Taking the strain - more of the same in 2010-11 and bad news for some
Worries about eurozone debt, public sector cuts and expectations of a prolonged phase of low growth and weak deal activity – so similar is the picture emerging from this year's top 50 results, it was tempting to run last year's leader and hope no-one noticed.
July 20, 2011 at 07:03 PM
3 minute read
Worries about eurozone debt, public sector cuts and expectations of a prolonged phase of low growth and weak deal activity – so similar is the picture emerging from this year's top 50 results, it was tempting to run last year's leader and hope no-one noticed.
As horribly jargonistic as it sounds, you can see why the term 'the New Normal' has been loitering around like an unrealised write-off on a toxic CDO. If this New Normal isn't going anywhere soon, the sustained buffeting of this hard-growth environment is beginning to take its toll on a number of law firms.
The penalties for tolerating basic weaknesses in your business have grown considerably and will get worse for the lagging firms; there is a frailty about some large practices that the numbers alone do not reflect.
Nevertheless, 2010-11 was a little better than the last financial year, largely reclaiming the revenues knocked off the top 50's top line in 2009-10 and providing the best growth period for three years.
The UK's largest firms had to show they could manage in their leaner forms in this less hospitable environment without the benefit of widespread redundancies. Largely they did – and a few prospered. While it's been a year of starkly varying performance, the number of firms seeing sharp falls in revenue was well down on 2009-10, when five firms saw falls of 10% or more.
At the top end, the magic circle had a respectable but unspectacular year. On one hand you have to give London's elite credit for avoiding the plunging profits they saw during the early-noughties gloom. On the other, the group will have to get on the front foot fairly soon as they have lost a little competitive ground to their most dangerous US rivals over the last three years (even though the much-predicted litigation and restructuring boom in the US failed to materialise). They've had a decent war but will need to have a plan not only to survive but to thrive in these market conditions.
Which brings us to the debate about whether the group's lockstep-driven partner compensation model can survive the triple whammy of depressed transactional markets, the strain of global expansion and the threat of predatory US recruitment from their senior ranks. Current form suggests not.
One answer to that question could come from the fortunes of firms like Hogan Lovells, DLA Piper and Norton Rose that are now operating different but globally credible models. The omens, particularly in the case of Hogan Lovells, look reasonable, but it's still very early days.
For those operating in this climate without such scale, consolidation will be in the air. That's the most over-used prediction in the legal industry, but this time I sense something in the profession is shifting. As a hard-growth market batters the old order, something new is slowly emerging.
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