Monday, 19 November 2012

Buying Turnover

Times are tough - and lawyers in England and Wales are certainly noticing.

In these straightened times, it seems that firms and chambers are reacting by wanting to appear successful and strong. I have discussed at length the difficulties of firms using the right measurement and the fascination that stills seems strong for the use of turnover as the primary measurement. Turnover is up and so we must be doing well - that seems to be the system in place.

Sadly, even though firms tend to use turnover because it is the easiest to understand and to feel that you are affecting, increasing turnover is not that simple.

Lawyers can't simply put their prices up. They are being squeezed in every area - and those involved in publicly-funded work and being squeezed more than any. Clients have a bit of an upper hand at the moment - meaning that prices are, if anything, going down or at least remaining constant. It is a brave client partner or senior clerk who discusses an increase in rates.

So where is this perceived success to come from. Where are firms and sets to find the increased turnover?

Simple - they are buying it. Much of the legal news at the moment is about mergers or acquisitions. Whether it is Herbert Smith Freehills, Norton Rose Fulbright, or Finers and Howard Kennedy, firms are looking to bring extra turnover into the firm by the simple expedient of merging with another firm. They're almost all at it - Field Fisher Waterhouse are still trying after a number of false starts.

This may well be a normal and even sensible reaction to a difficult market - but much like an endlessly-upward equity market, its not sustainable growth. In fact its not really growth at all. The market is, if anything shrinking and so the apparent growth gained from mergers is simple re-allocation of turnover within a market.

It is possible, in fact, that there will be a downward blip in turnover as the newly merged firm works out what it is doing and as it reassures clients from both firms. Profitability will certainly be affected, at least in the short term - there will be layoff costs, integration costs and, usually, there is a good deal of marketing and PR to be done, to explain to clients and the market why the merger has been a tremendous thing.

Perhaps a little more time spent on planning and implementing more profitable work would be a more efficient use of the time spent? I don't object to mergers - but let's not pretend that we are generating real  sustainable growth, or that we are doing anything that create a strategic advantage.

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