Boom or Bust: How could Brexit affect law firms?
We are exiting the EU. Apparently, this is a “pay day” for lawyers.
There will undoubtedly be both opportunities and challenges for law firms, both short and long term.
If you have been in denial over an EU exit (as I have), now is the time to think about the implications for your business.
Regulation and Law
This could go two ways for law firms. All of our business clients are affected hugely by EU Regulations – employment, environment, competition law and trade. EU law makes these dynamic and ever changing, which converts to legal advice and therefore marketing and sales opportunity for law firms – for example advising business on the impact of the new EU Data Regulation.
However, what if the return to British autonomy (and control over areas such as Data Protection, employment, health and safety and the environment) creates a boom in new British legislation in these areas, and the repeal of law that was created due to EU Regulations? In which case we could see a lot of opportunity and activity for lawyers.
From today and over the next few months (and possibly years) there are undoubtedly commercial opportunities for law firms in advising businesses and individuals over the implications of Brexit – some law firms have seen this opportunity squarely already. Allen & Overy’s efforts in publishing a large amount of documentation signposting businesses on the legal implications of Brexit now look to be highly worthwhile in light of the referendum results.
The process of “Brexiting”
We’ve already seen a huge overnight crash in the value of the pound, and ongoing instability and a protracted exit by Britain from the EU could be the greatest single factor that affects law firms, as it will undoubtedly have repercussions on Britain’s financial stability and viability as an economy. The scale of this could be unprecedented, and a recession has been predicted.
Estimates are that the British economy will be 6% smaller in 2020 than it would be if it had remained within the EU – that’s a differential of £106 billion. We could also see protracted Sterling volatility as Britain takes its lengthy path to re-establishing itself as an independent and stable economy. And let’s not forget that the exit process will take a minimum of two years, then a further 7 years to negotiate a trade agreement with Europe (based on Canada’s experience).
Long term volatility and a recession will have an impact on all of our clients, and consequently our work and billing figures.
Freedom to establish and provide services within the EU
In my personal experience, much of our focus in providing legal services is either local (within thirty miles of our office), national (where we have established a nationwide reputation, network of offices or marketing platform), or international. Where we do provide services internationally, this is often outside of the EU such as delivering financial, business or immigration legal services to individuals and businesses in North America, the Middle East and the Far East.
So will the EU provisions concerning the freedom to establish and provide and receive services within the EU affect the majority of us? I’m going to suggest it won’t, though alternative views are welcome.
Free movement of Workers
Undoubtedly we’ve seen a huge increase in EU immigrants, but has this affected our law firms and could it cause problems?
If we don’t directly employ immigrants from within the EU, we rely on their labour within our supply chains. Companies who supply goods to us rely on unskilled EU labour to pack, post and deliver products that we use daily, and we may have contracts with cleaning, security, maintenance or building businesses who use EU migrant labour. The price of these services may increase over the next few years should we leave the EU.
EU migrants with good English skills may be employed directly at law firms as lawyers and as support staff, or may be manning the external services we may use such as software support helplines or telephone answering services. What could happen to these valued employees if we leave? That will depend on what immigration policies we adopt, how many EU existing migrants are permitted to remain in the UK and for how long.
It may be that there is little change over the next few years. EU migrants will continue to have the right to work in the UK, and those that are here already may decide to stay and try to establish the five years of continuous status as a qualified worker required to obtain the right to permanent residence.
Foreign Investment
In 2014, Britain attracted $35 billion of capital investment from outside the EU, more than any other EU country. Could we loose our hold as the number one destination within Europe for Foreign Direct Investment? A huge amount of investment and business in the UK comes from overseas owned companies including China, North America, Japan, and other countries within the European Union. Brexit could shake their confidence in the UK as the location to invest in and grow their commercial activities within the EU.
Although this may not directly affect many law firms, it will undoubtedly have an indirect affect over the long term as our corporate clients may loose confidence in the UK, and seek to relocate or redirect their investment to an alternative country that is within the European Economic area, ensuring they benefit from the free movement of trade, services and worker provisions.
Conclusion
The key issue that could affect all law firms will be the economic uncertainty and potential of a recession caused by a protracted exit.
But there is opportunity to be gained from advising businesses on legal changes, which will hopefully allow law firms to survive through any lean years to come. Law firms could emerge from this better and stronger, provided they meet the needs of their clients, and are making the most of the commercial opportunities through changes in the legal landscape.
It’s definitely a good time to do the SWOT analysis (see freelance Practice Manager Paul Wood‘s comment below) and look at diversification, opportunity and risk. Commercial, insolvency and employment lawyers will have a challenging and busy few years ahead of them. Environmental and data protection lawyers who live and breath EU law will be left wondering what could be left following an EU exit.
Thought provoking article Ben. I suppose the immediate question for practices will be, yes, well what can we do about it? Be prepared is the answers or at least aware of where your practice sits in exposure to the risks of the vote going either way, and just as importantly, how it is placed to take advantage of such outcome – there will be opportunities. If management has not already done so, I would strongly recommend that a practice (in larger practices even department by department) undertake a simple SWOT analysis to show the Strengths, Weaknesses, Opportunities and Threats exposure of the practice. Once the SWOT has been completed the result can be converted to a TOWS Matrix to formulate a plan and strategy, with measurement indicators, for the practice going forward. A number of alternative options / outcomes can be tested this way. Key will be keeping these plans and strategies under review to see if they are on track or is change needing to be considered. Both the SWOT and TOWS can be found on Google with more detailed explanations of how they can be used. A tip is to consider the SWs of the SWOT as internal factors and OTs as external factors in the first instance.
Thanks Paul – good thinking.This is just the kind of situation where this is definitely needed!
Well done for hot off the press comment. I’ll read again after a bit of sleep!
A well written article and extremely timely! I suspect also every aspect of the U.K. Economy will be affected and therein lies the opportunities for law firms. Immigration advice, would be key and not only for EU migrants but more for the businesses employing these labour in the first place. There is also another aspect which is more applicable to firms like mine, which would be advising our clients who have investments in the UK about the impact of the exit on their investments in the UK.
Very thought provoking article.
Thanks Viavo, good point. Maybe we should all be getting in touch with you!
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