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PwC reports that “this year has seen the greatest turmoil in the law firm sector since our survey began in 1991…” The recently released report states that profit at the 100 highest-grossing U.K. law firms fell 30% on average during the past year as deal work declined with the recession. The large law firms in the U.S. and U.K. have responded to the economic crisis by cutting costs across the board and at times, doing so in an innovative fashion. For example, this year has seen lawyers being let go, reducing pay and granting extra vacation time in return, deferring the hiring of first-year attorneys, secondment at cost to clients of the firm and unpaid or part paid sabbaticals. For most lawyers this has proved to be an obstacle in moving their careers forward but some lawyers have embraced the opportunity to travel, gain additional qualifications and explore other opportunities.

Law firms across the world continue to look for growth opportunities in the slow market.  Traditional growth opportunities are marketing externally and cross-selling internally but something that has been in vogue through this tough market has been growth by merger.  Clearly there is a feeling of insecurity amongst partners of law firms as smaller law firms who do not have the resources of the large institutional practices worry about where their next deals will com from.  Many smaller firms have niche expertise and it is this experience that is valued by the larger firms.  One should not necessarily see a merger of two law firms as a sign that one or both firms are in trouble.  More often than not, the firms see the merger as a consolidation of resources and moreover, it is more likely that a larger firm will only want to merge with a firm that is not in trouble.

It seems very much like investments in small private companies are beginning to flow again, but US and European venture capitalists I have spoken with remain cautious and do not expect much of a sustained uptick until 2010. Each quarter of 2009 has seen VC funding on the rise as investors continue to gain faith in the market and come to realize that the sky is not falling in on their heads after all. KPMG reported that in the US, investors put US$4.8 billion into 637 deals in the third quarter, up from US$4.1 billion in the second quarter but down from US$7.16 billion for the same period a year ago. Longer term investment in areas such as clean technology is up at the expense of investment in software. This signals that VCs are prepared to make long-term investments in environment related technology and products which generally require more money and more time to reach a successful exit.

Reed Smith is the latest among international law firms to drop the traditional lockstep pay system setup for associates.  As early as January 2009, Skadden had already proposed taking such a step, arguing that in many ways associates are already rewarded in line with their efforts – in reality high performing associates are already paid at the top of the pay scale whereas lower performing ones are paid at the lower end.  From the recruitment perspective, this will likely give firms adopting merit based pay structures an advantage to attract and indeed retain the very best associates in an ever increasing competitive market for talent.

Kensington Swan, a full service law firm, based in New Zealand has just announced they will be launching an office in Abu Dhabi. As such, they will be first the New Zealand law firm to open in the Middle East. The managing partner of the office will be Quentin Lowcay, whose practice is in the telecom areas. The firm has decided to staff the office with lawyers from New Zealand and will not be hiring lawyers locally at this point. It seems their strategy is going to be to help Australasian companies looking to invest in the Middle East region and seek local advice from local law firms. Once again, this shows that whilst the Middle East market has been down for the past twelve or more months, there is still room for key strategic growth in the region.

The most common complaint from manufacturing in India is that the power industry has failed to keep pace with their demands.  This complaint is often repeated top down to the individual consumer who faces “load-shedding” on a daily basis.  In recent years power projects in India have been growing exponentially but financing them has proved to be difficult.  However, it seems that local institutional investors have finally woken up to the need, growth and development of new power plants in India and are finally working alongside domestic banks to share the risk.  That said, 2010 will hopefully see an influx of foreign investment into Indian power projects and provide new work for professional advisors looking to grow their practices in India.