It's the economy, stupid

It's no secret the legal market is extraordinarily competitive. Coming out of university with a comfortable 2.1 and a relatively good range of experience I was feeling pretty good about myself. However, reality hit home when I realised that I was one of 68.7% of graduates achieving a 2.1 or above. So what sets a law student apart when looking to enter the market? Talking with a number of recruitment managers and trainee solicitors I was met with a single resounding response... commercial awareness. With the wealth of information available to students, law firms not only expecting us to know the firm inside and out, but to know the industry and the commercial environment the industry operates in. In this blog I hope to elucidate you of some aspects of commercial awareness.

This year I began the LLB for Graduates course. I had turned down the opportunity to go straight into work, turned down three unconditional places on the GDL and decided against doing a masters in public policy. I had moved back home after years of living away and started possibly the most exhausting year of my life with about 25hrs per week in addition to university and to top it off, I finished with the lowest average I have ever received at uni. I started to seriously doubt the course was for me, but I kept being told I was still above average for the year (I know!) and that I should be happy I had saved enough to pay off my tuition fees, gained around £8000 in scholarships and got a years work experience... but most importantly I had gained my first proper understanding of commercial awareness.

Financial Crisis
Unless you have lived under a rock for the past decade, you may have noticed the economy is facing a bit of my attempt click here, otherwise Too Big to Fail and The Ascent of Money make great summaries. However needless to say, anyone with any hope of being a commercial lawyer needs to be able to speak confidently about the crash and its consequences. The impact the consequential recession had upon law firms will no doubt be the main focus.
a squeeze of late. The 2008 financial crisis has had a profound and lasting effect on the world's economy. Studies into the causes of the financial crisis are vast. To see

Following the financial crisis, there was a dramatic decline in property transactions meaning less work for real estate lawyers. The reluctance of banks to issue credit meant less work for banking lawyers and with less credit in the system meaning less business transactions meaning less work for M&A lawyers. On the other side of the coin, bankruptcy and insolvency lawyers had much more work from business going bust and litigators were kept busy by businesses arguing over financial contracts.

As a result many firms rebalanced their practice areas, making hundreds of redundancies. More innovative firms realised they cannot simply wait for the economy to return to pre-2008 levels and have realised in a more competitive market they need to make their services more affordable. This is the vital thing which we will continue to come back to throughout this article. 

Mergers
It seems every law firm and its dog is having a merger in the past few years. A fifth of firms listed in the 2009 Student Guide have undergone a merger since then, with many more considering it. So what are the motivations behind this lengthy and often expensive procedure?

The financial crisis has not been kind to many people, including law firms. Many high street firms have gone into administration, even Cobbetts, Halliwells and Dewey & LeBoeuf (albeit for somewhat more dubious reasons). These three big casualties fell prey to the worsening market conditions which exposed their financial mismanagement. Indeed, there are still firms with financial difficulties out there struggling against rising costs and falling profits. The SRA (June 2013) even went as far as announcing it was closely monitoring the finances of 30 top-200 firms as they were at risk of failure.

Talking to a managing partner of a recently merged firm, he said the main motivation for a firm to merge is to consolidate the market. By this what he really means is that there are fewer firms wanting to do more of the work. However there are many more reasons. Some firms are looking to shore up the market position of a struggling firm. Some are genuine attempts to expand the firm's business nationally or internationally. A merger can bring in clients and offer greater economy of scale to clients through shared overheads.

Lots of international transactions are happening. A number of British firms have paired up with US, and even Australian firms. SJ Berwin became the first to merge with an Asia-Pacific firm, King & Wood Mallesons (November 2013). Elsewhere in the market CMS is hunting for a US partner, Bird & Bird is eyeing up a merger with an Australian firm Truman Hoyle and Orrick and Mayer Brown are making no secret of their ambitions for merging.

So what should a law student be aware of? Well obviously if you are applying to a firm that has had a recent merger or is looking to merge, you should understand the motivations and benefits behind it. Also if you are looking to apply to a mid-sized City firm or a small specialist English firm, it seems that eventually you will end up working for a big American firm after the inevitable merger.

Fortunately if you are subject to a merger, trainees' contracts are honoured. For those looking for a training contract with a recently merged firm, they appeal to be continuing to recruit similar numbers from their pre-merger days. Even in acquisitions of failing firms, they seem to have subsequently increased their trainee intake or started an entirely new scheme. However it is not clear that this trend will continue to hold as merged firms are likely to reduce recruitment numbers in the future to pursue economies of scale.


