West Midlands

Lawyers would normally rub their hands at the prospect of more work in a downturn, but in the West Midlands, the region with the worst rise in unemployment for the past six months, the deterioration of the local economy is such that even lawyers are worried.

Possibly more than elsewhere in Britain, solicitors are having to not only be careful about the cash but also change the way they work with their clients. But with worry comes a greater sense of innovation and lawyers are moving one step closer to their clients to try and come up with more imaginative ways of helping them through the recession. Nowhere is this more evident than in the field of employment law.

Re-thinking employment advice

The local economy's reliance on manufacturing and automotive has hit the region particularly badly. Distressed car manufacturers make the headlines but the pain is felt most acutely on the lower rungs of the supply chain, including spare-part producers and the after sales market.

Over the past few months however, employment law work has changed from advice on redundancies to more constructive solutions involving changes in shift patterns and working time.

Ian Shovlin, senior partner at 30-partner firm Higgs & Sons, says that many businesses are trying to be more imaginative as to how they can reduce costs without cutting down headcount.

'Six months ago our employment work was mainly about redundancies, now it is more about agreements on reducing working hours or employees going on sabbatical,' he says.

Employers, it seems, may have reached the minimum staffing ground floor and must find ways of keeping people on in preparation for the upturn.

While nobody in the region expects the automotive industry to recover any time soon, there is a clear belief that things will get better '“ particularly after the government's bail out of Jaguar-Land Rover '“ but there will be conditions attached to the deal.

'The government wants to back winners that can produce cars of the future rather than keep churning the same old things,' says Andrew Whitehead, a senior partner at Martineau Johnson.

And looking at a different future could be what saves the local economy.

Turning a corner

'The region's traditional dependence on the automotive sector has changed,' says Whitehead. 'There are lots of universities in the region and a good number of them are getting well-known for their research in green technologies and biofuels. Birmingham University for instance has a research project on hydrogen fuel cells for vehicles, and companies like Land Rover have their R&D departments in Solihull, so it's been mostly a shift in activity rather than a transfer of activity elsewhere.'

It is the green agenda, visible beneath the mutation of the automotive sector, which Whitehead says will provide alternative growth for the region. It also underpins much of Martineau's own strategy.

Well before the economic slowdown turned into a full-blown recession the firm had decided to focus on five core sectors, including energy.

The firm set up an energy practice in 1993, one of the first outside London, and is now acting for major national clients including the National Grid. The interest in renewables was a logical development.

'The EU's and the UK's commitment to developing a greater share of renewables is a massive driver for energy renewable projects,' Whitehead continues. 'Some of these projects have been shelved in the past six months because of the credit crunch, but they will come back.'

Whitehead also believes that operators in the energy sector will undergo structural changes as consumption habits evolve. 'Energy suppliers can't continue to just sell energy, they have to offer energy services, particularly as customers are encouraged not to consume,' he says.

Likewise, many private investors, such as investment funds or private equity firms, are keener to put their money into green energy projects. With sizeable amounts of cash to invest, they are even, in places, stepping into the gap left by banks whose lending policies have become so cautious as to put traditional funding sources out of the reach of many businesses.

And that remains, for the time being, the most immediate concern for local businesses. As elsewhere in Britain the lack of funding from banks is an issue which affects even healthy businesses.

Immediate concerns

Paul Griffiths, senior partner at Challinors, says local businesses are now encountering severe cashflow difficulties as bank managers, however sympathetic they are to their clients, do not have the means to extend facilities. In one case, a business had sold one of its three sites to ease its cashflow but its bank used the proceeds of the sale to reduce the client's overdraft.

Over at Higgs & Sons, Ian Shovlin reports similar problems across the economy's spectrum, with clients, in particular subcontractors, feeling more and more vulnerable as banks are withdrawing support.

'Many businesses are seeking financial support, and until the banks return to a more accessible lending policy, the problem is likely to get worse,' he says.

Already he reports a rise in the number of compulsory and voluntary liquidations, including pre-packs, and his firm has received more requests for advice on directors' liability for debts or wrongful trading.

Paul Griffiths, who also sits as a deputy district judge, says the number of bankruptcies has risen to an alarming level. Recently he has seen three or four petitions for bankruptcy on a single sitting day, when the average used to be three or four a month.

Unsurprisingly law firms have not been spared the fall-out of the effect of the downturn on their clients.

