North West: fighting fit

The North West has had an awful lot of bad press recently with reports that larger firms have been revising their growth forecasts down and redundancies spreading like an infectious disease.

With a total of 1,227 firms, the region has the third greatest number of firms in Britain after Greater London and the South East. Of those however, 96 per cent have 10 partners or less (see chart on page 12). So with 21 partners and 125 staff, Carlisle-based Burnetts is comfortably in the top 4 per cent.

Not that this has always been so. Burnetts was a small private client firm until the 1960s when its workload started growing, initially on the back of growth in the local economy and latterly as a result of the partners' strategy to develop the commercial client portfolio.

But Burnetts, like all other firms in the region, is feeling the effect of the liquidity crisis. Residential conveyancing, unsurprisingly, is seriously down everywhere and deals are much slower to get off the ground. In the best cases lawyers and staff have been moved from property to other departments but there have been losses at all levels, either directly through redundancies or with staff and fee-earners leaving as a result of tighter performance management.

Pursuing growth

But local firms are not just sitting out the downturn '“ opportunities may be scarce but lawyers are actively looking at the parts of the market where they can generate ongoing work in the current climate.

For most, the traditional counter-cyclical areas are providing an expected but nevertheless much-needed boost.

'In common with most firms, our litigation and employment departments are doing well,' says Brabner Chaffe Street's managing partner Michael Brabner. 'Some areas of property are holding up, such as property management and the acquisition of retail space, where buyers are beginning to take advantage of lower prices, and our sports and charity departments are busy.'

Burnetts' managing partner Tom Leach reports a similar upturn. 'We have a large employment department which is switching to redundancy advice and we expect this kind of work to carry on through next year as some businesses will almost inevitably be facing difficulties.'

Leach also accounts for Burnetts' relative good health on its even spread of commercial and private clients.

'We have deliberately remained generalists,' says Leach. 'Private client represents 40 per cent of our work and there is still enough commercial activity locally to sustain the firm's growth.'

Preston-based 22-partner firm Napthens is also developing its private client work and four-partner firm Harrison Drury intends to retain its private client trainee to boost its wills and probate offering.

Recession-proof your firm

Then there are the specialist markets. Burnetts' Tom Leach says personal injury, medical claims in particular, is picking up, while Andrew Leaitherland, managing partner at DWF reports an increase in insurance work, particularly following the opening of the firm's outpost in London dedicated solely to large purchasers of legal services in the insurance market.

Agriculture is also bucking the trend. 'Following a rise in the 'milkies', the price of milk to farmers, the price of agricultural land has also gone up and land is now selling well again,' says Tom Leach.

Meanwhile at Harrison Drury, John Chesworth says landlord and tenant remains a busy area, with tenants looking at exit routes and landlords at how they can get tenants to comply with covenants or how to manage defaults. Chesworth also says that commercial property, in particular in the leisure industry, remains very busy.

One might expect larger firms like Brabners to have a successful education, local government, and housing practice '“ which they do and which Michael Brabner says is comparatively anti-recessionary.

A strong education practice however may be more surprising in a smaller Cumbrian firm such as Burnetts. Yet, the firm's further education practice is ranked fourth in England. Growth in this sector however can be slow as it is dependent on colleges and other bodies organising tenders, and gathering early intelligence about possible tenders can make the difference between winning a tender and coming close second.

Show me the value for money

Firms like Burnetts have an advantage over their larger local rivals. 'We compete on price: being in Carlisle we haven't got the overheads of city centre firms in Manchester or Liverpool, so our charging rate tends to be less for the same quality of advice.'

The trust and confidence built up over the years with a solicitor comes at a price but Tom Leach says the downturn will make people think again. 'Things may be okay for the time being but clients will look at costs. Why pay £50K when you can get the same advice for £30K? Having your client's trust is not a reason to charge more, and in difficult times clients will ultimately reconsider their choice of lawyer.'

Higher up the food chain, Napthens has grown dramatically in the past two years, but chief executive Ian Leigh says the firm wants to remain a community firm with its own USPs.

It has managed to attract several solicitors from larger firms, including its head of corporate, a former Hammonds lawyer, who led the firm's first AIM listing last year '“ 'the first outside a city centre firm'.

'To attract lawyers of this calibre, we need to make sure we can offer the quality of work,' says Leigh. And as getting the right clients becomes a pre-condition to getting the right partners, so should partners' roles evolve. 'We are looking very carefully at our partner profile,' Leigh continues. 'A partner should be a leader of people and a figurehead in the local community. Now that we have 22 partners, we've got to realign their roles and responsibilities.'

Harrison Drury on the other hand, is keen to remain at its current size. Managing partner John Chesworth says that at times like these firms need to sharpen their USPs and service levels.

