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2009: When firms dodged a bullet
Partner intakes slowed last year and some firm partner numbers decreased. But, generally speaking, most managing partners in Australia dodged a bullet in 2009, writes John Chisholm.
John Chisholm
Partner intakes slowed last year and some firm partner numbers decreased. But, generally speaking, most managing partners in Australia dodged a bullet in 2009, writes John Chisholm.
MOST of the legal commentators and press have comprehensively reviewed the 2009 Australasian legal landscape so far be it for me to repeat all of their informed views and opinions.
I think 2009 can best be summed up as the GFC that did not quite sink to the depths of economic despair as some in the profession first feared (at least not yet).
Sure revenues and profits were down in many firms and we experienced the predicted range of cost cutting, redundancies, retrenchments, salary freezes and the like and whilst not to underplay the effect of all this on many individuals, compared to what the legal profession in other countries has experienced and the impact the GFC has had on other industries in Australia, the legal profession – to date at least – seems to have weathered the economic storm reasonably well.
Whether this is because law firms took “pre-emptive” actions in late 2008/early 2009 to minimise the likely effect of the GFC or simply because the GFC in Australia was nowhere near as deep or as long lasting as in say the US or UK I do not know (but I suspect a mixture of both).
As expected areas such as M&A, top end property, capital raising and general corporate took a hammering whereas litigation, insolvency and workplace relations work increased significantly. Some traditional “non-sexy” areas, such as insurance and government work, looked very attractive again and frankly were the “saviour” of some firms.
In a declining demand for legal services for the first time in over a decade, law firms were unable to increase their hourly rates (the main driver of law firm profit increases over that period) and indeed rate discounting became much more common as some clients quite understandably took advantage of the change to a “buyers” market.
Some the more flexible boutique and mid-tier firms were the real winners, being given opportunities to undertake more and more specialised work for the “top end of town” corporates as more clients sought out better value and service.
Partner intakes slowed to a trickle and in many firms partner numbers actually decreased. There was an increased “shifting of the deck chairs” with partners moving (being moved) out of equity if not moved out of the firm altogether. Firms that have differential profit sharing at partner level enjoyed a more “vigorous” slicing up of the (smaller) partnership pie.
Whilst staff hiring took a dive, top quality lawyers were still in demand and lateral recruiting did not slow down as more and more firms “bought” a client base or revenue stream by recruiting in several cases whole teams from their competitors.
Again as expected the firms that suffered the most (and will always be the first to suffer in any downturn) were those that tried to be all things to all people, were generalist rather than specialist practitioners, commoditised their services and largely undifferentiated themselves in the marketplace.
Some firms failed to take the opportunity pre-GFC to improve their financial hygiene and are now paying the consequences.
A few firms (very few) took the opportunity to really change their business model for good as the downturn in work highlighted the shortcomings and deficiencies of the traditional pyramid shaped leverage model that rely on time as the cornerstone in which to price our services.
Even the most conservative law firms were forced to seriously contemplate and in many cases actually implement alternative fee arrangements with some of their clients – albeit often reluctantly.
All in all though most managing partners in Australia took a well deserved celebratory drink on New Years Eve having so far dodged what could have been.
John Chisholm is the director of Chisholm Consulting, which advises Australian law firms.
