By Ian Fraser
Published: The Business Herald
Date: 20 April 2009
AS a country, Scotland is often described as being “over-lawyered”. The preponderance is all very well in the boom times but during a severe slowdown like the one we are currently living through, it presents multiple headaches
In 2003-2007 Scotland’s lawyers had never had it so good. The fact there were too many lawyers didn’t really seem to matter; indeed many commercial firms were tempted to increase staff numbers on the back of seemingly limitless opportunities in private equity, commercial property and corporate finance. However our legal fraternity did not see the recession looming until it was too late.
Although not yet in crisis, many top law firms have been making some fairly drastic lay-offs. As previously profitable strands of work have dried up, some law firms are even quietly wondering if they have long-term futures. Scottish firms with a bias towards the worst affected parts of the economy –- such as residential mortgage-backed securitisations (RMBS) and commercial property -– have proved the most vulnerable. High street law firms specializing in conveyancing have also been hard hit.
Scotland’s law firms are also suffering because, traditionally, they were dependent on winning business from HBOS and Royal Bank of Scotland. Now that both of these banks are on state-sponsored life support machines, deal flow has slowed considerably. However in the near future, there will be a spate of restructurings as the banks put growing numbers of their former corporate customers into administration.
In February, Scotland’s largest law firm, Dundas & Wilson, announced it was making 50 of its 650 people including up to ten partners redundant. Joint managing partner Donald Shaw said: “This is a reflection of market conditions. The economy is not looking like it is improving and we need to accept that.” Some regional firms have been worse affected. Dundee-based Thorntons said in January that it would lose 50 of its 380 posts. Fife-based Pagan Osborne shed 13 of its 120 staff last October and Blackadders Solicitors, also based in Dundee, let go almost 60 of its 240 partners and staff in July 2008. Shepherd & Wedderburn, Biggart Baillie, DLA Piper and McGrigors are also reported to have made redundancies.
A few weeks ago David Dunsire, executive partner at Tods Murray, went as far as publicly rubbishing speculation that his firm was in financial trouble and on the verge of going into administration. Writing to a Sunday newspaper he said: “We’ve heard that we’re on our bank’s ‘at risk’ register, that partners have refused to inject more cash into the firm and that we are, indeed, about to go into administration. All of this is totally untrue.”
Leading law firms are also cutting back on the numbers of graduate trainees they will take on. Most firms are asking at least some of those who were supposed to be starting in September to defer their start dates until September 2010. And McClure Naismith is choosing who will be allowed to start this September by picking names out of a hat. Admittedly the recession is impacting law firms all over the world. The “magic circle” of law firms that dominate London’s multi-billion pound legal services market are also feeling the pinch -– even though have found rich pickings acting for the government in the financial services arena. And Leeds-based Hammonds Direct, a specialist in high-volume conveyancing, has gone bust with the loss of about 300 jobs.
As a general rule, the law firms with a more balanced portfolio, especially those that sustained strong corporate recovery, insolvency and litigation departments during the bubble years, will find it much easier to survive. One source said that Scotland’s law firms are currently in “no man’s land”. While dealmaking and all the other boom-time activities dried up long ago, they are still awaiting the “tipping point” — when a spate of corporate restructuring and widespread insolvencies starts to fill the void. For some of the over-stretched firms, the wait might just prove too long.
This professional services column was published in The Business Herald, a regular specialist supplement to The Herald.