According to Larry Summers, whose economic if not sociocultural credentials are impeccable, over the past 90 years the US has had, at once, inflation above 4% (check) and unemployment below 4% (check) and every single time recession has followed.
And out of Alliance Bernstein research, a complementary pair of data points that with retail sales dropping -1.6% YoY and real wages down -3.3% YoY, recession is already inevitable: Baked in, as it were.
I will be merciful and stop ticking off the worrisome data points, but for those readers today sitting in Law Land seats, depending on how long you’ve been around, you’ve seen this scenario play out and sooner or later law firms have to pull back–on hiring, on expense growth, on R&D and investment, on expansion, on compensation–along with everyone else. “In the long run,” as a wise Managing Partner friend of ours once said, “we can’t do better than our clients.”
May we sum up this two-part series then?
- Globalization may have slowed or even (our view) switched into reverse, but that poses zero fundamental threat to BigLaw’s prosperity; indeed, it may be creating altogether new categories of work.
- M&A is cyclical (news flash!) but we’ve been here before and will be here again. After all, cycles have up as well as down phases.
- But Recession is ultimately a mini Ice Age from which no one can hide.
If you can’t hide, and if such a development is indeed in the auguries, it’s not a moment too late to start preparing.
Don’t get us wrong.
The potential threat of a recession, while an unusually grave development, is, in the longer view, “business as usual.” Booms and busts come and booms and busts go. If your eye is on the horizon, and if your firm truly embraces the principle of stewardship (in a nutshell, we stand on the shoulders of those who went before and are responsible for leaving the place better than we found it), then you will be planning for the longer run all the time.
If you want a less abstract reason to start preparing, may we simplify? Your competitors probably aren’t doing it. If that doesn’t do it for you, we’re out of ammo here.
Finally: If you’re not sure what “preparing” means in these potential circumstances, here’s a handy suggested exercise you can do at home in the office: Ask every leader of a practice group, office, or operational function to come up with a plan and a budget, in the next 30 days, for what a 10% (15%?) reduction in expenses would entail.
You might want to do that now.
