Confidence in UK Legal Sector Falls

10-28-08

So why the drastic change? The number one reason for the respondents' uncertainty is, not surprisingly, the economy. While the US battles its own economic issues, so is the UK. The BBC News reports that "The economy shrank for the first time in 16 years between July and September, confirming that the UK is on the brink of recession…The UK will be classed as being in recession if the economy slows in the fourth quarter as well."


Another prominent worry of those surveyed was the ability to manage an economic downturn. Since the survey’s inception 14 years ago, this was the first time the concern was voiced. Seven percent believe this is a worrisome point. In the study, Giles Murphy, head of Assurance and Business Services at Smith & Williamson said:

"The fact that 3 in every 4 law firms cited the economy as a key issue demonstrates the massive uncertainty that the current economic environment is causing and the focus that firms are placing on current trading rather than arguably more significant strategic issues, such as the Legal Services Act."

So what's expected to happen as a result? Consolidation. "Six out of ten of the overall sample group expect to see the level of merger activity increase. The equivalent figure last year was just five in ten." In times of poor economic activity, some firms contemplate, and go through with, defensive mergers; an attempt to head-off a foreseen, possibly disastrous, predicament at the pass. The study states, "Said Giles:

`While the economy has been booming, the anticipated level of merger activity has not been forthcoming and yet as the economy falls, our survey suggests that consolidation is expected to increase. This highlights that some practices may look at defensive mergers in the year ahead. In reality, when firms are doing well, the desire to do even better is often not strong enough to outweigh any perceived risks surrounding merger, such as cultural differences, which this year's and previous surveys have shown to be the area of greatest potential difficulty in undertaking a merger.

`However, in the current market, management boards may feel the need to take action to deal with underperformance outweighs the problem of matching cultures. In good times, merging two strong complementary practices can build 'super firms'. Clearly, the risk of merger in the current market is that the opposite occurs.'"

The survey also reveals the perceived best opportunities in overseas legal markets. The Middle East was viewed to have the most potential, ranked number one, followed by China, India, the Far East, North America, and finally Western Europe and Scandinavia.

The findings exposed some interesting feelings about the involvement of US firms in the United Kingdom:

"In contrast, Smith & Williamson's survey suggests that lawyers consider that the role of US firms in the UK has reached a plateau. Indeed, 52% of participants report that they do not envisage any further development in the role of US firms in the UK, while remaining respondents were split equally between those who anticipate further growth and those who anticipate a decline in their role in the UK."

The survey was performed during September 2008 and was part of Smith & Williamson's annual survey. The size of the participating law firms range from one - 10 partners to 100+ partners.

For more information concerning the survey's findings, please contact Giles Murphy, head of Assurance and Business Services at Smith & Williamson. Tel: 020 7131 4369
Email: giles.murphy@smith.williamson.co.uk