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As shelter-in-place orders to combat the novel coronavirus went into effect, businesses of all types were forced to shutter or drastically scale back. Even those that continue to operate remotely are seeing revenues drop as the economic impact spreads.
Law firms are no exception. While many firms have gone virtual, that does not shield them from the same issues affecting all businesses. Firms have responded by cutting salaries, delaying partner disbursements and furloughing staff. Such cost-cutting measures are the easiest way to bolster resiliency in the short term.
As the economic fallout from COVID-19 continues however, firms focusing on their long-term health will likely be the most resilient. The good news is that there are ways to build a firm that’s as recession-resistant as possible.
There is no magic formula for the right combination of practice areas—if there was, every firm would look the same. That said, having certain practices (or being able to quickly pivot to them) can provide an edge when the economy trends downwards.
Firms should make sure their mix of practice groups provides an advantage at every phase of the economic cycle: recessions, recoveries and booms. Certain firms will, of course, have an easier time doing this.
By virtue of their sheer numbers, large firms can cover more bases than smaller firms, effectively diversifying their practice mix. Midsize firms, however, are known for being nimble and generally carry less overhead, allowing them to make faster adjustments.
Ideally, a firm would begin with a combination of practices in place to survive any economic environment. Conventional wisdom holds that litigation and bankruptcy are safer bets during a downturn. They’re countercyclical and therefore good to have in your practice mix. As this Law360® article written before the pandemic notes however, bankruptcy is only five percent of all legal work—even at peak times.
On the other hand, litigation might be a safer bet right now due to the emergence of litigation funding. In the Great Recession, litigation did not grow as much as expected. Even though a successful lawsuit can generate significant revenue, companies didn’t want to spend money on anything, particularly something as uncertain as litigation. Litigation funding alleviates those fears by shifting the risk of loss to the funder.
In addition to litigation and bankruptcy, other practice areas appear to be boom areas right now—and perhaps even through future downturns. Those include cybersecurity/privacy and employment.
Cybersecurity has become a vital area, particularly with our reliance on cloud-based services (like all those virtual meetings you’ve been on) to keep businesses operating. And while companies establish remote operations, they are also navigating new questions about how to manage their workforces.
Other practices seeing an increase in demand are healthcare, biotech and insurance. Insurance work, particularly for policyholders, is not correlated to larger economic cycles, and therefore worth considering. Hurricanes and other natural disasters don’t care what the Dow did last week.
Of course, the above practice areas require specialized legal knowledge. A firm probably can’t launch a cybersecurity practice overnight. However, those that already have these practices may want to consider expanding them right now, and accelerating any plans to launch others.
Another way firms can bolster their bottom lines (while developing valuable skills) is to focus on emerging industries and providing holistic legal services to the companies in them. For the burgeoning cannabis sector, for example, many firms provide a range of services, from transactional and regulatory assistance to banking and litigation.
The benefit of this approach is at least twofold. First, firms don’t have to have scale to serve a niche industry. They just have to be early, or at least ramp up quickly. Marketing is key to establishing a reputation for this kind of work, and good SEO, proactive PR and solid website content will give firms an edge. Also, learning a wide range of skills through an “all-in-one” service makes lawyers highly versatile. A litigation firm knows how to litigate. A full-service marijuana practice however, could more easily transition to a range of other disciplines—corporate, lobbying, venture capital and more.
Economic cycles are inevitable. While the current recession was set-off by the coronavirus pandemic, it had been brewing for a while. For law firms to survive this recession, and position themselves to take advantage of the recovery, they will have to look beyond cost-cutting and make strategic changes. Having the right practice groups (and perhaps taking more of an industry focus) could help them become more resilient—no matter where the economy is heading.