The Lehman collapse: Steve Davis’s view

So much of life is timing. Law firms are not going away, banks are not going away so in certain very fundamental respects you might say very little has changed. But in other respects I’m sensing fundamental changes.

Personally my sense is that when we have a bit more perspective we’ll look back on the period running up to Lehman as a bubble. It was fuelled by a number of factors leading to huge profits being made by financial institutions and the hedge funds and in the service providers like the law firms. And people will say that was a real aberration. What people thought in 2007 was ‘normal’ will turn out, with the benefit of hindsight, to be an aberration.

There were immense amounts of work driven by very frothy markets and huge transaction volumes and the lawyers were servicing that. They weren’t generating it or causing it but they were servicing it and that in turn led to this idea of having platoons of lawyers to service these matters.

Yes, that means that you can develop a sense of entitlement. If something happens once then you say ‘oh, that’s wonderful’. If it happens two or three times you can get used to it.

In the fall of 2008 the deals that were driving this market just came to a dead stop. That had a profound effect on the top end of the legal profession. I think what we’ll see with the benefit of hindsight is that it was a spike. And that’s why I say I think we’ll look back on those years in the legal profession, or this part of the legal profession, and say that this was really very much a bubble period.