The worst general business environment in decades is dropping the gavel on the legal profession, too. The American Bar Association Journal put out a “special recession issue” last month, while an article on the legal profession in The New York Times ponders the decline or possible demise of the billable hour in the current business climate.
Clients are squeezed and opting to postpone spending they consider discretionary, which includes areas of legal work. Responses to The Lane Report’s annual inquiry about the profession’s outlook in the commonwealth did express worry. However, bankruptcy practice is a bright spot as are foreclosure and mortgage-workout matters. Meanwhile, some firms are identifying growth opportunities, such as infrastructure renewal and, as soon as credit loosens back up, in acquisitions.
“The economy is a challenge for all businesses, and the legal profession is no exception. Many clients are experiencing economic downturns, and we will need to find ways to assist them during this period. Firms will need to consider alternative fee arrangements, a variety of payments schedules and, in some cases, discounts. It will require a delicate balance to maintain our own businesses at the same time we respond to client needs – but we are all in this together.”
“Recessions create new opportunities for attorneys to serve clients. Wyatt is fortunate to have very strong bankruptcy and creditors’ rights, labor and employment and litigation teams, and all of them have seen increased activity recently. Our transaction lawyers, who were very busy closing many of the most significant matters in Kentucky in 2008, are helping our clients solve problems now and are ready to pick up where they left off last year, when market conditions improve.”
“Stoll Keenon Ogden is bracing for 2009, and it is difficult to predict what effect these economic times will have on our firm’s practice. Certain practice areas (most notably bankruptcy, debt collection and loan workouts) have already seen a sharp increase in activity, while transactional practices have generally experienced decline due to the freezing of the credit markets.
“As in prior recessions we will meet this business climate by being even more diligent in protecting the interests of our clients – including exploring with clients price models for our services other than the traditional hourly billing rate.”
“Despite tough financial markets, our corporate and environmental lawyers remain heavily invested in energy projects, particularly coal. Our bankruptcy lawyers are involved in numerous work-outs and Chapter 11 filings, while our litigators are seeing a spike in actions arising from difficulties in the mortgage markets. Our government affairs group is providing guidance to our clients due to new leadership in Frankfort and Washington. Lastly, our labor and employment lawyers are assisting a wide range of companies through painful reductions in force and the negotiation of labor contracts. Our clients foresee that the prevailing climate is not likely to reverse itself in the short-term.”
“This year will present challenges to the legal business environment unlike any other in most of our lifetimes. The economic environment will require creative, out-of-the-box thinking from law firms as they interface with their clients in 2009. More alternative billing arrangements, result-oriented fees, flat fees, reduced rates or rate freezes will all be on the table. However, bankruptcy, litigation and workout disciplines should flourish this year. There also will be an ever-increasing need to keep a watchful eye on accounts receivable.”
“There probably will be a continued slump in the real estate market and development, and individuals will tend to delay legal expenses such as estate planning, will preparation and business mergers, etc. It has been reported that in some areas couples are delaying divorces because they cannot afford it. However, there seems to be an upturn in areas of bankruptcy, collections, mortgage workouts and foreclosures. Other areas will be less affected or not affected at all; this would include areas of medical and the health care fields.”
“It is expected that the demands for litigation counsel will likely increase, but that defense costs budgets may be restricted because of the general economic malaise. As a result, the demands on defense counsel to produce a quality defense on limited budgets will require creativity in streamlining trial preparations and trial strategies. Obviously, this will require increased reliance on technology innovations and non-lawyer involvement in trial preparation (such as increased involvement of paralegals).”
“A challenging economy has enhanced litigation, bankruptcy and regulatory activity, while transactional activity has been lessened. Law firms must analyze the impact of the recession on existing and potential clients. Law firms will be required to add or refine practice areas to address client needs in the uncertain business environment and during the implementation period of the president’s stimulus plan. As the economy starts to improve as a result of the stimulus plan, we can once again expect to see transactional activities increase as troubled entities will be purchased by others who have the capital or new financing, enabling aggressive acquisition activity.”
“We believe our construction and environmental groups will benefit from the national focus on infrastructure renewal and green industry. The needs of business to protect their ideas means that 2009 will be another strong year for our patent litigation group. We also expect that we will continue to be called on to protecting the rights of creditors and to assist in the resolution of business disputes. Consolidations and realignments also continue in the healthcare industry.”
Accounting Firms Could Get Upswing from Businesses Seeking Tighter Operation
Accounting firms report the recession will continue at least into the second half of the year. Nonetheless, they expect growing demand for financial services. The current climate of hard-to-get credit makes strong financial statements an imperative for those pursuing funds. Additionally, reforms from Washington are likely to prompt clients to seek advice on tax strategies and operational cost savings.
“We see companies continuing to emphasize cost controls and aligning expenses with revenues. Our banking relationships tell us businesses that need credit will need strong financial statements, a solid business plan and strong financial partners.
From an accounting industry standpoint, we likely will see more regulation under the Obama administration. There will continue to be an increased emphasis on the quality and depth of audits and more financial transparency. We expect clients will seek our advice on how to weather the economic storm, and what strategies to implement for tax and operational cost savings.”
“The deleveraging of the financial markets has been worse than expected and is not yet complete. We will reach bottom by mid-year and begin to see improvement by year end. The market will show positive results as many companies are now undervalued; however, it will be 2010 before businesses involved in housing and automotive start showing improved profits. We are now in a world economy and will have to recover together.”
“Credit is expected to remain tight and loan covenants will be strengthened, creating demand for financial statement audits and reviews. Changes in tax law will likely be introduced to stimulate the economy, which should increase demand for tax planning and compliance services. Though many businesses will delay or abandon special projects and strategic initiatives in a slow economy, we believe that many companies will seek the assistance of firms like ours to help them navigate the challenges they face.”