Category: Law

Crystal ball gazing

There is just the slightest hint of smugness in Jonathan West’s letter, Commodity fetish in this week’s Law Society Gazette,

I note the recent sad administrations of Hammonds Support Services and Fox Hayes (see [2009] Gazette, 29 January, 1).

They were probably two of the biggest examples of firms who followed Professor Richard Susskind’s regular entreaties to the legal profession to ‘commoditise’ legal work. Will we now see Professor Susskind eat a large slice of humble pie, presumably at the creditors’ meetings of those defunct practices?

I don’t want to disillusion Mr West but commoditisation is here to stay. Law firms have not moved this way because of Richard Susskind, but because this is what our consumers want. Inevitably there are going to be casualties, especially among early adopters: but those casualties do not mean that Susskind is wrong.

As Rob Millard wrote in his latest post in Adventure of Strategy,

I’m reading it [“The End of Lawyers – Rethinking the nature of legal services“] at the moment and will review it for you when I’m done. At first glance, though : absolutely essential reading for anybody either leading a law firm or, in 90%+ of cases, practicing law in the 21st Century.

Simple mathematics

From a recent post by Bruce MacEwen’s in Adam Smith, Esq.

Finally, let us never underestimate the yin and the yang of the high degree of leverage on law firms’ P&L’s. That is to say, once you’ve covered your costs (which are, for the record, people @ ~60%, occupancy @ ~30%, and “everything else” @ ~10%), then essentially every additional dollar of revenue drops directly to the bottom line.

Also, if the average law firm’s gross margin is, say, 35%, then–if you do nothing to change your cost base–a 17.5% drop in revenue (highly plausible in this environment) implies a 50% drop in profits.

Add to that the highly liquid market for lateral partners and you have the ingredients for immediate and severe problems.

OK, it is not quite the same in the UK (clearly US firms work on a somewhat higher margin) but close enough.

Graduate divas – don’t you love them

Why am I not surprised at Catrin Griffith’s leader in The Lawyer, Why the law’s no safe haven.

. . . for a generation that has been raised on tales of riches, it will take a while for reality to sink in. Indeed, plenty of graduate recruitment heads are privately frustrated at Generation Y, which has been used to having everything on a plate, and hope the credit crunch could be the making of its members.

But perhaps the real reason why “opportunities for those entering the ­profession now look rather more limited” is less about the credit crunch (though that undoubtedly is a factor) and rather more about what the future of legal services in the UK may be. It comes back to Stephen Mayson’s warning, “too many qualified lawyers, too many law firms” (see my earlier post, The C word, but which one?).

. . . and as for generation Y lawyers, see Jordan Furlong’s post in Law 21 back in May, How to work with Boomer lawyers.

More on the C word

In today’s FT Michael Peel reports on the very recent Smith & Williamson survey,

The legal industry is heading for a big shake-up as firms merge in an attempt to protect profits threatened by the credit crunch, according to a survey published on Monday.

The annual survey of leading lawyers commissioned by Smith & Williamson, the financial services group, said three-quarters of big firms expected to see more emergency deals as confidence fell, despite the industry’s supposed resilience.

This is not news to us in the profession. It has already started and the current economic mayhem is simply accelerating the inevitable.  In last week’s Law Society Gazette Lord Hunt, about to embark upon his profession-wide review of regulation, is reported as saying,

I will be listening to the views of the whole profession, and that includes the smaller high street firms as much as the global firms. I have a completely open mind about the best way forward. My message is – tell me what you think.

Let’s hope that there will still be some to tell him.