London : Keep your chin up

Simon Woods can be found hanging out at his club a lot more often these days, and he is not the only lawyer in London spending more time out of the office.

In a paradoxical situation, the decline in activity affecting the entire legal services market also means that, as lawyers need to get clients through the door, they also have time to do so.

Woods is one of two partners at Burton Woods, a firm with four fee earners and six staff,located just around the corner from the British Museum. The firm's work ranges from residential and commercial conveyancing to wills, probate, and divorce and family law '“ including IVF and other parenting issues '“ as well as some commercial and charity work. 'Very much Mr High Street,' says Woods.

And much like the surprisingly high number of smaller firms in London that have carried on with general bread and butter work, his firm has been hit by the dwindling confidence in the economy.

Getting out more

So for Woods, spending more time at his club is one of various ways in which he is being the face of the firm in the market, alongside more traditional networking opportunities such as nurturing contacts with accountants and other referrers. 'You need to remind clients of our existence,' he says.

Michael Gillman, partner at Bedford Square firm Bishop and Sewell, concurs. 'When things are fine, you don't need to worry that much about clients, the work just comes in, somehow.'

With 10 partners and a total of 55 staff, Bishop and Sewell is on a larger scale than Burton Woods, but the firm is facing the same problems and its turnover from property work has suffered significantly. According to Gillman the firm has retained its share of the business but when volume is down, so is the size of that market share.

'You have to look after your clients more,' says Gillman, 'and we are spending more time with other professionals who refer clients to the firm, meeting them. You have to be courting them a bit more.'

And at the tougher, lonely end of the high street, the sole practitioner firm, things look hardly better.

'There are a lot of us pushing bits of paper around,' says Jeffrey Forrest, who runs his own firm in Westminster, with one assistant and the occasional trainee.

'There is still some probate and family work, but even that has been affected, as a lot of the time there will be property involved, which will be difficult to sell in the current climate,' adds Forrest. Many of his peers now live day to day, with stories starting to emerge of firms dipping into their cash reserves to pay the rent.

Difficult times, difficult decisions

According to Forrest however the greatest enemy in the battle for survival on the high street is the rise in professional indemnity insurance (PII) premiums. When his previous insurer proposed a 40 per cent rise from last year, Forrest went instead with one of the few insurance companies left on the Solicitors Regulation Authority's approved list which would cover small firms and sole practitioners, whose quote was 40 per cent less than the previous year's. 'They made a killing in the sole practitioner market,' he says.

The company in question has received some negative publicity but Forrest is not overly worried. Nor is he particularly concerned that the company could go the AIG way next year. He is insured for another year and that premium will be the starting point for next year's quote.

Practical response

Other than more active networking though, what has been the practical response to the downturn?

Woods says that some parts of his firm's business, such as divorce work, have greatly improved. He and partner Judith Burton are tentatively looking at what other work they could do, but some of the areas they have pinpointed would require training or retraining, and any effect would not be felt for at least six months. They also considered becoming independent financial advisers but again the time taken to gain accreditation would negate the possible benefits.

So one answer, adopted by many around the country, is straightforward belt tightening. 'We started preparation for the credit crunch last November,' continues Woods.

'Conveyancing was beginning to drop off and we felt it was likely to get worse as it became clear that it was getting more difficult for people to obtain credit. The conveyancing work is widely spread and commercial conveyancing is holding up, so we have a bit of a cushion.'

'Controlling overheads and deciding which ones can be reduced without loss of effectiveness is critical,' says Woods. The visible side of the firm's response includes moving to smaller offices in the same building, but so far, and unlike other smaller firms in the area, it has managed to stave off redundancies.

Instead, the firm started talking to staff back in April, warning that there could be trouble ahead. Then in June staff hours were reduced, ensuring that everyone kept their jobs, just working fewer days a week. Even before then, at Christmas last year, partners reduced their drawings.

Over at Bishop and Sewell, the matrimonial department is also working 'flat out' but others have been hit by the downturn and there have been redundancies.

'It's a simple factor of the lack of business,', says Gillman. 'It's not something we are happy about, but with less work coming through, lawyers have less need for support staff.'

Bishop and Sewell has also been cautious about head count. The firm would normally have taken on one trainee in February (as part of their usual four at any one time) but this year it will not. On the other hand, it has just made a new appointment in the commercial department.

Of course the other recipe is about getting the money as soon as you can. 'We always try to get money upfront '“ maybe not so much in the commercial sphere but certainly in conveyancing and matrimonial,' says Gillman. 'And we are stricter on the credit control too.'

Against this background the challenges posed by the Legal Services Act (LSA) take on a different shade. The LSA is still looming as a threat over some parts of the sector but the question now is whether banks and other high street organisations will be interested in investing in the sector as they are facing otherwise more fundamental problems touching their very existence.

'There are supermarkets out there looking at services that can be provided in a repetitive way, like wills and conveyancing,' says Woods. 'Setting up their own legal services business is unlikely to be of interest in the current downturn but some are still considering the possibility of franchising the service, offering a firm the option to operate under their brand '“ and that's more worrying.'

Relative optimism

If such structures are the new rules of the game, then the risk, according to Woods, is that professional standards could be affected across the board. 'And because profits are the main driver for these organisations, there is also a risk of conflict.'

Gillman agrees that while some investors may have been interested in putting money in the legal services market two years ago, the picture will be very different post-credit crunch. 'The real profitability of the legal market will become apparent,' he says.

Opening a law firm's capital could also offer older partners looking to exit the partnership the opportunity to decapitalise. 'But what's in it for investors?' asks Gillman. 'It could be a hazardous move, as there is an element of personal service with legal advice; people come to see a particular lawyer, so if this lawyer goes, so does part of the investment, which does not necessarily make it an attractive proposition for external investors'.

But the real trigger for change would seem to be the combined effect of the downturn and the rise in PII premiums.

'Undoubtedly more firms will merge,' says Gillman. 'Not because they cannot provide the level of service or the expertise but because operating on a smaller scale will not be economically viable.'

Sole practitioners are also more likely to forgo an office in town and work from home, according to Jeffrey Forrest. 'More will specialise in niche areas or start operating from home, which is now a workable option. Many already do so, and if you can work from home, you can work from almost anywhere you like,' he says. Forrest has also considered merging, or coming together with one or more practitioners. He has had various discussions but says the conditions make this quite tricky.

'Merging is not a soft option,' agrees Woods. 'You have to learn other people's culture; we have had tentative discussions but so far we feel we are better off as we are.'

For all the bad news however, there is an equal amount of remarkable resilience and optimism. 'You can't stick your head in the sand,' continues Woods.

'Solicitors are generally not good at business but the partners here have learned and take a keen interest in management. Surviving will be difficult but with enough flexibility, firms will get through.'

'There are good and bad decades,' Gillman adds, pointing out that people are still paying their mortgages, unemployment is bad but not as bad as in the 1990s, and that there are still plenty of opportunities in business circles. 'We survived the 1990s so we should be able to survive this.'

The bigger uncertainty at this stage is how long the crisis will last. In these circumstances, lawyers are turning to the old, tried and tested recipes: sound financial management, good accounting information, pricing properly, getting the work in, getting the bills paid, and providing top quality legal advice. Provided they stick to this, they should indeed be able to get through.