Walker Clark Worldview

The final demise of the British firm Halliwells, reported last week in the on-line edition of The Lawyer, is a good case study in the financial failure of a law firm.  The Lawyer summarized the factors that led to Halliwells’ failure earlier this month.

The failure and breakup of Halliwells is instructive for law firms anywhere that substitute wishful thinking for attentive management of operating costs and deepening debt.  From what I have read about the final days of Halliwells, they seem to me to have been about as orderly as the evacuation of the Titanic, with reports that more than 30 support staff were handed no-notice dismissals, apparently without any redundancy compensation or accrued vacation pay, at the end of the work day at a meeting that not one partner had the courage to attend.  (To be fair and tell the whole story, more than 460 staff found employment in one of the firms that acquired the surviving pieces of the Halliwells practice.)

A new post this morning in The Lawyer provides a glimpse of the “afterlife” for the parts of Halliwells that were acquired by other firms, who have created “firewalls” in the form of separate LLPs to protect the acquiring firms from the liabilities of the former Halliwells partners, as well as to enable a more reasoned pace of integrating the new partners into their firms.

Norman Clark

What can law firms expect in 2010? Here are two points to factor into your planning for the new year.

• Most of the world will see economic recovery in 2010. Most Latin American economies will recover to, and surpass, 2008 performance — especially in GDP growth. We also expect to see recovery by the end of the year in every other region of the world. Recovery will be significant and sustainable, even in the United Kingdom and the European Union; although it might not be until 2011 that some national economies see a return to 2007 levels of performance.
• The picture is not as optimistic for the United States, however, where business failures and personal bankruptcies are likely to continue at record levels. Recovery in the U.S. will also be hampered by the dysfunctional economic policies of the Obama government, and its stubborn failure to acknowledge candidly and address honestly the issues that have decayed the foundations of the American economy and the American political system over the past 30 years.

What will this mean for law firms?  The answers will be highly firm-specific and will vary by jurisdiction, law firm specialty, and size.   There are four issues, however, that I am hearing discussed frequently among our clients and professional friends in law firms worldwide:

• Profitability.  Small and midsize corporate and commercial firms in the United States will continue to struggle with profitability issues, particularly on the revenue side.  Cash flow and management of working capital will continue to be problems for many firms.  We also expect to see continued business failures, downsizing, and partner departures, especially in local firms with fewer than 50 lawyers.
• Outsourcing.  There will be a renewed interest in outsourcing of administrative, marketing, and some lawyer functions in order to control costs.  Some of these efforts will work very well; others will be disappointing.
• New players in the international market.  2009 was a year of retrenchment for large international law firms.   In 2010, we expect to see a renewed interest in carefully selected international expansion. Look for some significant international law firm mergers, some of them involving firms that have not previously been considered to be major international players. We also expect to see regional firms, particularly those based outside North America, enter the international market.
• Quality assurance. There will be renewed interest in the quality of client service and in the efficiency of internal client service operations, not only as competitive advantages but also to reduce operating costs.

These are not the only things that we expect to happen in law firms in 2010, but they are interesting examples how progressive law firms are planning their responses to the economics of 2010, as we perceive them now.

Norman Clark

I have finally found time to organize my notes and recollections of the brilliant Law Firm Management Conference sponsored by the International Bar Association’s Law Firm Management Committee, which was held on 19-20 November 2009 in Moscow. One of the most frequently discussed themes was the toxic effect that corruption has on the rule of law.

This is not just an issue for developing economies such as Russia or Nigeria. (I select those two because of the impressive efforts that are now being made in each country to combat corruption.) It is a critical concern for every democracy.  Whether it is corruption in the courts, in government agencies, or — as has sadly become the case even in countries like the United States and the United Kingdom  – corruption in the national legislature, the wrongly motivated actions of one corrupt judge, government official, or legislator can outweigh a hundred inspiring anti-corruption speeches by political leaders.

Every lawyer has a professional and ethical duty to use one’s skills and knowledge to combat corruption wherever it occurs.  In my private discussions with delegates to the Moscow conference, I heard of a number of great practical examples of actions that lawyers can pursue to combat corruption and promote the rule of law:

• Refuse to participate in bribery of government and court officials.
• Withdraw from representation of clients who engage in corrupt business practices, even if they are tolerated in the jurisdiction in which the corrupt acts occur.
• Include anti-corruption policies in each engagement letter.
• Support legislation to provide financial transparency for elected and appointed government officials, especially judges, senior officials in the justice ministry, and members of the legislature.
• Demand legislation to restrict financing of political campaigns so as to end the risks of corrupt influence of private money on the actions of public officials.
• Demand fair and open judicial or regulatory accountability of any government employee suspected of corrupt practices.
• Demand clear anti-corruption rules for lawyers as part of a written code of professional responsibility; and insist on fair and transparent investigation of alleged violations, with appropriate sanctions.

This is not an academic or philosophical exercise in ethics, nor an attempt to impose a rigid morality on the profession.  As lawyers, we cannot expect credibility for ourselves or for our respective countries if we continue to tolerate or to participate in corrupt practices. Vigorous — and sometimes courageous — opposition to corruption is simply good business for lawyers.

Norman Clark