East Midlands

Stretching from the fringes of the Birmingham conurbation to the more rural areas of Lincolnshire, the East Midlands is an economic jigsaw whose pieces have been variously affected by the financial crisis.

'The East Midlands as a region, and Lincolnshire as a significant part of the East Midlands, does not experience the same economic highs and lows as other regions that are more exposed to areas hit hardest by the current recession,' says Andrew Fearn, head of private client at Langleys, a firm with offices in Lincoln and York.

Like most firms that have maintained a private and commercial client portfolio the 33-partner practice has hedged the risks as efficiently as possible in the circumstances.

That is not to say that firms are having an easy time. 'Business clients are finding it difficult; they, their customers and suppliers are having difficulties with cash flow; everyone is dependent on everybody else, and that filters through to law firms,' says Andrew Kelly, managing partner at six-partner firm Andersons Solicitors in Nottingham

But for all the current financial pain, these firms are determined to beat the downturn. From tighter discipline to specifically targeted strategies, firms are taking a tougher approach to costs, nurturing closer relationships with clients and developing specific strands of their businesses.

Revisiting the traditional workhorses

As in other regions, the residential property sector has suffered, though firms that have been targeting higher earners '“ a group usually more immune to the vagaries of the economy '“ have been less affected. Andrew Kelly says his firm even noticed a small surge in property transactions earlier this year.

Meanwhile, Dominic Hopkins, head of corporate services at Hewitsons in the firm's Northampton office, acknowledges that although there is still a significant amount of probate work, even this group is feeling the chilly wind of the recession. 'Even if people have the capacity to spend, there is a natural sense of caution '“ a lack of confidence '“ which is holding them back,' he says.

Counter-cyclical areas such as litigation and insolvency are also picking up, though '“ as in other regions '“ not on the scale initially predicted.

'It's been a good year so far for litigation,' says Richard Arnold, managing partner at 26-partner firm Wilson Browne. 'People argue over sums which two years ago would not have been worth the time of day, but the volume of work is not as high as was maybe anticipated.'

Insolvency has also been generally disappointing. 'We've seen a rise in instructions but it's not been a deluge,' says Dominic Hopkins. As revenues generated over Christmas start running thin, Hopkins says he would have expected an increase in insolvencies in March-April. 'Many businesses, in particular in the retail sector, will be having some difficult discussions with banks now, but will this lead to a massive surge in insolvency work? That's unlikely.'

Richard Arnold, who is also a qualified insolvency practitioner, agrees. 'There is a fair amount of insolvency work around but the bulk seems to be going to the large insolvency practices, and the banks seem to be running a lot of the administrations themselves without using local firms.'

But perhaps a new approach to litigation and financial disputes shows how local firms could get the upper hand.

'Our work doesn't just involve the insolvency team trying to work through corporate rescues,' Hopkins says, 'it also includes advising other stakeholders in insolvency situations, for example landlords whose tenants are struggling to stay afloat, creditors trying to get their costs, employees dealing with insolvent employers'.

His firm also has enquiries from directors seeking assistance in understanding their legal duties and potential liabilities in situations of financial extreme when they are still at a stage where they are trying to work out a solution. 'For us, this is a more interesting proposition '“ we're interested in seeing businesses turn themselves around and prosper,' he says.

Andersons' Andrew Kelly also says there is greater interest in business circles in taking a pragmatic approach rather than resorting to head-on litigation. 'One client was told by a customer that it would defer payment until later but instead of holding the customer strictly to its contractual obligation, what could be a major issue was resolved by round table meetings with frank exchanges leading to a compromise. The customer is a well-known business which is regarded as solid and litigation was avoided, allowing the relationship to continue.'

In addition, firms are sharpening their focus on growth areas that will sustain them through the downturn and beyond, including the public sector and charities.

Focusing on growth sectors

'The charities practice contributes a significant part to ongoing work,' says Hewitsons' Dominic Hopkins. 'It's true that with voluntary income down, charities, like the general commercial world, have been hit, but the commercialisation of and focus on regulation of charities means it's an area which is developing for us even at the moment.'

The third sector is one market where Hewitsons has brought together expertise from different teams in cross-disciplinary groups servicing specific markets.

'The charities group, for instance, brings together corporate governance skills with employment, property, construction,' says Hopkins.

This approach also works for smaller firms such as seven-partner firm Robinsons Solicitors, in Derby, with a wide range of skills across the commercial and private client sectors. 'Charities are less affected by the downturn and are still active,' says Neil Barnes, the firm's managing partner. 'Local churches for instance are still looking to develop some of their land, the trouble is that there are fewer developers around at the moment to take on their projects.'