Public spending cuts

I remember coming back from university one summer and in addition to our usual set of bathroom reading magazines there was a small book on LASPO (Legal Aid, Sentencing and Punishment of Offenders Act 2012). It was only a year later when I started trying to build my commercial awareness that I realised the importance of this act. This act forms part of the Conservative government's plans to cut the national deficit (as distinguished from the national debt which is WAY into the trillions of pounds).

The Conservatives launched sweeping government spending cuts that heavily impacted every aspect of society, with £220m being cut from the annual £2mn legal aid budget. The now infamous Justice Secretary, Chris Grayling, began what can only be described as the single greatest systematic dismantling of everything decent about the justice system. Combined with reforms on other areas of spending, areas such as crime, housing, family, employment and personal injury face a massive squeeze. (I will not discuss the effect the cuts have had upon the criminal bar, as I want to look at this in more detail in a later blog).

The cuts have deeply affected law firms. Those who have practice in sectors heavily reliant on public funding are finding revenue streams reduced, especially those in housing, transport, education, healthcare, charities and infrastructure. The firm Bevan Brittan has seen reduced earnings of up to a fifth over the past half decade and have consequently almost halved their trainee intake. As a result there is a trend for firms like this to turn their attention to more private sector work. However it seems the larger commercial firms which practice in these areas are not affected as dramatically and the cuts will undoubtedly only affect smaller firms.

Legal Services Act 2007
The Legal Services Act 2007 has largely come into force at the time of writing. A long story short, this act regulates and liberalises the legal services market.
- For non-solicitors this means they are now allowed to become partners of law firms, forming what are called 'multidisciplinary partnerships' (MDPs).

- Lawyers are not allowed to join with other professionals to offer an 'all-in-one' service under  alternative business structures (ABS).

The idea is still pretty fresh, but it means in the future a commercial firm could handle a business' accounts as well as any contracts disputes, whilst a high-street firm can now give mortgage advice whilst also doing all the conveyancing. ABSs will also allow firms to seek external investment. Irwin Mitchell is one of the more innovative firms in this regard, having gained five ABS licenses by the end of 2012.

ABSs also mean that firms can be floated on the stock market. The Australian firm Slater & Gordon became the world's first publicly listed firm in 2007, who then entered the UK market by acquiring Russell Jones & Walker. Commentators of this market liberalisation predicted is it would result in an influx of private equity cash into the profession, however at the moment it seems neither investor nor the firms themselves are interested in that idea. This is most likely due to the financial requirements it would place on the firm and its partners.

The Legal Services Act ultimately is another addition to the neoliberal economic discourse that tenders every aspect of life up to free market capitalism. The idea behind this is to make legal services as easily accessible as any other market commodity. With the Co-operative setting up their own legal services, it is now quite literally possible write your will whilst you pick up your groceries. Co-op Legal Services was the first business to win an ABS license in the UK. The service employs over 500 staff and even recruits trainees. As of 2012 their 5 year projection was to recruit 100 trainees and have a workforce of 3000.


Trainee recruitment
As you can see above and from my previous blog posts, it is clear law firms are tightening their budget and trying to do more with less. Inevitably, this means that firms have had to reduce the number of training contracts being offered. In 2011/12 there were 4,869 registered training contracts (almost 1/4 less than 2007/08). The magic circle firms are only looking to recruit 455 graduates (down from 575 in 2008).This trend has been seen throughout the legal sector. At a recent mini-pupillage at a Birmingham chambers, they told me they have not taken on any criminal pupils for 3 years!

With a tighter budget for both law firms and clients, value for money is the aim of the game. Law firms are now reluctant to pay a junior solicitor to do menial work that they could just get a temp or an intern to do. The constant incorporation of technology into the legal profession is also making redundant much of the junior solicitors' work that can now be done through a computer program. The increasing globaliasation of law firms also making it easier to outsource the more basic work abroad. Many City firms are already doing this by outsourcing some of their work to South Africa and India.

However on a positive note, there is now little doubt that the economic outlook is improving. With this comes a greater number of training contracts! We have already seen numbers up 8% from 4,869 in 2011/12 to 5,302 in 2012/13. Most likely as a delayed reaction to the recession, the number of LPC students is also down 10% from last year, according to the Central Applications Board. 4,382 in June 2014 as opposed to 4,865 June 2013. Whilst prospects are definitely improving for law students, it is unclear whether the need for junior lawyers will ever return to pre-2008 levels.