'It's one thing to talk about it, but you have to deliver; people are far more choosey. Some firms have expanded rapidly over the past two years '“ we want to remain boutique; it's part of the selling point that clients get to deal with partners. Our clients are keen not to fall into a big machine.'

In Liverpool lawyers pitch themselves against their Mancunian counterparts. 'We're fighting off Manchester all the time,' says Godfrey Freeman, head of matrimonial at Morecrofts, 'but people are looking more and more at value for money.'

On the commercial side, Freeman says the firm tenders across the board so is used to pricing services competitively. This is also true of Freeman's own area: 'In matrimonial our rates are noticeably lower than in Manchester and standards are as good as in the larger firms.'

And closer to the top, DWF, with 127 partners and 503 fee earners, prides itself on offering the same quality as national rivals with a price differential. 'We're cheaper than national firms,' says Andrew Leaitherland. 'Not everybody buys on price but where it is a factor, we know we are 20 to 25 per cent cheaper than larger firms, and 40 to 50 cheaper than City firms.'

Like every other firm in the country, North West firms are also being a lot more careful about their own costs.

'We are being very prudent,' says Michael Brabner, 'much tidier with our housekeeping'.

This also means that no money is spent unless absolutely necessary. 'We will only spend where we believe there will be a tangible introduction,' Brabner continues.

'Many firms are also cutting down on training to the minimum required for CPD purposes, depriving lawyers of precious networking opportunities', says Godfrey Freeman.

The way lawyers are set targets also shows more acute pressure on performance. 'Lawyers are given cash collection target linked to remuneration,' says DWF's Andrew Leaitherland.

Against this background it is likely that more firms will be tempted to merge, but the commercial and cultural viability of mergers, tricky enough in ordinary circumstances, presents an even greater risk in a downturn.

Strength in numbers

Napthens has been on an expansion spree and has been approached by five firms this year, none of which were a suitable fit. But the firm remains open to discussions with individual fee-earners or partners. 'We have seen much better CVs recently,' says Ian Leigh, 'and as work dries up at some firms, we are likely to be approached by otherwise competent lawyers looking for employment elsewhere.'

Burnetts' Tom Leach says his firm still has plans to grow, 'but the economic situation makes you look at things again, and the timing.'

'Plenty of firms merge out of desperation,' he adds, 'so instead of two struggling firms, you have one larger firm struggling.'

Where the fit is right, however, a merger could be a lifeline in the current market.

'There are some good lawyers out there and we're negotiating with one of those firms at the moment,' says Morecrofts' Godfrey Freeman. 'If we acquire them their overheads would be absorbed with ours and we'll be able to offer our services to their market.'

Harrison Drury has also recently entered into a pre-merger structure with a new, small firm in Blackburn. The arrangement provides Harrison Drury with an office there and while the new office is not yet part of the partnership '“ it operates independently and uses the 'Harrison Drury' name under licence '“ both offices refer work to each other and have the same operating systems, including IT and money laundering.

'The idea is to merge the two organisations in 12 to 18 months,' says John Chesworth. 'We didn't want to go into a merger straight away. We wanted to get going quickly but wanted to look at each other for a while before deciding on a full merger.'

The end of cheap'n'cheerful

What all agree is that the combined effect of the downturn and of the Legal Services Act will mean the end of the traditional law firm structure. 'The economic slowdown will make people change their views,' comments Tom Leach. 'Burnetts is not in the cheap'n'cheerful market but some areas in private client will feel the pressure nonetheless, like personal injury, so we will be focusing on the higher end, such as catastrophic injury, leaving the low value work to others.'

Napthens' Ian Leigh agrees, saying that the crisis is pushing the LSA agenda forward. 'The current climate has brought a stay of execution for many smaller firms, but the big retailers will come back as soon as the situation improves.'

He adds: 'One sure thing is that we can't carry on offering the Rolls-Royce service we do at the moment to all clients.'

At Harrison Drury, John Chestworth believes likewise that traditional high street services will disappear. 'We'll keep the service as an add-on for our director clients and their families but not as a key element of our business. Regular residential conveyancing will disappear; it will be done by the new big boys of the high street.'

Old fashioned values

As Western markets are coming to a standstill global firms have turned their attention to the Middle East, though even the oil-rich countries will sooner or later experience their own version of the downturn.

Smaller firms meanwhile do not have this luxury. In these turbulent times, a return to professional standards '“ prudence, measured expansion, coming together with like-minded firms, and spreading the risk '“ are the safe approach even if it offers no absolute guarantee of survival.

It may feel a bit like an idealised image of an old England that never really existed, but it seems to be the only solution to help the more capable firms turn the corner.