Law Firm Development in times of Covid_19 - a win-win situation for law firms?
For almost four weeks we have been experiencing an unprecedented shutdown of social life, our work and the entire economy. Massive encroachments on basic rights, restrictions on personal freedom, and even the withdrawal of the basis of business for entire industries.
Only a few professions have been classified as systemically relevant for this extraordinary time of crisis: Nursing staff, for example, or salespeople for local suppliers. They were not only given special thanks, but also special support, such as the maintenance of child care. Courts were also part of this; but not always the legal profession.These in particular were flooded with a flood of inquiries - about the validity of contracts, travel cancellations, labour law issues due to short-time work and dismissal, the conversion of the statutory attendance meetings to digital - simply about the regulations and requirements that were changing almost daily and were associated with massive restrictions and losses.
This week, the list of systemically relevant professions was extended and now, under massive pressure from the german Bar Association, lawyers and notaries were also recognised as such. So far so good. Nevertheless, there can be no question of equality with other professional groups, particularly from a business point of view.
It is true that most law firms are busy at the moment: after the somewhat bumpy transition to the home office and the sometimes difficult crisis communication (for which Taylor Wessing in particular has set a monument with the dismissal of almost 100 research assistants), one can finally turn to the many client enquiries. Quite a few, however, are rubbing their eyes in sleep and discover that in many cases the requests do not reflect the available resources in terms of know-how and capacity.
Now it has to be decided whether in times of crisis every business is good business or whether one has to dismantle one's laboriously built up positioning and reputation for the long term. Even law firms with foresighted and long-term strategic planning look much more often with frown lines and worry lines as SMEs and large companies these days on their strategy papers.
Why is that? Couldn't law firms already be called the big winners of the crisis? The telephones are ringing, the The staff is busy, the offices are humming...
But will the bills be paid?
Liquidity is the topic of the hour.
Rule #1: Save As always in times of crisis, the first priority is to reduce costs, streamline structures and throw off ballast. This has been achieved better by some companies than others (see above). Managing partners not only have a lot to do, but also enjoy new competencies and often never before experienced importance. At last, their issues are given the attention they deserve.
Rule #2: Get cash in The fact that, as a rule, the lawyer's fee only comes in after the conclusion of the mandate distinguishes this industry quite considerably from most other companies. So even with an advance payment, a large part of the amount is still outstanding until the end. This benefits the industry in the short term, as it can now reap the rewards of past months. In the medium and long term, however, it is at a disadvantage. For two reasons: The vast majority of immediate measures to bridge the crisis - such as one-off subsidies from the federal government, the federal state or the EU - require immediate income losses in March and April (e.g. phase 2 of the Austrian Hardship Fund). At the same time, short application deadlines prevent the postponement of the sales slump into early summer due to the reduction of mandates in March/April from being taken into account. On the other hand, a consolidation of many sectors is imminent. Companies that are still fighting for survival with the help of lawyers will sooner or later lose and slide into insolvency. The legal profession is already expecting an above-average loss of fees due to the insolvency of their clients. The current change in payment behaviour, not paying bills for the time being - also fuelled by the crisis interventions of governments and fear-inducing media - have already left clear traces on the books.
Rule #3: Seize opportunities (investments and new business fields) That in every crisis there are also opportunities to be found - as a gift. The reality is that investments and the development of new business areas only pay off in a crisis if the course has already been set before the crisis: In fact, the law firms that have already regarded digitalization and new work as a "must have" before Corona and have made significant investments in this area are among the winners at the moment, and not just now tinkering with the "mindset change". And those who, even before Corona, took a far-sighted approach to the balancing act between specialization and diversity as a mainstay can now immediately draw on existing resources. This is no different in the legal industry than in other sectors: The rescue package for the German/Austrian economy therefore also provides special support for investments in business development. Favourable loans and up to € 4,000 in subsidies for professional management consultancy services are intended to guide companies through this crisis (e.g. the EU support for medium-sized businesses).
However, law firms are usually explicitly excluded from this. It may now be noted that the business consulting firms benefit indirectly from this strengthening of their client base. On the other hand, however, this is made more difficult by the long outdated regulation on the insolvency of law firms, according to which lawyers still risk their admission and thus a de facto prohibition from practising if they get into financial difficulties, whether they are in debt or not. Management consultancy, especially for the development of law firms in times of crisis, is as necessary in this sector as any other.
Especially in times of quarantine, curfew, home office and closed borders, LegalTech-based solutions are becoming increasingly popular, as are other easily accessible and cost-conscious services.The much-discussed topic of whether, when and to what extent LegalTech innovations and products should be spun off from law firms (not only with regard to investors and liability), as well as the current debate on the draft bill to include tech-based legal services in the RDG, are thus gaining new momentum.
After all, these firms may now have gained decisive competitive advantages. Business is therefore being done under much less dramatic conditions by others than the law firms: these days, it is mainly corporate consultants and auditors and LegalTech, who were already massively pushing into the legal advice market before Corona and are now profiting three times over from the crisis:
1. their services are more in demand and more easily accessible than ever
2. as a commercial enterprise, they are not subject to the insol-vency or advertising requirements and restrictions of the legal sector
3. not only are the rescue operations fully accessible to them, but they are even explicitly encouraged.
This will sustainably fuel the disruption of the legal market. Whether or not those politically responsible were aware of this may not be underestimated. On the other hand, to classify the legal profession as not systemically relevant in such a comprehensive crisis and to correct this only four weeks after the onset of the crisis under massive pressure, paints a clear picture.