Macpherson: Law firm finances being squeezed
Clients are moving work to less expensive competitors amid rising costs and an increasingly uncertain economic outlook, putting pressure on law firms to respond, a survey has suggested.
Approaching half (44%) of the 200 partners polled said they were under pressure to reduce their fees in the face of increasing costs.
According to litigation funder Harbour, which commissioned the research involving firms with turnovers of anywhere ranging from £5m to more than £500m, 46% said clients were moving work to less expensive competitors, with the competitive landscape featuring more highly on the agenda of law firm leaders than it did a year earlier.
However, client needs and demands were the leading factors influencing law firm strategy: the reason was cited by as many as 67% of partners at the largest firms (with turnover in excess of £400m).
Due to a reported drive to make savings, a third of partners said they believed their clients were relying on a greater use of in-house counsel, and so outsourcing less work to panel firms, with a similar number reducing their department’s headcount as a result.
This behaviour change was seeing litigation clients show more appetite for settling claims, with 40% of partners saying they had seen an increased desire from clients for earlier settlements, and a third of clients (34%) choosing not to pursue new claims for now.
In response to the challenges of meeting client demands and economic forecasts of recession, 78% of partners said they would consider credit facilities to fund growth projects – offering more contingent fee solutions to clients, acquiring new talent, or funding merger activity and new offices.
Nearly half (45%) of partners also said external capital could be invested in technology, to reduce the impact of rising litigation costs, or to reduce the cost of routine work.
Ellora MacPherson, Harbour’s chief investment officer, said: “These insights from law firm partners suggest that the economic forecast, and the rising cost of corporate living, may squeeze law firm finances.
“As well as managing their own rising costs, firms will also have to find creative ways to help clients navigate a difficult trading environment, to avoid clients switching to competitors.”
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