The City of London during lockdown Shutterstock
There was some relatively good news for the UK legal sector when the official statistician — The Office for National Statistics — reported that revenue in April only fell by 4.7% in comparison to March.
That compared to a contraction of more than 20% for the economy as a whole as the financial impact of the coronavirus pandemic bit deep. The monthly decline was more than ten times the pre-Covid record.
When compared to the previous year, the £3.3bn of legal services revenue recorded in April was down a little more (5.5%), but it is a long way from the 20% decline that several law firms, including Norton Rose Fulbright, have anticipated in their Covid-19 temporary work reduction measures.
April and March are fiscally speaking the most prosperous months for law firms as they collect bills ahead of their financial year-end. Much of the revenue will have been booked well before lockdown, which officially began on 23 March.
Rob Millard, of Cambridge Strategy Group, said the size of the contraction was surprisingly positive, but the overall figure did not reveal the range in performance across UK law firms, with a clear bias in favour of premium law firms.
He noted: “Some firms are reporting increased utilisation, with fee-earners using what used to be commute time on productive client work. As to the remainder of the year and into 2021, it seems highly likely that really good firms of all sizes will continue to experience reasonably high demand.
He added that “fully half of respondents in a survey of 800 senior M&A executives by White & Case a few months ago indicated that they intended to ‘lean into’ any downturn” with strong demand emerging for distressed M&A work alongside traditional bankruptcy and restructuring work, including relating to sovereign debt.
Pre-approved projects were continuing, he said, alongside the healthcare, employment, IP and other legal work triggered, or accelerated by, the pandemic.
Simon Davis, president of the Law Society of England and Wales and a partner at Clifford Chance, sounded a note of caution. “These figures reflect deals and cases in progress which started significantly before lockdown,” he said. “What happens next is quite uncertain, depending on what the future pipeline of work will look like.”
For smaller firms, he noted, “the impact of the virus has been more immediate with the effect being felt in residential property transactions, reduction in court hearings, no jury trials at all until recently, and social distancing causing difficulty in the execution of wills”.
Amanda Pinto QC, chair of the Bar Council, which represents barristers, said that while revenues looked strong overall, her side of the profession faced very different challenges.
She said Bar Council surveys suggested “53% of barristers cannot survive six months and 74% cannot survive a year because of the financial impact of Covid-19 on their practices”, noting the particular impact of a decline in publicly funded work on junior barristers.
Millard warned that commercial law firms would need to be alive to forthcoming financial pressures, which would build inexorably.
“Concessions such as VAT and partner tax deferrals are helping short term cashflow but those will end in Q1 2021,” he said. “The need to look longer term and pivot to digital delivery of those services, or finding other value propositions to offer to clients, has never been more acute.”
Louis Young, managing director at litigation funder Augusta, agreed. She said: “Many firms have been expecting substantial revenue falls and rightly taking action to reduce costs and shore up their finances in preparation for harder times in coming months”.
Further reading on the Covid-19 pandemic
Law firms will be judged on how they behaved during the pandemic — Practices that communicated well and contributed to the Covid-19 'battle' will reap future rewards, argues Kerry Jack
After Covid-19, client tensions that pre-existed the pandemic will become intolerable — Law firms banking on a return to the old way of doing business once the immediate crisis is over are doomed, argues Rob Millard
Under lockdown socialising between international colleagues has increased — Colin Passmore outlines the measures Simmons & Simmons has been taking to promote staff wellbeing during the Covid-19 crisis
Above all, this crisis too will pass — Rob Millard foresees large law firm mergers and accelerated digitisation in the wake of Covid-19
'It is about being proactive and decisive' — Norton Rose Fulbright EMEA managing partner Peter Scott on the thinking behind the firm's flexible working scheme
'Now is the time for law firms to deliver on their stated values' — Consultant Tony Williams advises law firm leaders to avoid knee jerk decisions and go into communication overdrive during the Covid-19 crisis