Law firms not immune

Shakespeare Putsman made 22 staff redundant last July, mostly solicitors, and has not replaced staff on temporary contracts, resulting in a drop in headcount of about 45. At the time, most of those affected found new jobs but chief executive Paul Wilson says the situation would be very different now.

Challinors also reduced staff number by 40 last summer and 11 partners left the equity base.

Meanwhile Higgs & Sons made nine conveyancers redundant in December.

Only Martineau has so far been comparatively unscathed and managed to re-deploy staff internally.

Operating on leaner bases, these firms are now turning their attention more closely to the areas most likely to buck the trend.

In addition to energy, new technologies and investment funds Martineau is focusing on education '“ a sector where it is already recognised as one of the top firms in the country. The firm acts for over 40 universities and about as many colleges in Britain. Andrew Whitehead says there has been an increase in international tie-ups providing further sources of work, and the firm remains confident that the government's drive to widen access to education will sustain the market.

As a sideline, the firm has also developed a strong equine law department which ties in with its solid private client base including numerous local landowners.

Exploring similar lines, Ian Shovlin says his firm is developing niche expertise in markets such as specialist engineering. As other older technologies have become more accessible, manufacturing processes have moved to the Far East where costs are lower. More recent specialist technologies however, developed at home in the West Midlands, are providing new opportunities. The wider strategy at Higgs & Sons is also to spread the risk but remain active across most practice areas in both commercial and private client '“ including probate, estate planning, and personal injury.

Meanwhile, unusually for a firm of its size, Challinors has remained committed to legal aid. The margins may not be as substantial as in privately funded work but the Legal Services Commission is a reliable payer.

Increasing competition

Much as born-and-bred Birmingham firms are putting a brave face on the downturn, there is one further problem. In the past few years, many of the larger firms outside the West Midlands have seen the region as an appetising cake and have been lining up for their share of it.

When Shakespeares and Putsman merged in April 2007, their aim was to build up more muscle to compete with these non-native invasive species.

But 'the pie, which appeared to be getting bigger, has decidedly shrunk and we are competing over a smaller market', says chief executive Paul Wilson. Then something else happened: 'When we merged 18 months ago most of the competition came from national firms, now we are seeing a lot more of the larger regional firms trying to break into the West Midlands.'

Together the two parts of Shakespeare Putsman have been in the West Midlands for more than 200 years. But are local roots an advantage with local clients? Yes, according to Wilson, because local firms can be closer to their clients, and their size means they can be more responsive and control their costs more effectively.

Like Wilson, Andrew Whitehead at Martineau's believes there are lots of opportunities for firms that remain Birmingham-focused and locally managed. The firm's strategy is to continue to serve the needs of local businesses and clients in its key sectors on a full-service basis, as well as carrying out work for blue-chip clients, though this will usually be as part of a panel providing advice on specific issues. But Whitehead too reports a greater level of competition, with national firms trying to expand locally with a lot more aggression than before.

Similarly Paul Griffiths at Challinors, conscious that competition is greater, says the firm intends to focus on key local clients, in part because it needs to secure their loyalty. 'Top 20 firms with a presence in Birmingham and which used to be dependent on corporate work are now looking at our client base and we cannot be complacent,' he says.

Thinking ahead

Few firms in the current climate think of expanding, whether geographically or by entering into mergers.

Having merged 18 months ago, Shakespeare Putsman's strategy is 'to remain a profitable, mid-market, Midlands-based firm', says Paul Wilson.

Martineau has an office in London '“ which has been growing in the past few years '“ but Andrew Whitehead says the firm is first of all committed to the local community.

Meanwhile, Ian Shovlin's firm, Higgs & Sons, has grown its litigation department but has no plans to expand otherwise.

Challinors, on the other hand, opened an office in Nottingham last October and is actively looking for smaller firms to acquire in the West of England. 'There are a lot firms finding it difficult at the moment, and some very good practices that would fit nicely with ours,' says Paul Griffiths.

So what next for West Midlands firms? Life on the high street is as tough as anywhere else and lawyers are predicting numerous casualties. Some will be lucky and astute enough to be bought out or merge. Others will go under '“ unless they can hang on a little longer. There are already reports that property dealers and developers, like their counterparts in other regions of Britain, are on the lookout for bargains. At present they are interested in prime sites only and only if the price is seriously discounted, but one little kick could restore enough confidence for everyone to start playing the game again.