Law firms suffer high rate of redundancies

Survey reveals heavy redundancies in past year but future recruitment optimistic

Law firm redundancies have been widespread over the past 12 months, according to the Wheeler Law Firm Business Confidence survey recently carried out by Wheeler Associates for The Lawyer.
The survey confirms what many in the profession have long suspected. Based on anonymous interviews with 52 managing partners selected from The Lawyer 100 firms, the survey revealed that 29 per cent of those firms made redundancies during the past year in an attempt to reduce overheads.
However, the number of staff culled at each firm has been, on average, modest, with around 3 per cent of all staff facing redundancy. Curiously, the survey also indicated that more than half (54 per cent) of managing partners actually expect to increase staff numbers over the next six months; just 6 per cent intend to make redundancies.
Unsurprisingly, the survey showed fee levels in corporate finance were
down over the past 12 months, while HR/employment and commercial litigation showed the strongest growth with increases of 9.8 per cent and 7 per cent respectively.
Commenting on the survey, former Andersen Legal managing partner and law firm consultant Tony Williams said: “Sacking people and recovering money is hardly a sign of an economy about to stage a rapid recovery. Even in these usually counter-cyclical areas, the revenue increase was less than 10 per cent.”
National and regional firms have been boosted by greater fee income growth in all areas of business – unlike their City counterparts. This was particularly true in commercial property and employment. Williams commented: “The disparity between the City and regional/national firms suggests that [property] is becoming an increasingly price-sensitive area of work.”
Overall, managing partners were not particularly optimistic about the economy – 53 per cent said it would stay the same over the next six months. Incongruously, however, firms expect revenue to increase by 6 per cent and profits by 5 per cent over the next six months.
This statistic also sits uneasily with managing partners’ two biggest concerns: increased competition from other law firms for work and, as is borne out by the number of panel reviews seen so far this year, fee pressures from clients.
Fee income growth across practice areas 2002-03
Practice area All firms (%) City (%) Regional/national (%)
Corporate finance -2.5 -3.5 -1.6
Commercial property 5.8 1.2 10.5
Commercial litigation 7.9 7.3 8.4
Insolvency/corporate recovery 5.6 5.3 5.8
HR (employment, pensions etc) 9.8 3.8 16.2
IT & ecommerce 0 -2.7 2.3
Intellectual property 2.9 0.9 4.7
International work 3.9 2.8 4.9
Source: Law Firm Business Confidence Survey, Wheeler Associates, 2003 Source: Law Firm Business Confidence Survey, Wheeler Associates, 2003 Source: Law Firm Business Confidence Survey, Wheeler Associates, 2003