What kind of firm might be the next to go down, and why?
When news of the demise of Cobbetts was announced in the press earlier this year, many people left comments online. But one in particular stood out:
Aspiring lawyer: set your sights on either a seriously big ticket firm and be ready to trade away most of the hours of your life for decent pay and reasonable security, or a big player at the bottom end of the market and accept you’ll never be paid as much… By the time you qualify most of the middle ground will have gone one of those ways.
It was a fairly stark warning for those entering, or progressing through, the legal profession. But has the mid-tier really become such a danger zone for ambitious lawyers?
Trouble at t’mill
It has been some years now since people started talking about the squeezed middle tier and ‘survival of the fittest’. But the recession has undoubtedly pushed many more to the brink. Cobbetts is far from alone in increasing bank loans and overdrafts in recent years to offset falls in fee income.
And that is if the bank funding is forthcoming. It is no secret that many firms in the mid-tier are struggling to maintain their credit lines in a tighter lending market. The once ‘safe bet’ of the legal profession has been up-ended by the collapse of some major names in recent years. Banks are no longer willing to shoulder the risk of firms that can’t demonstrate sound financial management – which is often the firms in the struggling mid-tier.
According to recent research by Legal Week, the majority of partners believe it is likely that more large law firms will collapse over the next two years, with 61 per cent of respondents expressing concerns that their firm could collapse or face severe financial problems.
Getting away with merger
No wonder then that merger in this fragile mid-tier is also on the rise. The number of law firm mergers in the UK jumped by around 30% in 2011, with more firms in the mid-tier choosing to merge for defensive (that is, survival) reasons.
Over a third of respondents in one survey from independent finance provider Syscap said that reducing the debt burden of one of the law firms merging was a major factor behind rising mergers. The potential consequences are obvious for those that can’t find a merger partner.
In this environment, the legal profession is only likely to polarise. More firms will be forced to consolidate or specialise to survive, while the most complex and lucrative transactions will increasingly be the sole preserve of the biggest, magic circle and international firms that have the clout of a global brand.
Choose your side
But what does this actually mean for lawyers on the career ladder? What firms remain a good job bet?
Well, there are always signs to look out for as part of the job-search process. Making a point of looking up the LLP accounts, questioning the firm on its strategy, examining its recruitment figures (recent hires and exits), and reading the trade press (including all those anonymous comments that clearly come from staff). All of this will make some firms more attractive than others.
But ultimately, a successful legal career is going to increasingly mean targeting your expertise to the new playing field. Going to the volume firms at the lower end of the market can have its advantages: these tend to be the firms that offer the most flexibility including contract and part-time roles. Similarly a boutique firm can offer lawyers a real opportunity to make a name for themselves in a niche specialism (think pensions powerhouse Sackers & Partners).
But there is little doubt that the market will only intensify competition for jobs at the top of the chain. This is where the carrot still dangles in the form of the most traditional and lucrative legal jobs. It may mean accepting a life of long hours, little flexibility and fewer exit routes if the going gets tough, but the reward will be the kind of salary most of us only dream of.
In the legal sector of the future, career choices will need to be made early and they will be stark. There will be no middle way, no half-way house. And that’s because the mid-tier danger zone is rapidly turning into a no-man’s land. CP