David Gilroy: Hi, so this is David Gilroy from Conscious Solutions and welcome to the first of a series of video interviews we're doing over the next few weeks. I am pleased to be joined today by Viv Williams, who's our consulting director at Symphony Legal. Viv and I are just going to talk through some of the issues we've seen operating with law firms over the first four weeks of the Coronavirus COVID-19 crisis, and obviously the last three weeks of lockdown with at least three more weeks to come. So Viv, in general terms, what have you seen, what kind of effect the lockdown's had for most law firms?
Viv Williams: Hello everybody. I think it depends very much on the quality of the firm. Invariably where the banks have stepped into to lend money to law firms, it's firms who are profitable and looking rather well. There's a lot of firms out there who cannot get any form of funding at all. So I think the challenge has been having the right proposal to put forward to their bank. But as we know, where about a third of the applications have been granted, and I've had several managing partners of law firms coming on and saying, "What do we do now because we can't get ... they've turned us down for a loan." So I think we've seen opportunities in certain areas of law and big, big challenges in other. The start, I think, of a large number of failings.
David Gilroy: Okay. So give me a precis of the specific areas of law that are a challenge at this time and which ones you've seen hold up pretty well. I think I know the obvious one you're going to start with first.
Viv Williams: Yes, property and conveyancing has been a complete shambles. Most people have now got maybe three or four weeks of WIP, Work In Progress on property. Although, I did hear today that a law firm that does a lot of international work has started to see more inquiries coming in from the Far East. So that may be a glimmer of hope for those firms. But certainly with the move of people not moving house, it's going to be a really difficult time for law firms in the conveyancing sector. Bizarrely about six weeks ago, I was lecturing at the Conveyancing Association's annual conference. We were projecting then that we would see a significant drop in the numbers of law firms actually doing conveyancing because they couldn't afford to compete. This would only exacerbate that. We will see more and more firms failing because they can't actually get the work through. So property is a real challenge. Anything to do with property, anything to do with commercial work has fallen off a cliff. Bizarrely the only ways that we're seeing improvements in some firms is an area of wills, lasting powers of attorney, and bizarrely, probate.
David Gilroy: Yes, and I've seen employment's holding up relatively speaking. I know I've been speaking with a couple of firms just this week saying, "We'd like to design and an implement employment law retainer service." I'm like, "What right now? Today? Before the end of the week?" Kind of thing. It's something phones have been thinking about for a long time, and I suspect those firms who've had those kinds of retainment schemes have done really well from it. I know one client actually every time they get an employment client phone saying, "Oh, you're not on our retainer package, would you like to go on to it? It's a two year minimum period, but you only have to pay a few hundred pounds a month, rather than a few thousand, and we'll do the same amount of work." And they can't write the contracts fast enough because anybody who looks at that and goes, "I'll take two years worth of payments to save me five grand in the short term." So I think that, getting retainer models, has been something law firms have taught about for years, isn't it? That they've just not been able to do quick enough.
Viv Williams: Insurance backed employment as well, but it's never really taken off. But it's the environment we're living in today that encourages people to look for that.
David Gilroy: So what's your views on how quickly res prop comes back? So let's leap forward, anecdotal from my business, one of my team was about to exchange on a house at the end of March, and clearly they didn't progress it. I asked him on a call last week, I said, "So what's your plan? Straight back to it after lockdown?" He said, "No, we've delayed it 12 months. We're just going to start looking again in 12 ..." He said, "Now's not the time to be thinking about taking more debt and a bigger property." And then promptly announced his wife was pregnant, which is the reason for it. So what do you think? We get out of lockdown, it goes back to normal? Do we get out of lockdown and it takes six months to come back? Or longer? What's your feeling?
Viv Williams: I think probably longer because what we're starting to see, of course, is less and less properties being put on the market in the first place. It was predicted by some of the property people that we could see a fall of as much as 10 to 20% in property values. That's significant because people are in fact buying property. So if you took the Rightmove and Zoopla, they have so minimal, in certain parts of the country, properties coming on the market, it will take a good period after this period of lockdown is finished, we'll still be doing social distancing and I still think that's something we can't get away from. So it will take probably a year.
