Law firms remain under pressure, report finds
Nov 17 2010 by Peter McCusker, The Journal
MOST UK law firms have seen a decline in fee income in the last year driven by downward pressure on pricing coupled with a general contraction in the international legal market, according to a new report.
The PricewaterhouseCoopers’ 2010 law firms’ survey found that in a response to the fall in revenues resulting from the global economic downturn, many firms have turned to cost reduction and restructuring programmes as a means of preserving profitability. In the North East recent results from the region’s largest firm, Dickinson Dees, support the findings with the Newcastle-based firm reporting a 5% fall in revenues while profits increased by 18%.
Overall, the findings for the region show performance was mixed with 50% of firms reporting an increase in fee income between 1% and 5% while the other 50% experienced a decrease of 1% to 5%.
Melanie Malsbury, partner at PwC Newcastle, said: “As in 2009, Top 11-25 firms have been under pressure on profitability.
“Despite an 8% reduction in their partner numbers and a 6% reduction in fee-earner numbers, average profit per equity partner (PEP) still fell by nearly 1% to £441,000.
“This follows a 28% reduction in PEP in 2009. While our survey shows the Top 10 maintaining their breakaway position, it’s worth noting that their average profit per partner is still some 17% lower than PEP in 2008.
“North East firms have bucked the trend, reporting an increase in average PEP levels by 12% to £254,000, against a backdrop of half of firms decreasing partner numbers and half of firms holding partner levels consistent with last year.
“With a focus on cost reduction in 2010, it is not surprising that headcount reductions have been made by most firms. There is a notable difference, however, in the reduction in fee-earner numbers, with the Top 10 scaling back by, on average, 6% compared with the 10% average reduction for the 11-25 firms.”
The survey indicates that support staff levels were reduced in greater proportion than fee earners, supported in part by greater use of outsourcing.
Over the last two years, consistent with the national trend, North East firms have reduced support staff numbers by, on average, a quarter.
The reduction in fee-earner numbers appears to have had the requisite effect on chargeable hours in the Top 10, with the newly qualified grade hours up by almost 15%.
