The downturn is over, claim buoyant firms

The Lawyer's latest business confidence survey reveals high hopes for 2002

The attitudes of UK managing partners have come full circle. After six months of uncertainty, optimism is beginning to return to the legal market.
According to The Lawyer's Law Firm Business Confidence Survey, firms are now predicting an average of 6 per cent growth in fee income over the next half-year. The net proportion of firms expecting their profits to increase over the next six months has leapt from 38 per cent to 67 per cent. Not a single firm expects its profits to fall over the same period, leaving the next financial year looking a lot rosier.
This increased confidence is linked directly to the revival of corporate finance work. According to the report, managing partners are predicting significant recovery on the deals front over the next six months, which is the first time since the first quarter of 2001 that City firms have said they are expecting corporate finance revenues to rise. Only one firm in the survey predicted that fees from corporate finance work would drop over the same period.
It certainly seems to be the case that insolvency and corporate recovery have not been the money-spinners that some managing partners believed they might be. Overall, managing partners predicted an average growth of 4 per cent in insolvency and recovery fees over the next six months, down from 10 per cent last quarter and 15 per cent the quarter prior to that. Meanwhile, e-commerce and technology practices appear to be on the way to rehabilitation; firms are expecting a 2 per cent growth in fees, which is the first predicted growth since the second quarter of 2001.
Underpinning this is an increasing confidence on the macro level. Only 13 per cent of managing partners believe that prospects for the UK economy will deteriorate in the next six months; in fact, their optimism is at its highest since the Law Firm Business Confidence Survey was launched this time last year.
Certainly, set against a background of increasing rigour among financial managers of law firms, the findings are encouraging. As The Lawyer has revealed over the past few months, firms such as Addleshaw Booth & Co, Allen & Overy (A&O) and Osborne Clarke have all put in stringent measures to minimise fallout from the downturn. A&O and Osborne Clarke both cut partner drawings, while Addleshaws embarked on an aggressive internal campaign to reduce lock-up (the time recorded between billing clients and cash collection). Given that the survey reports that only 33 per cent of firms now consider late payment by clients a worry – compared with 62 per cent for the previous quarter – it would appear that many have put similar procedures in place.
Yet despite – or maybe because of – all this, risk management is nevertheless at the forefront of managing partners' minds: 72 per cent of firms surveyed have carried out a formal risk assessment, while just over half have put in place an integrated risk management programme. Linked to this is an increased focus on limited liability partnerships (LLPs). One in five of the firms surveyed are currently considering converting to LLP status.
But amid all the good news (only a couple of managing partners were forthright enough to say they were concerned about having to make redundancies), it appears that the recruitment issue is once more rearing its head. Among the biggest increases in concern is the problem of finding good lawyers, something that was at the bottom of managing partners' worries six months ago.
As the report's author Kevin Wheeler said: “Resourcing issues could soon become a major problem again for law firms.”
The timing could not be more apt for assisstants; the latest round of salary reviews are just about to begin for most City law firms.
•The Lawyer's Law Firm Business Confidence Survey is conducted quarterly with Wheeler Associates and McCallum Layton.