David Gilroy: Yes, okay. So that's the downsides of what's going on. What are the positives, if any, at this point? Bearing in mind we're only four weeks into the storm, as I call it.
Viv Williams: Well those firms who, for example, PI firms, who we've said for a long time, although I hear there's an announcement this afternoon that the MOJ could well delay the implementation of the [Civil Liability 00:05:26] Act by even further. But those firms who've got a fairly long book in terms of Clinical negligence, industrial disease and PI, they've been able to work on those longer files. Although the workers are home-based, they're still working on that file. So the PI firms seem to be quite stable in terms of workflow. The other area, as I mentioned earlier, there's been a big boom in the wills, lasting powers of attorney market, and eventually we will see a growth in probate. So the private client elements of law firms, which has always been the poor relation in many ways, is starting to be the leader in many firms at the moment
David Gilroy: I designed a programme in my head just an hour ago, I got an email from one of my favourite restaurants in London, which is called Condesa, C-O-N-D-E-S-A, if anybody's looking for really good tapas round Covent Garden. They sent me an email saying, as a loyal customer, we're asking for your support. We'd like to ask you to buy a voucher, which you can swap for a meal and wine later in the year. As a thank you we'll give you, I think, it's a free drink or something depending on the value you spend. So I was like, I'll do that because I've been spending no money apart from food and wine over the last four weeks, I haven't been anywhere. I think I fueled the car up just before lockdown, it hasn't moved.
I thought what would be the law firms equivalent of buying some loyalty? So we've seen clients, Talbots in the West Midlands are doing free wills for their local NHS, and a number of other clients, Hedges Law in Oxfordshire are doing heavily discounted. Gardner and Leader in Newbury are doing raising money for charity. If you have a coffee, I did this morning with Fiona who's a marketing director, so she donates what would normally be the cost of the coffee into their charity pot.
I was thinking how do law firms do that kind of buying work. So rather than ... I mean this is so some wills were 50%, okay that's great. Then somebody else up the ante and do it free for NHS and key workers. What about we'll do it for free, and we'll donate £50 to a charity of your choice to get the will, to build the will bank, to maybe get some more work and maybe do it at slow speed afterwards where they don't want to do the LPA and all the rest of it. They just want to get it done, because the free will, of course, is a simple one.
I was just wondering whether there's some mileage in there in terms of law firms knowing that they're doing it for free, so they've got the time cost, but actually investing a bit of the marketing money they're not spending elsewhere into a charity bucket to just try and get more of that work.
Viv Williams: That seems a lot of sense to me in that one, I think that focus ... firms certainly have to find ways and means of generating income and offer something else to their existing client base. That seems like a good idea.
David Gilroy: So government support packages. I mean most firms have taken advantage of furlough, I'm assuming? I mean the ones I've spoken to have, I'm guessing the same with you?
Viv Williams: Yes, absolutely. Across the board, everyone's taken advantage of furlough.
David Gilroy: Okay, at what kind of percentages or numbers? Again I firm I spoke to just yesterday, there are 150 people and they furloughed 40. I've heard another firm of 60 and they furloughed 40 out of 60, but they were a predominantly res prop practise, so no surprise there.
Viv Williams: Yes, in specific areas. If it is res prop then without question, that's where they've done most of the furloughing. But it's also happening in commercial and I think in other areas of law that people haven't seen any demand then it spurts in. So it varies, I mean different firms depending on what they do. I've seen anywhere from 40 to 70%.
David Gilroy: Okay. If there was some urgent steps law firms need to take, what would be the top three? You know the things they haven't done already? And you can't say cashflow modelling because clearly everybody's done that already.
Viv Williams: Sure.
David Gilroy: You would think, wouldn't they?
Viv Williams: I would have thought so, I think they would be mad if they hadn't. I'd be advising a number of firms who are being challenged to say, we're going to default if we don't do something. The only way you can help them, is to say, well talk to you landlords, see whether you can defer the rent on the property for a few months. Talk to your suppliers, try and delay payments.
