South Coast: looking beyond the recession

Law firms are born and law firms die, and most of those that have survived successive recessions have at some point made redundancies in times of economic crisis. Not Paris Smith. In its 150 years of history the 26-partner Southampton-based firm has never made anyone redundant '“ until last week.

Established nearly 200 years ago this local giant has doubled in size and turnover in the last ten years, in part on the back of a healthy commercial property department.

The redundancies that took place last week were mainly in the property department, including one lawyer, but support staff were also made redundant across the firm. It was a hard decision to take, according to senior partner Richard Smith, and has brought about a sudden change of culture.

'We have always been known for being a caring firm,' Smith says, but the crisis is so much more severe than the early 1990s that the firm cannot, as it did back then, just stand still as the storm blows over.

'We will have to be more ruthless generally,' Smith continues. 'Everybody is now much more conscious of the need to generate business. The survivors of the redundancy process know they will have to work harder.'

A full-service firm with a strong private client tradition, Paris Smith can breathe a touch easier than other firms.

One of the most respected family practices in the area, largely thanks to Smith himself, the firm still attracts a lot of top-end family work and intends to keep on hiring lawyers to meet demand.

'At this level there is usually more than one house in the family so there is less concern about selling '“ or failing to sell '“ one property in order to fund two new ones,' Smith says.

The signs so far are quite promising and Smith expects turnover in his department to increase by 10 per cent '“ though this is unlikely to be enough to prevent profits from falling slightly this year.

Employment is another area the firm has developed, working for some of the larger employers in the region as well as for some employees. 'Tribunals are packed with applications at the moment,' says Smith, but there is also a noticeable rise in non-contentious matters surrounding redundancies, including in particular compromise agreements.

Still expecting

Other downturn favourites however, such as insolvency, are slow in picking up. 'People fight to stay afloat,' Smith says, which has resulted in a longer lead time until the insolvency process is eventually set in motion.

Over at Coffin Mew, a 27-partner firm headquartered in Portsmouth, managing partner Nick Gross reports similar trends.

'Insolvency is one of the areas we expect to go up but unlike previous recessions it is taking longer for those businesses in trading difficulties to file for insolvency,' Gross says. 'Businesses with substantial assets have not been falling as quickly but the New Year is likely to see a rise in insolvencies.'

Even dispute resolution is yet to reach the heights of the 1990s, when it was a main earner for law firms. But there are signs that things may be starting to move as some departments shift the emphasis of their work from non-contentious to contentious.

Mike Caton, senior partner at 19-partner firm Moore Blatch in Southampton, says his firm is experiencing similar changes. Private client, including wealth management and high-value probate, has remained stable, and employment is picking up.

More significantly, Caton says, property-related work is moving from transactional to dispute resolution. Moore Blatch's debt collection department '“ which is run as a volume business '“ has seen a surge in activity, from mortgage repossession to debt rescheduling.

There has also been a significant increase in professional negligence claims against surveyors and solicitors, alerting lenders about claims potential where the differential between the original and retrospective valuation is more than 20 per cent.

But it is specialist and niche areas that firms are turning to more actively to generate business.

Specialist and niches areas

Coffin Mew, for instance, will be looking at its social housing department to help with the firm's growth.

With about 40 staff, it is the biggest social housing team south of London. Its lawyers are well known in social housing circles '“ the head of the team, Jennifer Bennett, used to work for a housing association '“ and the team acts for a lot of housing associations, but Gross says they must continue to maintain a high market profile.

A natural progression for Coffin Mew was to set up a specialist charities team. 'A lot of housing associations are incorporated as charities so we started picking up a lot of knowledge and culture about the sector along the way,' Gross says. With the addition of a few lateral hires the firm now has a full y fledged team able to advise on charity law specific issues such as liaison work with the Charity Commission, governance, or funding agreements.

Lester Aldridge is one of the larger full-service firms on the coast, with 39 partners and a total staff of 285, and offices in Bournemouth, Southampton and London, but it too has developed specialist areas, which chairman Jeremy Allin says have been doing well so far.

Allin's own specialist area, the care sector, is one of them. Until recently his main focus was on consolidation, with a spate of care homes mergers, but it is now mostly on compliance.

