Cost of living

Cutting costs has been the theme of the past financial year as the national firms struggle to come to terms with the economic uncertainties. By Julia Berris

Most of the UK’s national firms responded to the downturn with a range of cost-cutting measures. For the vast majority the cost of redundancy consultations were realised in the 2008-09 financial year. Most will hope that the partner, associate and support staff cuts made last year will have shaped their businesses for the current financial year. The experience of the selected firms below reflects the torrid time felt by most national firms last year.

Fighting fit

At Hammonds, shouldering the cost of its 97 associate and support staff layoffs last year was only part of the story. The firm also settled with seven out of eight former partners involved in a £1.7m profits dispute. The battle, which has rumbled on for more than two years, continues, with former partner David Jones locked in the dispute at press time.

While details of the settlement have not been disclosed, this undoubtedly contributed to the 25 per cent drop in average profit per equity partner (PEP) from £367,000 to £276,000.
Over the past five years Hammonds’ revenue has dropped by just over 8 per cent, from £137.1m in 2003-04 to £125.4m last year. Despite this London head Robert Weekes is positive about the firm’s future.

“London and Birmingham had a good year last year,” insists Weekes. “We’re still focused on building up our practice, particularly corporate in Birmingham and banking in London. There are a lot of opportunities for us in this market.”

While revenue and PEP were both down, revenue per lawyer (RPL) dipped slightly last year, by just 1 per cent from £207,000 to £204,000.

Restructuring and corporate work maintained the RPL, with the firm advising on a number of headline deals, including the restructuring of pharmaceutical company Chesapeake. Partner Jon Bew led the Hammonds team advising Chesapeake on the deal, which saw private equity houses Irving Place Capital and Oaktree acquire its operating business.

After a steady rise in turnover, from £44.3m in 2003-04 up to £103.4m in 2007-08, Shoosmiths suffered a 4 per cent dip in revenue to £99m last year.

But PEP suffered a 54 per cent decline, from £372,000 in 2007-08 to £151,000 – one of the largest drops in the market. Last year the firm launched a Manchester office and cut 25 fee-earners and 44 support staff, contributing to the profit drop.

Shoosmiths’ brand also suffered last year when the firm deferred trainee start dates without offering cash to those affected.

Since then managing partner Paul Stothard has stepped down after just one year of his three-year term to be replaced by litigation partner Claire Row.

RPL at Shoosmiths dropped by 6.6 per cent, from £297,000 to £277,000.

Addleshaw Goddard also made associate and partner cuts in 2008-09. In October 2008 the firm shed 16 associates, followed by a further 19 partners in January.

Addleshaws approached its headcount reduction in three phases, tackling associates, partners and support staff. At the end of the process the national firm had seen a reduction of around 200 people.

“We realised the market was changing significantly in June 2008,” says chairman Mark Jones. “We were one of the firms to start the process sooner rather than later, and this is the only way you can properly reshape the business.”

Jones adds he is expecting another challenging year and is budgeting for a £165m turnover in the current financial year, constituting a 5 per cent drop.

Last year turnover was down by 11 per cent to £173.1m, while PEP saw a drop of 31 per cent from £586,000 to £405,000. RPL dropped by around 7 per cent, from £302,000 to £280,000.
Although RPL was down last year, Jones is confident that last year’s associate and partner cull has made the business better equipped to survive the downturn.

“The number of partners we had meant the business didn’t reflect the current market,” says Jones. “We’ve now done what was needed to realign our business.”

Costly terrors

Cost reduction has also been a focus for Eversheds. Making three rounds of redundancies last year, coupled with departures from the firm, led to a loss of 618 employees.

Eversheds has made steps to further reduce costs this year, piloting a documentation outsourcing scheme in its Cambridge office. If successful the programme could be rolled out firmwide, reducing the required number of support staff significantly.

RPL at the firm saw a moderate decrease of 1.5 per cent in 2008-09, from £283,000 to £279,000. Real estate was hit particularly hard, with revenue falling by 26 per cent, from £93.6m to £69m.