David Gilroy: No, apart from their web supplies, they can't do that.
Viv Williams: No, fair enough. Obviously you can defer VAT and tax, those are key areas that I'm sure most people have thought about anyway. But I do think a number of ... If you do enter into new debt arrangements, we've got secondary lenders who are still keen to lend, but they're not cheap money. In the case of a ... because even with the way that the loans are coming through, even if we're seeing a reduction or some of those may have to borrow from some of the secondary lenders to keep their business afloat.
David Gilroy: It's interesting, Rishi Sunak, who I think speaks really well, whether he's doing scripted or the Q and A, has been absolutely consistent with his message, which is unfortunate for our industry that we operate in, is we cannot save every job and we cannot save every business. He's been very clear, he said that consistently. So even when he gets a bit of a slating for missing out, directors of small companies, but somewhere you've got to draw the line as to who you can support. The latest one, this week was for high growth businesses. So clearly they've been taking advantage of furloughs and deferment. But there must be a worry for firms who are indebted already. Whether that's up against loans or up against overdraft limits. If they're just kicking more debt down the road, they're just delaying the problem, not solving it .
Viv Williams: Well, one firm was denied a loan, a government backed loan, because the bank didn't think they'd be able to meet obligations after the 12 months. That was a hundred thousand pounds which they're not going to see. Now what is going to happen is default on certain debt. That's the beginning of a procession towards insolvency. I think we are going to see several of these practices fail. I've just been exchanging emails with the Law Society Gazette on, is it big firms or small firms that's likely to fail? I think it doesn't matter about size. I think size is all about the way the firms run, so if the firms well managed then the chances are they'll get the funding. In fact, the firm that you and I both know have rolled up their loans into one new loan, and have an interest free finance for the next 12 months, so they're really happy about that.
David Gilroy: That's not through CBILS is it, that was just direct at the bank?
Viv Williams: no, CBILS.
David Gilroy: See, I thought CBILs you were precluded from refinancing. Oh, that's interesting.
Viv Williams: There is no support for businesses and limited companies. That's where I sit in on this, as a director of a relatively small limited company, I completely fall out of that, any help or support in any way, shape or form. So I know the feeling.
David Gilroy: Okay. So in terms of strategic choices, we used to say, you and I made this joke for years. You get big, you get niche, or get out. So there's still mergers going on, now these were announced well before, so Moore Blatch and Barlow Robbins, they complete on the 1st of May. I've just got an email today saying that Birkett's, an East Anglia firm, have just agreed a merger with a niche insurance firm in the city called EC3 Legal. So that clearly must have been going through already, I don't think you'd put that deal together in a couple of weeks.
So again, three strategic steps for firms. What do they do now?
Viv Williams: Well, obviously they've dealt with the issues, immediate issues, that they need to do. I think thinking through carefully now what they want to look like when they come out. I was talking to one firm who've furloughed some stuff, but have actually made others work from home. But what they did have was an extremely robust IT system which allowed people to do that, and what they've discovered in the last four weeks is they don't need to have offices open, so they've closed two, or mothballed them. In essence, they now will never go back to working with multiple offices and multiple sites, they'll have one central office, people will be working from home. I think it's trusting their home workers to do that to a large extent. I think that's the big change.
David Gilroy: I was speaking to a probably a 200 person firm, so I don't know what their turnover will be, north of £10 million I would think. The managing partner there said this whole last four weeks has accelerated their appetite for being more agile with their working practises by two years. He said it's completely derailed any conversations from fuddy duddy longtime partners saying, "We don't trust people to work from home, how can we track what they're doing?"
I was speaking with one firm, so we're doing a weekly video call on a Friday with a customer who said actually the toughest decision they made was having to furlough all their trainees. This was a compliance issue, which you can talk to next, around much harder to do supervision at a distance than it would be when you can just go look over their shoulder and everything. I mean it's not impossible and if this was the new normal you'd find a way around it. But they said, in the short term when you're asking everybody to work a bit harder, it was just one thing too many to ask solicitors or associates to then keep track of a trainee as well.
