I have
blogged before on the question of how quickly a professional services business
can descend into a death spiral once the confidence of the partners is lost and
they start to depart (most notably in the case of Dewey & LeBoeuf (http://www.blogger.com/blogger.g?blogID=759712752327313714#editor/target=post;postID=4182441567666633396.)
The latest
casualty of this phenomenon seems to be troubled northern law firm Cobbetts,
which is set to enter administration in an attempt to secure a fire-sale of its
business.
Cobbetts
has almost 500 staff and 74 partners across 3 offices. In 2007/8, before the financial crisis, the
firm was performing strongly, turning in revenues of almost £60 million. Corporate work was booming, and the firm
expanded rapidly. However, it was hit
hard by the financial downturn and managed only £45.2 million of revenues for
the 2011/12 financial year. Given the
significant fixed costs associated with the expansion during the boom years,
this appears to have been a disastrous scenario. The management team attempted
to address the problem through three separate redundancy rounds – a necessary
step but something which saps the morale of a people-led business – but to no
avail. Four partners then defected to
Gowlings, and another two to Gateley last year, which must have led to a
greater crisis of confidence for those remaining, and so the spiral began.
In an
attempt to reverse its decline, the firm considered a number of merger
opportunities – most notably with DWF last year, but talks collapsed because of
the market uncertainty. It would,
perhaps, not be entirely surprising if DWF emerges as an acquirer of the
business through the administration process.
It is
perhaps surprising that Cobbetts is the first major failure of a UK law firm
since the fall of Halliwells in 2010, although the UK office of Dewey collapsed
as part of the larger global group. I
suspect that, sadly, more may follow.