Business confidence at top commercial law firms has been further battered by gloomy economic news in the current quarter — but nearly one in two partners still expect their firms to achieve revenue growth this year.
Conducted a month after the market-shaking collapse of Lehman Brothers and in the week that senior politicians conceded the
Just 6% of respondents predicted revenue growth of more than 10% over the next 12 months, the fourth quarter that confidence has fallen in the poll. As recently as last year 60% of respondents were regularly predicting double-digit increases in turnover. The findings also indicate firms have revised their growth projections downwards since the last poll in July, when two-thirds of respondents were still expecting revenue growth.
Slaughter and May practice partner Paul Olney (pictured right) said: “Looking at City firms generally, I doubt revenue will grow. There is less M&A and less new financing. We will see a lot of corporate restructuring and insolvency in
However, despite the clear falls in confidence, nearly half of respondents (49%) were still predicting revenue growth, with 27% predicting 0%-5% growth and 16% expecting 5%-10%. A further 21% forecast static turnover. Thirty percent of respondents predicted falls in revenue, including 14% that expected to see falls of 10%-5%.
Allen & Overy’s managing partner of corporate, Andrew Ballheimer, said: “You have to be opportunistic when there are problems in the market. You need all areas to be covered and balanced. We’ll carry on our business just as we have been. Our business is balanced, which is important through these tricky times.”
The poll found partners were consistently more bullish about their own firm’s performance than the general market. When asked to predict the growth prospects for the
Taylor Wessing managing partner Michael Frawley said: “There is limited scope for savings in relation to premises, so most firms will be looking at their salary costs during this difficult time especially professional salaries, which have reached an unsustainable level. Firms will need to find a balance between being too cautious and cutting so deep that it adversely affects the firm’s culture and their ability to service clients as the economy improves.”
Expectations of a downturn were also underlined from partners’ general investment priorities. The highest priority practice area cited was restructuring (37%), while litigation was named by 34%. Both areas are regarded as classic ‘counter-cyclicals’ that prosper when the economy turns down. Corporate, traditionally the top investment priority for commercial law firms, was cited by only 16%, slumping from the 36% that favoured the practice area in July’s Business Confidence poll. Other practice areas cited were banking (5%), intellectual property (4%), property and employment (both 2%).
Denton Wilde Sapte chief executive Howard Morris said: “We are on budget and we have had a strong first half. No-one is going to see growth in banking and finance, but our energy practice continues to increase and our restructuring practice will be more in demand. We have a strong finance litigation team which will also be in demand.”
Simon Konsta (pictured left), senior partner at Barlow Lyde & Gilbert, said: “Our books of business are increasing in revenue. We are going to come around our current budget — we have seen a significant increase in litigation.”
Meanwhile, growth is expected in regions like the Middle East and Asia where the financial markets are still moving at a considerable pace. Just under 40% of respondents cited the Middle East as the top region for growth, while 29% cited Asia as the best growth prospect.
“We are developing on the non-contentious side. We’re going to have a good year and we’re seeing a similar upturn in work in Hong Kong and Asia,” said Konsta.
The poll found a widespread expectation that firms will be forced to cut jobs. Asked if partners believed their firm would make cuts during 2008-09, 22% said they already had while 12% said such a move was ‘very likely’. A further 38% said such a move was ‘possible’ but 29% said job cuts were ‘unlikely’ or ‘no chance’.
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