Up productivity – or clients' fees

This is a busy season for the publishers of directories and surveys. I have been particularly taken by some of the detail in the 1999 Survey of Financial Management in Law Firms published by PricewaterhouseCoopers in conjunction with The Lawyer.

In particular, the fact that staff costs are rising faster than growth in turnover and that client fee pressure remains a significant factor. In my own firm our starting salary for new qualifiers has increased by an average of nearly 8 per cent per annum over the past three years, considerably higher than published figures for wage increases generally.

Were this trend to continue there would be a number of possible results. Firstly, partners would have to accept lower profits, unless other costs could be reduced. Also, increases in overall staff costs would have to be reversed, either by employing fewer people or by trimming salary expectations. Finally, productivity per fee earner would need to be increased or the realisation of fee income attributable to chargeable time would need to improve.

Assuming that firms will do all they can to avoid reducing partner profits, I believe that there will be a combination of responses to the trend which the survey reports.

One of the driving forces in increasing salary levels has been the activities of US firms in the market as they seek to build up critical mass in London. Since their operations in London must be subject to the same profit pressures as UK firms, my guess is that as the more successful US firms establish their presence in London, and the less successful ones pull out, this pressure on salaries will decrease.

I suggest, however, that there must be no let-up in the efforts that firms must make to improve productivity and efficiency. My experience suggests that overall working time in the average US and UK firm is very similar. However, my impression is that the principal reason that US firms have traditionally been more productive than UK firms is that their lawyers are more effective in concentrating their time on client work. Perhaps there are fewer internal meetings and other navel contemplating sessions in US firms, thereby releasing lawyer time to client work.

The other statistics which grabbed my attention in the survey were that only 33 per cent of firms employing 81-100 partners reported profit ratios in excess of the suggested norm of 25 per cent of income, while 66 per cent operated with an assistant to partner ratio of 5:1 or more.

At a time of rapidly increasing salaries, and client resistance to fee increases, high ratios and low productivity must be a real pressure on partner profits. I would have thought that firms in the 81-100 partner level would be looking at productivity very hard unless, which I doubt, the partners will accept lower profits, or the clients higher fees.

Michael Johns is managing partner at Nicholson Graham & Jones.