'There are still a few cash-rich clients interested in acquisitions in the care sector but this has slowed down as investors are unsure of whether they should buy now or possibly wait for prices to fall further,' says Allin.

But most of Allin's work now is litigious. 'There has been a lot of publicity about poorly managed care homes and vulnerable people being put at risk, so the regulator has stepped up compliance activity,' Allin continues.

The firm also has successful retail and charities departments, although it is areas such as marine and fertility, because they are so niche, that are doing particularly well. The fertility team, led by Natalie Gamble, advises couples '“ both heterosexual and same-sex '“ on all aspects of assisted fertilisation (see her feature on the Fertilisation Act on page 19), while the marine team advises on issues ranging from yacht leasing to collision and pollution. The problem however is that, as it is becoming impossible to predict the severity and duration of the recession, firms are having to compete ever harder to secure work. And sadly, no one has yet come up with a miracle solution.

Nurturing clients

'In theory, in times like these, everybody should be going out to get new business', says Paris Smith's Richard Smith. 'But the reality is that not everybody has the natural ability.'

At Coffin Mew, Nick Gross takes a similar outgoing stance. 'We must be particularly responsive to client needs,' he says. 'The less money there is around the more we must be seen as an indispensible business adviser, convincing clients that involving a lawyer in their transaction or case will ultimately be less expensive than not.'

One thing all agree on is that lawyers cannot sit still. 'We must be visible, we cannot disappear underground,' Gross continues, 'and marketing activities must deliver tangible returns'.

Lester Aldridge's Jeremy Allin agrees. 'There has to be an emphasis on business development,' he says. 'There has to be more client contact; it has to be informal but it must be face to face so you get to know them, and when they have a problem they will pick up the phone, and it is you they will ring.'

These are all sensible client management principles which apply in the good times and the bad, but Allin adds: 'Clients like to be taken care of and you must be interested in what they are doing, and times like these really bring home the importance of good client relationships.'

Which is all very well but what if your clients suddenly turn around and tell you thay cannot pay?

No serious problem seems to have arisen yet but some say cashflow '“ their clients' and by extension the firm's own '“ could become a concern if the recession deepens. Some people are struggling to pay, according to Richard Smith, and his firm will certainly tighten the screw on bad debts by taking clients to court if necessary. The key to avoid ending up in such an extreme situation is to discipline the fee-earners into more systematic interim billing, he says.

'There is no magic to it,' adds Nick Gross. 'We have centralised our debt collection operation and we are stricter about converting work in progress quickly into bills.'

Yet, despite the consensus that the recession will be a long, perilous journey, lawyers are already setting their sights beyond the economic downturn.

Beyond the recession

For many firms, the recession has triggered a strategic review of their existing structures.

ASB Law, for instance, anticipated the impact of the downturn by closing three of its office. Along or near the coast and retreated inland to its offices in Crawley and Maidstone, closer to its larger client base.

According to senior partner Russell Bell, this should put the firm in a stronger position to attract clients questioning the value of London lawyers.

'As companies are being squeezed, regional firms like ours will be in a better position to attract new business because we cover the same areas of work and our overheads are lower,' he says.

Lester Aldridge had a similar intention when it opened an office in London a few years ago. The firm has picked up local work not just in retail and commercial property but also in marine and private client, which can be handled jointly '“ and more cheaply '“ with the specialist teams in Southampton.

Opening a new office inland is also on the agenda at Paris Smith. 'Any city on a coast only has three faces,' says Richard Smith. 'We need to spread out further afield and will be looking to merge with another firm come the end of the recession.'

Meanwhile, it will take a brave partnership to do more than the occasional lateral hire, as firms have become very wary of the risks '“ commercial rather than cultural '“ involved in mergers.

But it does not stop the strategists from devising their next move when the recovery comes. Some are even thinking of the days of legal disciplinary practices. Moore Blatch is already considering hiving off its lower-level personal injury work to a business outside its LLP structure, and Lester Aldridge will look at how they can bring different services to theirs clients through new ventures.

According to some economists, this could be as soon as 12 months from now.