worst affected groups if a recession does hit the legal marketplace.
Richard Moorhead, chairman of the Young Solicitors' Group, says: "If we have one plea, it is please be cautious in terms of changing recruitment on the basis of economic factors.
"Last time, the recession prompted firms to close down or restrict their recruitment programmes in certain areas, and they have paid the price for that in recent years. We hope firms are not going to react in the same way and artificially restrict recruitment, as they will have the same problems in seven or eight years time, if not sooner."
He says that although young solicitors generally are not pessimistic about the immediate future, there is concern about a recession in specific sectors, namely newly-qualifieds in small firms, which are already suffering financially because of increased Solicitors' Indemnity Fund (SIF) contributions and cutbacks in legal aid work, and in corporate or corporate finance departments.
Moorhead says previous experience shows young solicitors did suffer during a recession, because partnership opportunities dried up, firms under-resourced their departments and used dirty tricks to try to get rid of junior staff.
The Law Society believes law firms should prepare for a recession by making sure they are financially competitive. "Any firm that has not got its affairs in order is vulnerable, big or small," a society spokesperson says. "Firms have to keep control of their money and to market themselves."
Ignore marketing at your peril
Most bigger firms have heeded good practice management advice and bought the marketing message that inertia and complacency constitute a slow road to dusty death. They have clever marketing teams whose goal is persuading trophy clients to jump ship.
The problem lies with small to medium sized firms. Many are in jeopardy, not just from competitors but from their own diehard attitudes. Their unwillingness to recognise the problems resulting from their lack of marketing skills puts them at the bottom of the entire professional sector. The complacency demonstrated by this refusal to be dragged into the modern world where all products and services have to be effectively marketed is remarkable.
In liaison with a small city law society my firm - a Nottingham management consultants - set up a lecture on winning business. The event, which had already proved a great success in a bigger city, was promoted among all practices in the region.
But only four people booked - including the marketing partner of the city's most rapidly expanding firm and his marketing manager. They did not need to attend, but hoped they might get extra insights.
Nearly all other firms in that city desperately needed help in this area, but refused to accept this.
We have an emphatic message for such firms.
The world no longer beats a path to your door tugging its personal or corporate forelock.
Professional service marketing is not about taking clients out to lunch without a clear purpose.
Neither is it about spending a fortune on glossy brochures which feature impressive pictures of partners and offices but are not client centred.
Marketing is about developing innovative strategies and approaches for client retention and bridging the gap between the clients you want and those you currently have.