Trainee pay 
The SRA has always set a minimum salary for lawyers, which has been a relief for many starting out in the profession. However, as of 1st August 2014 this will be scrapped and firms are now entitled to pay as little as national minimum wage, currently £6.31 per hour (I would know, to pay for university I worked in a bar on that salary).

Those in support of scrapping the minimum salary believe the move will encourage firms to take on more trainees. There is also a general attitude that there is nothing particularly special about being a lawyer that should warrant having a minimum wage above the national minimum, which is almost unheard of in other professions.
- Those against say it will mean future lawyers desperate for a training contract are open to exploitation.

It's becoming clear that this move will only impact the lower end of the profession, with the larger national and international firms not reducing salaries. Indeed, some magic circle firms are even raising the trainee salary. As of Summer 2013, the SRA say the average trainee starting salary in London is £34,787. The lowest average starting salary is in Wales is £17,943. Lesson learnt from this? I am even more determined to live in London after I graduate.

Retention Rates
So you have secured a training contract, you are in your 4th seat and looking at your future. You will be glad to hear the the retention rate in 2013 averaged at 78.2% of trainees remaining upon qualification. Whilst there was a dip in 2009 and 2010, this has improved over the years since.

Final Thoughts
As always, English law remains popular with clients doing business deals and dispute resolution abroad, especially those done in the Middle East and BRIC countries. So even with this depressing outlook, one thing remains certain - the world will always need lawyers and any graduate who has the skills and experience necessary to demonstrate they will benefit a firm, they will always be able to make it in the profession. Albeit, just not as easily as for previous generations.

Sectors Series: Energy

This is the first in a series of articles on various sectors of legal work. They are all areas I would be interested in pursuing a career and all centre on international trade and commercial law. This first article is on the energy sector, which includes energy generation and distribution of water, oil and gas.

This is one of the most important and fast changing industrial sectors in law with massive social and geopolitical implications. The energy 'trilemma' of carbon emissions, energy cost and security of supply, combined with ageing energy assets mean that governments and energy companies face difficult challenges that could impact upon the economy of a country as a whole. It's a very complicated area, where an extensive knowledge of relevant legal issues affecting the sector combined with an understandingo f the commercial challenges facing energy companies.

Fortunately, there seems to be no sign of the commercial activity in the oil and gas sector diminishing. Even with the new age of "clean energy" there will always be associated legal activity involved. In this article I will outline the shifting focus on energy supply and demand and how the industry is adapting. 

The oil and gas industry is usually divided into three major sectors: upstream, midstream and downstream. The upstream oil sector is also commonly known as the exploration and production (E&P) sector which inclues searching for oil deposits and then the subsequent extraction operations. This is traditionally for crude oil and natural gas but unconventional gasses are also being included with new technologies such as liquefied natural gas (LNG). The midstream sector involves the transportation, storage and wholesale of the crude or refined products. The downstream sector is then the process of refining the crude oil and purifying the natural gas for consumer consumption in the form of petrol, jet fuel or waxes etc.

US Shale Gas

This the fastest growing sector with political willingness and technological ability to take advantage of onshore shale gas and oil. There seems to be a drive for the US to become energy self-sufficient (no doubt prompted by uneasy US-Russia relations), with predictions this could occur within the next 20 years. The US has growing shale gas assets across the country with the Bakken shale in the north of the country to Eagle Ford in the south. This is in turn creating great opportunities for US business with increased energy exports and moving US shale-knowledge to other projects around the world.

UK Shale Gas 
The UK is also on the shale-bandwagon. However, there are serious doubts as to the environmental impacts shale extraction, through hydraulic fracturing (or fracking), has upon the environment. This is the controversial method of injecting water and chemicals into deposits deep underground. This has come to a head with the protests and legal action seen in West Sussex.However the economic benefit seen in the US is undeniable and in the 2013 Budget the Chancellor introduced a new generous tax regime, stating "shale gas is part of the future". Under this regime shale gas will be taxed at the same rate as North Sea oil and gas activities (at a combined rate of 62%, with allowances against a portion of the income reducing the effective tax rate to 30%). All of which is designed to encourage investment into shale.

North Sea Oil and Gas

This is the conventional location of the majority of the UK's energy and as such the location of the majority of the legal work in the energy sector. The activity in the North Sea remains strong, with the governement introducing measures to promote activity. Due to how long the offshore instillations have been in operation there is a growing concern about how they will be decomissioned and whether any tax relief will be granted when this occurs. In 2013 the Chancellor agreed they will enter into what are called "decomissioning relief deeds" with energy companies, under which the government will underwrite the level of relief available, insulating them from any changes worth upwards of £20bn over a 30  The impact of this action has been immediate and reduced the cost of giving security for future liabilities. This in turn frees up capital to increase asset values and to facilitate new investment.

