Top firms are banking on Middle East and Asia to offset domestic pain as Wall Street turmoil further dents partners¹ growth predictions. Jeremy Hodges reports on the latest Big Question survey
Law firms are scaling back growth predictions in the face of continued market turmoil, according to Legal Week research, with international firms increasingly backing the Middle East and
Legal Week’s quarterly business confidence poll shows the lowest level of partners predicting double-digit growth over the next 12 months since the poll began in 2001. Eleven percent of respondents expected turnover to grow by more than 10% over the coming year, against 30% in the last poll in January and a high last year of 70%.
Slaughter and May practice partner David Frank commented on the findings: “Growth is not going to be as good as it was last year, but the expected fall has not happened yet. Law firms do tend to be affected much later in these downturns.”
Herbert Smith senior partner David Gold added: “Fee income will be more modest this financial year. We are in a period of greater uncertainty than I can ever remember, which makes predictions very difficult. We have to be prepared for the market to go in any direction.”
"Managing partners will begin to understand what the flip side of operating leverage feels like in a bear market."
"Top quality lawyers will become available for recruitment as the downturn releases talent from good but highly-leveraged firms."
See partner comment below
However, the poll, conducted in the wake of the high-profile collapse of Bear Stearns and more gloomy news from the
CMS Cameron McKenna corporate partner Louise Wallace was one of the more upbeat partners commenting: “We are finding that our fee income is holding up very well; we are expecting it will go up over the coming year.”
Also more confident was Nabarro managing partner Nicole Paradise: “We will remain on course next year and continue to invest in all the areas that we are currently. I do not think now is the time to alter our strategy.”
A further 10% of respondents predicted their income would decrease by 0%-10%, and 12% believed that income would remain static for the financial year.
Asked for predictions for the
Michael Frawley (pictured top), managing partner at Taylor Wessing, told Legal Week: “We will be lucky to do the same level of fees as last year. However, we do think our profits will stay the same and we will be very happy with that.”
Frank added: “I do not think the economic environment will allow for double-digit growth.”
The changing economic climate is reflected by law firms’ rapidly shifting investment priorities. As such, while corporate is still named as the top practice area to build — cited by 46% of partners — litigation has achieved a substantial increase in popularity to become the second favourite, named by 37.3%.
Frawley commented: “We are investing in litigators as well as restructuring at the moment. There will be a drop in finance and real estate work but they should stay pretty steady.”
When asked what region they expected to grow the most strongly over the coming year, an overwhelming 77% of respondents cited the Middle East (39.1%) and
Gold (pictured left) commented: “There has been a great amount of growth in [the Middle East and
What the partners said:
"It's budget time at the moment and budgeting for FY09 is tricky although we're reasonably optimistic. The current data at our firm is good across all practice areas and WIP in the second half is 30% up year-on-year. But every time you look at ft.com the news is pretty patchy." Richard Kemp, senior partner, Kemp Little
"There will be a shift of business for a number of reasons. Investment will be slower as investors will be more careful about making decisions and sellers will be more careful about selling at lower prices. With cash tightening, people will look to tighten costs, so outside counsel will be affected. With the scramble for cash more people will be wanting to litigate to protect their position. There will be bankruptcies, restructurings, bail outs and the like. There will be internal investigations. "
"Top quality lawyers will become available for recruitment as the downturn releases talent from good but highly-leveraged firms unable to keep capacity other than if fully utilsed. "
"Business models will be stress tested - do the firms with focus succeed or is it the full service model which wins out? Managing partners will begin to understand what the flip side of operating leverage feels like in a bear market. Over capacity in legal services will lead to the return of consolidation, perhaps aided by the Legal Services reforms."
"Maintaining client relationships over the next 12/18 months will be key."
"The slowdown will happen but not as acutely as in the US and not as severely as the late 1980s .The economy is still strong in certain areas and our ills stem from a liquidity crisis and careless lending rather than an underlying economic malaise."
"We are heading into a general economic downturn in the USA and Europe and this will provide opportunities for firms specialising in all forms of dispute resolution."
Talkback: The edge of the abyss - or business (nearly) as usual? Click here to have your say on the credit crunch.
