Well, it is nearly over and few in the profession will mourn the passing of 2016. Not since the banking crisis of 2008/09 have 12 months so drastically recast the environment in which law firms ply their trade, most strikingly, of course, in June’s vote for Britain to quit the EU and November’s election of Donald Trump as the 45th US president.
It would be an understatement to say the majority of City lawyers were hoping both votes would go the other way. Now the profession is facing a 2017 as unpredictable and unnerving as 2009 seemed in the aftermath of Lehman’s collapse. That year heralded an unprecedented wave of job cuts and recast the industry. But despite comparable uncertainty, 2017 does not yet look as threatening. Firms remain in their leaner New Normal form and after a tumbleweed prelude to the Brexit vote and a quiet summer, a wave of deal-making has powered many firms as business gets on with investments put on hold.
Nevertheless, 2017 will be choppy. 2012 to 2015 was a very active period for global M&A as corporates and multinationals hunted for cost savings, tax reductions and access to faster-growing economies. It is far from certain that this level of activity will continue, particularly as boards get nervous at the level of political risk as the article 50 process kicks off in the spring.
But political risk is something law firms will increasingly have to consider after a long period where the liberal, free market consensus was utterly dominant. The rise of populism, tribalism and the post-truth nature of public debate that burst into the open so spectacularly during 2016 has been building since the banking crisis, it is just that much ‘mainstream’ opinion assumed the old rules would soon re-assert themselves. It is easy to see why comparisons are being drawn to the rise of authoritarianism and nationalism in the early 20th century after decades of liberal free-traders dominating the world.
The profession is facing a 2017 as unpredictable and unnerving as 2009 looked after Lehman’s collapse.
This is a seismic shift in the ground upon which law firms built their businesses comparable to the realisation in the early 2000s that the post-Maastricht EU-integration play of leading law firms was not going to plan. The assumptions that managing partners have been working on should at the least no longer be taken so blithely for granted. Do the UK and US still have the institutions, stable political parties and rule of law to ensure a premium on assets? Can the EU in any meaningful sense reform, engage electorates or come up with a convincing answer to populism?
Law firms, meanwhile, are trying to address two structural issues: the continual march of in-house legal teams into their turf and the potential of technology to recast the profession. To retain perspective, there will be plenty for high-end law firms to do. Running highly diversified product lines based on non-discretionary spending is still a great business model; volatility, frenetic law-making and tougher regulation are also good for business and will all be present and correct in 2017 and beyond. But a profession too used to operational autopilot would do well to think a little more deeply about its business. We will be there keeping you informed. Until then, best wishes for the holidays.
alex.novarese@legalease.co.uk