International Action
Without a doubt, the main attraction to the energy sector is the international aspect of the work. Whilst there is activity nationally in the UK, the trend is for lawyers to see lots of work in the developing world. With a massive 'energy revolution' happening in Latin America and across Africa this is definitely where the most interesting work can be found.

For example in East Africa, Mozambique had four out of the five largest hydrocarbons discoveries in the world last year and the costs of acquisition and disposal of upstream assets and the development and financing of LNG facilities and relate onshore and offshore infrastructure project would exceed the total GDP for the whole country for last year. It is unnecessary to point out the significance this will have for upon the economy of Mozambique (not to mention any foreign investors into the country).
In West Africa, countries such as Nigeria (now said to be the largest economy in Africa) has numerous upstream assets coming in, driven by junior E&P companies monetising their assets and sharing E&P costs, and by others hoping to reduce their exposure to the political risks, legal uncertainties and security threats that exist there.

In Latin America, when Brazil discovered massive oil deposits off the coast around seven years ago it was heralded as a 'second independence' for the country. Since then there have been large-scale developments of the oil and gas discoveries. The results of Brazil's presidential election his October could determine the ownership of the Brazillian pre-salt areas to companies other than Petrobras ASA if either Senator Aecio Neves or former governor Eduardo Campos are elected. The results of the first pre-salt bidding round from October 2013 for entry into the Libra field showed Shell and Total with the largest holdings of the area in the Santos Basin.

Asia also remains the location of much of the world's energy commerce and a huge source of work for lawyers. China's demand for crude oil remains extremely high, with the country consuming half of the world's coal production. In Japan, following the Chernobyl disaster and the subsequent reduction in nuclear power, there has been an increased demand for Japanese LNG that has been vital to global gas projects.

The Future of Energy

It is clear that the energy sector remains strong and the outlook very promising. There is a positive outlook on the long-term investment, with a predicted USD15 trillion required for the sector in the next ten years, according to the International Energy Agency's forecasts. London has been cemented as the centre of worldwide energy commerce and as a sector, it continues to draw in the most interesting and global work.

Who burst the bubble on the financial crisis?

This was my article that was included in the Birmingham Law School Newspaper. 

The financial crisis is currently the most far-reaching issue in the western world. It affects all aspects of life, from international mergers and acquisitions to the weekly shop and daily commutes of families. It’s something we constantly see in the news, and commonly features in questions asked to assess commercial awareness, but what is it and where did it all begin?

The origins of the current crisis lie in the housing market bubble in the USA and UK. Years of low inflation and stable growth in the housing market had promoted risk-taking and made houses seem like a safe investment for those buying and lending. Banks aggressively competed to lend, incentivising their staff with large bonuses and commissions. This competition became so intense that Northern Rock were prepared to lend for up to 125% of the value of the house. In the US it was also common practice for banks to offer loans with initially low interest rates, and then pool and sell off the debts to other financial institutions as apparently safe ways to invest their money.

In September 2008, the housing bubble finally burst with the collapse of Lehman Brothers. This global bank, deemed ”too large to fail”, took multi-million dollar bail-outs to shore up the industry, resulting in the worst recession in 80 years. We are still feeling the backlash. But why did the bubble burst? With 5 years of hindsight we now know the main cause was the lenders themselves. Banks would lend to ”sub-prime borrowers”, who could not afford it. These high-risk loans were then passed on to the big banks, who would turn them into low-risk securities by pooling them back securities known as collateralised debt obligations (CDOs), which were sliced into tranches in relation to their exposure to default. The rating that agencies such as Standard & Poors assigned to these tranches were also too generously assessed, so they were sold on to investors as high-return investments.

When the house prices started to fall, the banks who lent the money found it difficult to get it back. They sought to avoid avoid repossession as house prices were falling. In deed, it was the banks, who had heavily borrowed themselves to make the loans originally, that caused this situation to escalate into a global economic crisis. Indeed, some major US banks had borrowed up to 30x their capital. The crisis then rapidly spread across the globe with many big financial names being saved by governments. It was when the Lehman Brothers was allowed to go bankrupt that the panic spread. Lending between banks stalled and interest rates on inter-bank lo ans began to rise. The capital began to be recollected and hoarded by those with debts.