So two questions in one, issue with compliance and does that lead to more complaints, and thus it coming back to hurt law firms in future?
Viv Williams: Well I think that's the problem isn't it? If we mistakes starting to occur with people working from home, that can actually cause a lack of supervision, and therefore we could see issues coming in from the SRA. But the SRA are also at the moment working remotely. So what they're intending to do, from what I've heard, is looking at website sweeps, looking to see if your compliant on your website, and that's one of the areas they're looking at because they can't actually deal with anti-money laundering procedures at the moment. So we're seeing, I think, cyber security is a big issue, but I think it's making sure that all the things put in place that we know are crucial, is kept working on, because it's mistakes that will cause complaints. Not keeping in touch with clients. If there's delays, you've got to keep in touch with the clients and let them know why there's a delay. If there's cost, make sure that those hygiene factors are all dealt with. So I think there's some compliance issues coming if they're not dealt with properly.
David Gilroy: Yes. There was a story that, I can't remember whether it was the Gazette website or Legal Futures recently that said, "Shock horror. Law firm that uses SRA template for pricing transparency is told by SRA that it's not compliant." I read that and I think that's an April Fool's joke, but it wasn't the 1st of April. I'm like, so they used the template the SRA told them to use, or suggested they use, and then they said it wasn't compliant. That was a great one. And that's just prices on website, not to do with actual work or anything.
So if that becomes an issue, what are your one or two top tips for staying complaint?
Viv Williams: Well obviously if they can access remote compliance then people can log into the system, and if they haven't got compliance officers themselves, then they can outsource that work and it's there to be done. So I think there's lots of opportunities for taking compliance, doing file reviews remotely whenever possible.
David Gilroy: Okay. What about any disaster recover horror stories or ... sorry disaster recover re horror stories, or war stories about firms who thought working from home was going to be great and turned out that was a bit more difficult than they expected?
Viv Williams: Quite a few. There's a few disaster recovery policies that's out there, which obviously the insurers are trying to claim force majeure, so it's outside their protection. But others who do have part of their policy to cover them for a pandemic of sorts, they still haven't been paid out and the insurers are still not responding and answering. There's a few firms that have said that's the case. I'm not sure how many firms have actually got that cover to be honest, but those that do are finding it difficult to get in place and get it accepted.
David Gilroy: Yes, I mean we insure with Hiscox, they got a bit of a battering I think at the weekend or late last week, and we have a business interruption policy that doesn't cover pandemics. My business has been interrupted but it's not ended, kind of thing. There were some quite specialist policies that had that kind of cover. If I go back five or six weeks, I had a few international trips this year, probably which none are going to happen now, but I actually did go out and buy some additional travel insurance for airline failures. I can't remember the title of the policy, and spent an extra couple hundred pounds over and above my normal policy, just in case I was impacted by one of the ones that have failed, which touch wood nobody has yet. Although, Richard Branson's trying to make a really good go of it depending on what the government do.
Viv Williams: Well I'm sure [inaudible 00:18:28] perhaps David, so you could spend your millions on that.
David Gilroy: Yes, we're not there yet Viv. Cash preservation in the short term, what are you seeing firms doing?
Viv Williams: Well obviously trying to get suppliers and landlords, as I say, to stabilise on payments, but changing their terms with their clients is probably a good thing. So I've seen some law firms telling their clients that they want cash up front, and payment within seven days. I think that's something that they have to do if they're going to do the work. They can't afford to carry WIP in these circumstances or getting a cash payment up front and or changing terms, are probably the two most crucial things they can do.
David Gilroy: Yes, and we've seen an uptick in firms finally giving in and saying, "Yes we should take payments through our website." Because pretty much the only way you can get do it either with BACS transfers. The last time we saw an uptick in that was pricing transparency in December 2018 where everybody all of a sudden went, "Oh yes, we should be able to do pricing calculators and we should take cash through the site." So we've seen that change, and also, we have lots of conversations with customers who say to us, "Well, if we're doing a website project, why is it 50% upfront?" Because we go, "Well that's our terms." There's no discussion about it, we just go, "Those are our terms." Law firms should have been able to do that for a long time. So I think that's maybe one of the “new normals” that we'll see.
