Monday, October 20, 2008
As I read our free twice-daily report on the financial crisis (Eye On The Storm) this morning I was interested in a UK publications view that the crisis is impacting law firms in a way I would not have expected.
My local observation of the silicon valley law firms is that they are busier than ever. We use WSGR and the partners who are my friends are slammed, travelling all the time, all over the world, and consumed with M&A, litigation etc - the usual work of a big law firm.
But according to thelawyer.com, the big UK banks are playing marriage broker to about 500 UK law firms.
"Around 500 firms have been referred to the so-called intensive care units (ICU) of their banks because they are facing financial difficulties. It is understood that 21 of the UK’s top 150 firms are being treated in Barclays’ ICU, which is known as ‘business banking support’, although the bank refused to confirm this number."
The problem is stemming, yet again, from the credit crisis. When firms break their covenants because of lack of working capital they are assessed by their banks and determine whether to outsource, reduce costs or find a partner to merge with.
The challenge is that, as the same site opines on the same day, despite 20 years of prediction that UK law firms were going to consolidate, there is little evidence of any strong trend.
"One reason is that lawyers are simply too conservative to put themselves through disruption for the sake of an abstract principle. But at bottom it’s because consolidation can only come from irresistible external forces."
But maybe this time it's different? Maybe the size of the credit crisis is an irresistible external force that will cause partnerships to finally merge. And as Catrin Griffiths says, somewhat tongue in cheek I suspect, "The law is too often seen as an employment programme for the middle classes – a nice earner with not much risk. Maybe not for long."
Our firm, Wilson Sonsini Goodrich and Rosati is the lead law firm for tech in the valley. It weathered the dot com bust with little impact - it just shed associates as the startup business fell off but the partners didn't get much respite. It'll be interesting to see if the crisis impacts the firm's larger tech clients to a level where finally business slows down and as a result, the partners can get time with their families, or their friends (like me) again.