There are also opportunities on the public sector side, though larger firms are possibly better placed than even the most skilled smaller practices.

Hewitsons acts for a range of public authorities on traditional areas such as planning and environmental issues but Dominic Hopkins says one of the firm's particular areas of focus is government-funded infrastructure development to support the growth of communities in the region.

'There is significant development activity along the A14 and the M11 corridors, for instance, so we have been looking at those and at organisations active in these areas,' he says.

The Government's initiative to boost the population of Northamptonshire is also a move that Wilson Browne's Richard Arnold says should help revitalise the local economy.

'Northamptonshire is a government-designated growth area, which is expected to result in a huge increase in population,' says Arnold. 'The recession has been a setback but houses, roads and schools will need to be built for thousands of people.'

And of course there are still solid businesses around that are well-placed in their markets and continue to provide commercial work. Andrew Fearn at Langleys says agriculture, food and tourism have remained buoyant.

'There are also opportunities for growth in high-tech telecommunications, media and technology industries which are being facilitated by the continued growth and vibrancy of the University of Lincoln as it delivers its aim to create sustainable futures,' he says.

But for all the reasonable growth prospects, firms here too have tightened their belts and make sure they remain close to their client base.

Sharper business-like approach

Many, though not all, have made redundancies at various levels. But they are also well aware that growth beyond the recession must be funded with investment today.

'It's easy to cut yourself to the bone and take costs out of the business as a quick response to the downturn '“ but the risk if you go too far is that you can be disenfranchised from your key markets and practice areas,' comments Dominic Hopkins.

He continues: 'Our only sensible response as lawyers now and for the future is to look to our core strengths, ensure we understand our markets, focus on client care and quality of service, recognise the importance of investing in IT and be prepared to make difficult decisions where they need to be made.'

Langleys' Andrew Fearn says likewise that 'lawyers must work ever more closely with clients and take ownership of the contribution lawyers make in delivering added value for all clients'.

Smaller firms are taking the same approach. Robinsons Solicitors has nurtured a client base of owner-managed businesses, generating valuable cross-pollination within the firm. The benefits are showing now. 'We concentrate on the client rather than on the matter,' says Neil Barnes. 'It's pointless long term to chase cheap individual deals that would only make you more vulnerable in the recession.'

The reduced volume of cash flowing in the system is causing difficulties in the market but Barnes prefers to think of it as 'going on a diet'.

'Costs have risen, interests have gone up, and professional indemnity insurance has gone up,' he continues. 'Thankfully our turnover has gone up too but we're having to be a lot more analytical, and the banks are pushing lawyers to act a lot more like businessmen.'

Against this background, marketing budgets have been kept in line with original forecasts. 'We're still marketing the practice and advertising,' Barnes adds. 'You can't cut off the limb that will allow you to grow out of the recession, but we're a lot more cautious with how we spend the money and are looking for tangible, more immediate returns.'

But already perceptible behind the current concern is the desire to make sure that law firms are fit to face the impending changes that will come with the Legal Services Act.

Preparing for future challenges

Hewitsons is not looking at changing its structure at this stage but the firm is keeping en eye on the LSA. 'Our concern is to create a shape for our business that matches the markets we serve as they develop and which enables us to deploy our key strengths,' says Dominic Hopkins. 'There will be an upturn in the market, but it will be a different market for legal services than we have seen and we must be in the best shape for it.'

At Andersons, Andrew Kelly is also convinced that the marketplace will be changing. 'There will be a market for basic 'specsaver' services, but we don't really want to be in that market. Tesco and the like will have five to ten years to run these services as loss leaders before they start making money out of it. He continues: 'There are alliances taking place between lawyers and other businesses looking to answer the Tesco threat, but they're unlikely to succeed if they don't change the way they operate and develop a brand in the way that the AA has, for instance.'

Wilson Browne is going even further by re-inventing the definition of the high street firm. The firm developed as a traditional high street practice with offices in town centres in six locations in the region.

A few years ago the firm moved some of its offices to larger premises in the periphery.

'There is still a strong high street culture in the firm but this does not mean we have to be in the town centre,' says Richard Arnold. 'The new offices in Northampton and Kettering are just outside the town, easily accessible, close to main roads and with parking facilities.

'Even before we moved out it was clear that people would not come to visit their solicitors while shopping in town. Everyone drives to most places, so moving outside town should in fact help us grow our client base further without losing the high street approach.'

In some ways, this is the supermarkets' first victory in the forthcoming battle for legal services, but law firms are showing they can play the same game. High street shops were the first to feel the might of the supermarkets, now law firms are next in line, but already they are showing they are able to think ahead and will be ready for a fight come the economic upturn.