Law firms maintain breakaway performance survey reveals

Dec 2 2009 by Peter McCusker, The Journal

THE UK's Top 10 law firms have maintained their relative breakaway performance over the rest of the sector, despite a 21% fall in profit per partner over the last year.

The latest annual survey of the financial performance of law firms by PricewaterhouseCoopers (PwC) shows the overall average decline in profits for the Top 100 firms was 30%.

The survey also shows average profits per partner of the Top 10 at £872,000 were almost twice that of the next tier (11-25) at £444,000.

Northern firms have fallen further behind, reporting an average decline in profit per partner of 40% to £227,000. Many firms in the Top 11 to 25 have performed relatively badly in the recession for a number of reasons.

They have seen the greatest average fall in UK income; they have been operating in the most competitive and depressed areas of the market such as transaction and deals; and have reduced partner and fee-earner numbers on average less than other firms.

Most firms in the North have been affected, with nearly all reporting a fall in profits of at least 10%.

David Thurkettle, director, PwC, said: “This year has seen the greatest turmoil in the law firm sector since our survey began in 1991.

“It was quite clear when our last survey was published that law firms would be far from immune from the economic crisis. As it turns out, the impact has been even greater than we anticipated across the sector.

“A small number of firms predicted the likely extent and severity of the recession and started to cut headcount and take out cost early in the second half of financial year 2009.”

The survey shows business confidence remains weak among firms with none of the Top 10 ‘very confident’ about prospects for revenue growth over the next 12 months.

The picture in the North is somewhat mixed, with firms ranging from ‘very confident’ to ‘not very confident at all’ about revenue growth prospects.

Against a backdrop of continuing challenging economic conditions and chargeable hours falling by up to 20%, some firms are expected to continue with staff headcount reductions in FY 2010.

Across many grades of staff, chargeable hours are running at levels below that of 2006. There is also severe pricing pressure which is putting even greater strain on firms’ operating models.

In the North, the majority of firms predict that fee earner numbers (including partners) will either increase or stay the same, while the majority expect to reduce support staff headcount.