The crisis then spread through the whole economy as the hoarding of capital by banks reduced the flow of capital from lenders to those needing money. Companies needing capital for daily activities found it increasingly difficult to borrow and many UK construction projects were stopped. For example, the UK government had to change the funding for the London Olympic Games from private to public just to keep it on track.

The cracks in the financial system had been exposed and a chain reaction began. Mortgage-backed securities slumped in value and all CDOs turned out to be worthless despite being rated highly. The ultimate lubricant of the financial system, trust, had been broken, and it therefore became difficult to trade any asset. The financial system was shown to have been built on banks allowing their balance sheets to bloat, without setting aside enough capital to absorb losses.

The regulators also played a large part in causing the economic crisis in which we currently find ourselves. Through letting the Lehman Brothers go bankrupt, the panic in the markets increased. The government’s decision to allow the bank to go bankrupt ultimately resulted in them having to intervene in many other companies once the economy froze up, with institutions hoarding capital after lending froze. However, the fault of the regulators is much more engrained than this. Through insufficient regulation on the banks they allowed the housing bubble, which the banks had helped inflate, become a problem in the first place.

George Osborne’s recently released Autumn Statement has seen the economic growth forecast rise from 0.6% to 1.4% in 2013, and from 1.8% to 2.4% growth in 2014. This is an encouraging sign that the UK growth is continuing to rise and we may see it gain momentum through 2014 as predicted and the end to the financial crisis. With the passing of the Banking Reform Bill through Parliament it is clear to see that the government is learning from its mistakes, but is it a matter of time to see whether this can stop anything like this happening again.

To Assist or Not to Assist

This summer I was lucky enough to be awarded the Birmingham Law School's undergraduate research scholarship. It'll be a great opportunity to work with the Dean of the Law School on how policy should be formulated in respect of assisted dying. Whilst the position does not begin until the end of August, I thought it would be a pertinent time to write my thoughts following the progression of Lord Falconer's Assisted Dying Bill through the House of Lords

In first semester I had the opportunity to attend a talk given by Nazir Afzal, the Chief Crown Prosecutor for North West England, where he discussed his involvement in the case of Re A (Conjoined Twins). He began by quoting the following soliloquy:

Even Dr Who doesn't know what to do

To be, or not to be, that is the question—
Whether 'tis Nobler in the mind to suffer
The Slings and Arrows of outrageous Fortune,
Or to take Arms against a Sea of troubles,And by opposing end them? (Hamlet, Act III)

You'll probaly recognise this as the speech given by Hamlet follow the murder of his father at the hands of his uncle. Hamlet laments the pains of life, considering whether the alternative is any better. This quote exemplifies the internal struggle that everyone, more or less, goes through when considering ending their own life. 

So what is assisted dying? Well it's often confused with euthanasia, but there is a subtle distinction between the two. Euthanasia is the killing of another to give relief from suffering, whereas assisted dying is the assistance by an individual to help end the life of a competent patient at the patient's request. The prime example of assisted dying would be a physician providing a lethal dose of medicine upon the patient's request.

At the time of writing assisted dying is only legal in Switzerland, whilst euthanasia is legal in Belgium, the Netherlands and Luxembourg. The latter two countries have provisions for assisted dying and in the American States of Oregon, Vermont and Washington there are assisted dying laws for terminally ill competent adults only.

Under the present English law, suicide isn't illegal; however, assisting in a suicide is. Surely one could argue a right to life necessitates a right to death? Supporters of the legislation to legalise assisted dying claim that all persons have a moral right to choose what they want do with their lives. Opponents argue that to allow assisted dying is to begin a slippery slope to legalised killing, where elderly people may feel a burden and compelled to end their life. I was always dubious of the persuasiveness of this argument until I read that Switzerland has recently extended assisted dying to those not terminally ill, which is exactly the fear that the opponents to assisted dying have.

This is where Professor Sanders' work comes in. From my brief reading of his work he posits the rule-consequentialist 'freedom approach'. This theory prescribes the pursuit of whatever action brings about the greatest 'freedom'. Now immediately this opens up a semantic weakness in the argument; people have different understandings of what 'freedom' means. This will inevitably result in a logomachia during my position but something I hope can be resolved without falling into the trap of creating a circular argument. I am currently finding it difficult to conceptualise how the freedom approach can be effectively applied to the topic of assisted dying, but this is something I am very much looking forward to exploring!