Following our insight last week on the immediate aftermath of Brexit and the reaction from our clients on the continent, this week we further develop this line of thinking to assess what the reality of Brexit might mean for law firms operating throughout Europe.
As has been widely reported in the legal press this week, one initial change we can expect to see in London is a slowing of the pace of growth and investment from US firms as they assess the possibility of growth in mainland Europe. This is despite a number of US firms committing to mid-term growth strategies in London.
Although US firms are often quick to seize opportunities in new markets, according to those we have been speaking to this week, development of US practices on the continent might not be that simple.
With the immediate impact of Brexit causing the dollar to gain significant ground on both sterling and the Euro, we could see a significant opportunity for US firms to pick up European talent and build their businesses accordingly, as those who are remunerated in sterling open their mind to the perceived safer haven of US firms who compensate in dollars. This is particularly the case for partners at UK firms who have seen both their remuneration and capital contributions diminish overnight.
However, this view fails to take into account a key financial factor. If the Euro weakens (as it has) against the Dollar, that the revenues and profits generated by US firms in Europe will decrease. As we have seen, US firms have been more focused in recent times on London due to the greater profit margin on offer in the City, which will not change with Brexit. Furthermore, a partner being paid in Dollars and billing clients in Euros offers US firms more problems when it comes to profitability. On the other hand, whilst law firms should not look to expand and contract based on exchange rates, one positive for UK firms to take from Brexit is their continental partners just got that little more profitable with the sterling’s slide against the Euro.
Whilst there will always be opportunities for US firms to make strategic investments, we feel the likelihood of substantial growth on the continent unlikely, at least in the short term, following Britain’s decision to exit the EU. For UK firms, businesses able to think clearly and implement an international strategy enabling them to take advantage of European opportunities will best be able to navigate this uncertainty.
So whilst there are clearly still no answers at this early stage following last week’s news, the debates have begun and we here at Fides are keen to engage fully to advise our clients and contacts accordingly. Amongst the turmoil of Brexit there will be gains to be made.
Written by Tom Spence, Director at Fides Search