Monday, 11 February 2013

Law Firms - Prepare for Change

How have law firms coped with the change in economic times and the introduction of new legislation set to completely restructure the legal field? I will give an overview of some of the steps law firms have taken in order to deal with these then I will go on to highlight some of the changes I see having an impact in the early stages of my legal career.

One of the biggest methods of combating the recent climate and regulatory changes has been mergers. It is heavily evident UK wide. Last year saw a huge increase in mergers with at least a quarter of all law firms in the UK top 100 merged with another law firm. In comparison, there were 21 law firm mergers in 2011 involving firms in the top 100.

Catalysts for these mergers I would say has been a search for growth driving law firms to enter new markets along with sustaining markets in areas that are set to be in great competition with the likes of Alternative Business Structures. It may be a bid to create a big name, maybe even a brand name that can then cope with the likes of the Co-operative. This merging activity is expected to continue as predicted by Tony Williams:

 “We expect this trend to continue in 2013 because the strategic logic behind such deals is only growing stronger.” Tony Williams, the former managing partner of Clifford Chance

The logic in which he refers may be attributed to the law firms that were originally pessimistic of ABSs, however, upon seeing huge firms merge, have had a change of heart and feel the need to merge in order to sustain providing legal services in such a competitive market.

Some of the mergers that have taken place recently involving Scottish firms include Burness and Paul and Williamsons, DWF and Biggart Baillie, Ledingham Chalmers and Esslemont Cameson and Gauld and McGrigors and Pinsent Masons.

However, mergers have repercussions. Pincent Masons confirmed in June 2012 it was consulting with 40 support staff in a bid to eradicate duplicated roles as a result of its merger with McGrigors.
This leads me on to the second step that law firms have used in order to deal with the climate and change: redundancies. The reason for these recent job cuts in law firms is that the firms have too many lawyers and staff in practice areas that, because of the economic climate and the changing legal serviced market are not making money like they used to.

It will always be difficult to gauge just how many people were made redundant in the last few years. According to figures in The Lawyer, redundancies were expected to have hit more than 2500 at UK law firms in 2009.

This led to two risk categories: underperformers and those in a practice where the demand has evaporated somewhat. The former category will or maybe even has had an interesting impact on recruitment within law firms. There is a new level of excellence that has to be satisfied in order to in order to obtain employment security. Previously, “Underperformance was hidden by a bull market where everybody was busy...” - Tony Williams This may be a good thing as it ensures that our clients are being provided with an even higher standard of services and the high performers are finally being recognised for their hard efforts and being awarded security.

However, the statistics for these redundancies are pretty scary for not only the up and coming lawyer but also lawyers in practice today.

The redundancies in varying numbers can be seen in many well known law firms:
Maclay, Murray and Spens confirmed in June 2012 that it was making two lawyers and four support staff redundant in its Glasgow Private Client team alone so it could focus on services more closely aligned to client needs.

With a similar mentality, Dundas and Wilson axed 30 staff after reviewing the “nature and level of demand for its services” in April 2012.

With less staff in employment in each of these firms, there has been less need to keep certain offices open for those firms with more than one office. This brings me to my third step which is the closing of offices and along with that the closing or consolidating of practice areas within law firms
The most recent and prominent example of this is DLA Piper’s office closure in Glasgow where it had 10 partners, 25 fee earners and 50 support staff. Along with that, 10 jobs in the document production unit in Edinburgh faced redundancy.

In terms of consolidation, DLA Piper has also been no stranger to this. Their entire document production team of 116 people across eight offices is being consolidated into one centre in Leeds with only a small presence being kept in each office. Also, DLA are selling its defendant insurance practice, which has 31 lawyers and 19 support staff. Should that fail, it will close the practice. 

With redundancies being made left, right and centre and offices being closed down, the effect has extended to trainee intake across the UK.

The Law Society of Scotland statistics provide little optimism in this regard.

2007 saw the most traineeships registered with 629 and this has decreased slowly over the years to only 488 being registered in 2011. This was 39 traineeships less than in the year 2010. Last year saw a further decrease down to 472 traineeships being registered. There has been some improvement across the border with an 11.6% increase from 2009/10 to 2010/11. Although positive this figure still falls short of the number of traineeships recorded before the financial crisis. Additionally, there is a huge shortfall from the amount of people doing the LPC to the amount of trainee contracts being registered.  Therefore the future of law looks set to be even more challenging and some of the changes which I think are set to make an impact in the coming years include the Independence Referendum to take place next year in which it will be decided whether The Scottish Parliament should be responsible for “all laws, taxes and duties in Scotland”. Some legislation which governs both Scotland and England will need to be reconsidered and in all it may have an effect on the relationships between Scottish and English firms especially in light of the mergers I spoke about earlier. Alternatively, after the initial legislation problems are considered, revised and solved, there may be little obstacle in the way of business. Andrew Black of BBC News sums up the impact well:

“It’s hard to say exactly how things would happen, given this would be new territory, but it’s likely  the timescale from a “Yes” vote to full independence would be lengthy, given the huge number of issues which would need to be resolved” – 15 October 2012.

Secondly, access to justice in criminal summary proceedings is very much under threat with the recent legal aid cuts. The Scottish Civil Justice Council and Criminal Legal Assistance Bill seeks to introduce legal aid contributions towards legal expenses to be made by accused persons and that the responsibility for collecting these contributions will lie with individual firms of solicitors. Concerns lie with the failure rate currently of clients paying law firms being 80% in England. The Scottish government estimates 30% of defendants will fail to pay on time. This will leave criminal practice work even more unprofitable than it already is leading to many firms going out of business or refusing to do legal aid work altogether. There is also a concern that the cuts may spread to civil legal aid.

Lastly, in Scotland, we will finally feel the impact of Alternative Business Structures after only hearing of it in England and Wales. It will see a creation of a lot of jobs with the Co Operative revealing that it will be hiring 3000 solicitors to carry out its numerous legal services. That is an enormous amount that will easily out compete the majority of high street firms. You can see the scale of it in comparison to some of the biggest law firms in the UK. DLA Piper, has a lawyer base of 4200. Linklaters has only 2300. Law firms have reacted in different ways to this new structure. The likes of Irwin Mitchell were the first to apply to be an ABS but Freshfields and Slaughter and May amongst others have ruled out the possibility. So in the coming years, it will be interesting to see how it will impact the Scottish firms, the mergers, and the UK wide firms that had originally said no to the conversion.

Other changes set to make an impact include the closing of sheriff courts this year which will undoubtedly see a rise in the number of cases dealt within the remaining sheriff courts and how this will affect the efficiency of the court system; also the Law Society of Scotland has announced that all trainees only need to be paid the national minimum wage instead of the recommended rates – it is yet to be seen if law firms are inclined to pay the minimum wage in order to deal with the economic climate and if it will encourage more firms to take on trainees. (which from 1 June 2012 will be £16,200 (up from £15,965) for the first year and £19,400 (up from £19,107) for the second year) and lastly funding for the diploma has attracted much criticism for their current system of a £3,400 loan from SAAS as it has been argued it does not provide a fair access to the Scottish legal profession. However, I spoke to a partner of a firm at the TANQ Society Christmas Social who used to be on the board for allocating the 300 funded places and he said that he rather it was the way it was now as everyone has the same level of access if they so wish.

It’s not going to get any easier in the legal field so it’s time to embrace the change or at the very least be prepared for it. 

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