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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.

Rodge Cohen, Chairman of Wall Street law firm Sullivan & Cromwell was recently interviewed on his thoughts on the current signs of recovery and the recent numbers being posted by the banks.  Cohen argues that the public is often confused between two quite separate issues; that of the high level of compensation being paid to bankers, which he believes is not wrong per se and the issue of linking bankers’ compensation to ever greater risk-taking, something he feels may need to be controlled.  The Street is indeed showing signs of life and many associates are reporting utilization rates greater than a 100%.  Admittedly, some of this is due to the cuts made by the firms throughout this year but much of it is increased deal flow.  We will continue to speak to our clients on the ground, all of whom are really looking to put 2009 behind them.

Boston based, international law firm Ropes & Gray announced they are to open an office in London, UK. Ropes have hired two lateral banking/finance partners from Magic Circle firm, Freshfields and a further finance partner from the London office of White & Case. It is being reported that Ropes want to leverage their existing relationship with Bain Capital and by opening in London, they are hoping to capture more of their European work. In recent years, Ropes has looked to markets outside of Boston and by attacking the London market, they are also fulfilling a goal they set for themselves a while ago.

It’s that time of year again, crisp chill in the air, Halloween decorations are out and new law students are meeting, greeting and impressing associates and partners on Bay street vying for spots for summer of 2010. There have been many discussions over the past number of years on laws latest and greatest generation, conferences focused on managing their expectations, retaining them, endless management and executive meetings focused on engaging, embracing their young talent and believe it or not re-training senior partners on how to dialogue with them.

In Falls past, firms were faced with questions from their potential suitors about lifestyle and work life balance, this year the discussions seem to be quite different. In canvassing a few Bay street firms, I’ve been told that applicants are interviewing as hungrier and questions regarding lifestyle have not come up as yet, rather students are asking about issues surrounding process and technical matters like potential practice areas, the nature of work they can expect and training. I’ve been told that the firms themselves have changed their pitches as well speaking candidly about what one can really expect from a Bay street firm, communicating that the work is challenging and cerebral and offers tremendous financial reward but in return you can expect to work long and demanding hours. One of my contacts said that this is the trade off for the profession and it’s crucial for firms to approach this honestly.

More positive news is that firms are not losing ‘star’ candidates to New York, applications are up and students are well prepared, better educated on the process and following up professionally. The firms I spoke to also shared that they will likely hire the same number of students from last year, some will increase their numbers due to optimism on Q1 of next year.

International law firms have typically shied away from opening offices in Saudi and have largely preferred to base themselves in Dubai, Abu Dhabi, Bahrain and even Doha. In recent months with the stagnation of Dubai, we have seen firms taking another look at opening in Saudi itself. Vinson & Elkins, who already have an office in Dubai are the latest firm looking for a tie-up with a local firm (as is required by the highly restricted Saudi legal market rules). We imagine there will, in due course, be a demand for energy and projects lawyers to be based in Riyadh.