We have seen a few people pull contracts from us, and it's all about the strength of their balance sheet. Going back to what you said earlier, a friend of mine says just generally, if you were a bad business in February, you're still a bad business now. Going back to what's the Chancellor said is we can't save every business.
We did have one client ask to reduce their spend on the website by 50% I said, "Absolutely, I'll turn it off 12 hours a day then." They did agree that maybe they were trying to shave a little bit too much off their marketing budget when they killed everything else.
Viv Williams: And all through the day, so it could be on all night.
David Gilroy: Yes, we'll just take one of those. You pick, which 12 hours do you want?
So last question really, it's to do with the future and if the old joke used to be get big, get niche, or get out. So you can get out in one of two ways, you can just fail and get out, or put the for sale sign up. Any appetite on the street for acquisitions?
Viv Williams: Yes there is, I think. We've got Zoom conferences being set up with some practises, and that's already happening. So they're getting the initial due diligence out of the way, although nothing will happen probably till lockdown is finished. But there's certainly the inclination out there. I think one advice I would say to any law firm that's in any form of financial difficulty, don't bury your head in the sand. Get some advice now, and whether it's from someone like me, or from an insolvency practitioner, deal with it because you can't leave it ride forever. It'll only get worse.
I think, what are we seeing now? I see law firms who've got strong leadership and taking these important decisions early, are the ones that's going to come through this even stronger than they were coming in. Just when we start to look at the way things are changing, I think we will see numerous failures. I've been talking for years about 3,000 firms needing to do something. I think that's just exacerbated. I don't think it's necessarily small, I think small sole practitioners will find it tough in the short term, but in the longer term will come back even better. It's those with bad management, poorly managed businesses, bad cash ratios, who really haven't adapted to change in technology, and we all know who they are and there's loads of them. Probably those three thousand, it'll come home to roost.
It's going to be Darwinian, the strong will survive this. Those who are not, will find it very difficult to come through the other side. It's never going to be the same as it was.
David Gilroy: No, and it's all about the strength of your balance sheet going into this period. If you're the kind of firm that's just taking every penny out, not leaving anything in the business for growth and funding growth, and you've been doing that for years and bumping up against overdrafts, and those kinds of things, it's difficult.
My final thought is there are most crisis have the four stages, and just looking at some notes from something earlier, confusion, survival, relief and renewal. So I think the confusion's gone, that's the last four weeks since this all started. I described it as blind panic, mild panic, panic, and now a version of a new normal. So we're very much in that survival phase and I think that lasts, as I said, until the end of lockdown. And then the back end of the storm is what happens after that, I think. So give me a prediction then, if we're saying there's still about 10,000 law firms in the UK, let's jump forward two years. How many at that point?
Viv Williams: I think we'll lose at least 3,000, maybe as much as 5,000.
David Gilroy: Really? You think it's going to go that deep?
Viv Williams: I do.
David Gilroy: Wow!
Viv Williams: I think there's a lot of firms that have been hanging on by their fingernails for many, many, years. You and I have spoken about this many times. It's those poorly managed businesses who are going to find it very difficult to come out the other side of it.
David Gilroy: Yes, definitely. Well look Viv, I appreciate your time on this sunny Tuesday afternoon. One of my favourite LinkedIn posts of the last month is, I did an image that showed how I know it's a weekday or a weekend because I had a photo of me in trainers and a photo of me in slippers. That's kind of which day and which shoes do I put on?
So for those of you who are watching this on the web, we'll put some contact details on the final slide and Viv and my email addresses will be there. Whether it's help with compliance and funding, and M and A through our Symphony Legal consulting business, or if you want any help with digital marketing growth through Conscious Solutions, let either of us know and we'll be in touch.
So Viv, thanks. Have a good rest of week.
Viv Williams: Thanks David.