The Lawyer’s Catrin Griffiths believes that positive news about the UK economy is all well and good but not for all law firms. Some of which need some extra attention.
The positive news last week that the UK economy has surpassed its pre-recession peak in the second quarter of the year was attributed to the service sector: leisure, the creative economy, tourism and the City. And of course, helping to underpin the City’s contribution to the British economy is the legal sector.
As the early financial results have shown, many UK law firms – like the economy – are back to pre-recession levels. Many, but not all. Like the GDP growth figures, the top-line legal market trends need some glossing.
The UK economy has outperformed its pre-crisis peak, but the GDP per capita is 6 per cent lower; there are more jobs but there are issues with productivity. This is mirrored in many firms’ initial financials. For many of them, notably the magic circle and transactional boutiques, PEP has rebounded, but this is not the case across the board. Clyde & Co, Herbert Smith Freehills and Pinsent Masons, to take three random examples, have not attained their pre-Lehman margins.
What of productivity? From the early figures we are not necessarily seeing a catapulting revenue per lawyer (RPL) line. The RPL figure, while by far the closest indicator of a firm’s strength, is also slightly inflated by the use of non-qualified fee-earners. Nearly all law firms in the top 50 have increased their numbers of cheaper, non-qualified fee-earning staff, so direct RPL comparisons with five years ago come with caveats attached.
There’s another mini-trend I’m seeing, too. Many firms have got a handle on costs in the past five years, particularly on property, with some spectacular results, such as Lawrence Graham’s belated subletting of 20,000sq ft of office space to Bond Dickinson contributing to its 60 per cent PEP rise. (That’s a nice result to start its first year of union with Wragges.) However, some firms’ financial management performance could do with tweaking. We have been asking about WIP and debtor days targets this year, and there are still many practices that have alarmingly long lock-ups, even outside the PI sector. Furthermore, despite all the investment in billing technology and chivvying of partners, it hasn’t necessarily resulted in improvements. Perhaps, in turn, this says something about the broader UK economy; clients are happy to instruct their lawyers, but they are still dragging their heels on paying them.