The effect of a recession on law firms

Eamon

Star Member
Jul 2, 2019
31
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There are number of economic indicators suggesting the UK (and EU/US) is heading towards a recession.

I was wondering if anyone had any articles/resources etc help me understand how law firms are going to be impacted by a recession, and how they may operate in order to mitigate the effects of a recession?

Finally, I was wondering what sort of opportunities a recession might offer law firms or specific practices? Perhaps an increase in revenues from certain sources?
 

Jaysen

Founder, TCLA
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  • Feb 17, 2018
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    Before we get to law firms, some factors to consider first:

    Which market are we talking about? What are the causes of this recession? What sectors are these impacting? In what circumstances will a recession impact law firms? What law firms are we talking about?

    It's pretty hard to generalise and say 'law firms will be impacted by a recession' because it depends on so many factors.

    If you want to think about the general impact, it can help to start from the basics. Law firms will be impacted if they're making less money and/or their costs are going up. It could be the case that a recession impacts their revenue if clients are spending less on legal services (e.g. due to a fall in demand or because they're putting pressure on fees). The question is whether that is actually happening in the market. Are clients actually spending less on legal services? Are they doing fewer deals? For example, if we're talking about the UK, you might consider how Brexit-related work could offset some of the impact. Or you might consider what kind of work the firm does. If the firm primarily acts for private equity clients, are they still going to be impacted in the same way?

    If things get really bad, law firms might need to cut their costs. That could mean restructuring their operations, laying off staff, freezing wages etc. You can learn a lot from what law firms did during the financial crisis.

    Law firms can do lots of things to try mitigate the effects. If they have a broad international presence, they'll be less exposed to a slowdown in one market (e.g. if the UK slows down but the US is booming). In times of financial crises, transactional work may slow down (clients don't want to buy other companies or invest until things have improved). Law firms may try to hedge against that risk by investing in countercyclical practice areas: in times of recession, departments like restructuring/insolvency and litigation may see an increase in demand. If clients' legal budgets are being cut, law firms could think about reducing their fees/offering different pricing options/adding value in different ways to win work.
     
    Last edited:

    Abhaya Ganashree

    Standard Member
    Dec 28, 2018
    5
    1
    Do you think cryptocurrencies could potentially be a reason for a change in how law firms and even the wider economy might deal with this recession differently from the financial crisis in 2008? For example - it seems that people in poorer areas within the UK seem to be using tidal power to mine cryptocurrency and when interviewed said they were doing so because the economic downturn and increase in automation had caused them all to lose their jobs and they now trusted cryptocurrency more and the BOE less. Similarly this might be the sentiment elsewhere as well, like in China and the US. What do you think the impact on law firms might be if the result of this recession is that price of bitcoin rises exponentially whereas the USD falls?
     

    Jaysen

    Founder, TCLA
    Staff member
    TCLA Moderator
    Gold Member
    Premium Member
    M&A Bootcamp
  • Feb 17, 2018
    4,692
    8,565
    Do you think cryptocurrencies could potentially be a reason for a change in how law firms and even the wider economy might deal with this recession differently from the financial crisis in 2008? For example - it seems that people in poorer areas within the UK seem to be using tidal power to mine cryptocurrency and when interviewed said they were doing so because the economic downturn and increase in automation had caused them all to lose their jobs and they now trusted cryptocurrency more and the BOE less. Similarly this might be the sentiment elsewhere as well, like in China and the US. What do you think the impact on law firms might be if the result of this recession is that price of bitcoin rises exponentially whereas the USD falls?

    I'm afraid my knowledge of cryptocurrencies is very limited. You might find this series of posts from NRF useful: https://www.nortonrosefulbright.com...w-and-regulation/deciphering-cryptocurrencies.
     

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