Small Law Firms at Big Risk in Italy

Not only has Italy been one of the nations worst affected by COVID-19, a section of its legal market appears particularly vulnerable to the seismic economic shocks that look set to follow.

Sole practitioners and small law firms, of which Italy has plenty, face the tough task of working remotely and staying afloat during the quiet period, according to various local lawyers.

“It’s something peculiar in the Italian market”, says one Milan-based corporate partner at an international firm, “that many firms are made up of only one-to-three lawyers”.

“There’s plenty of smaller firms, professionals who still practice like it was years ago. This shows Italian lawyers do not change very easily, but maybe this will change their approach.”

The social and economic upheaval facing the country is immense. As of March 31, Italy had more coronavirus-related deaths than any other county, having seen 12,428 deaths, almost half of all deaths in Europe, according to Statista.

The partner adds that “one man show” operations and smaller firms in Italy do not necessarily have the financial structures to remain financially secure and could experience “major problems”.

“Italy is very traditional as a market”, the person continues. “Lawyers in Milan are changing, but if the rest of Italy doesn’t adapt quickly, they won’t survive”.

“I’m not sure how sophisticated they are and whether they are able to adapt to this new world where we’re forced to work remotely”

The view is echoed by a private equity partner at one of the country’s best-regarded firms, who estimates that close to 50% of the Italian legal market is made up of individual practitioners or small firms. They say these firms will be impacted largely due to the fact that court activity is suspended, so the “usual stream of revenue is capped off”.

“I’m not sure how sophisticated they are and whether they are able to adapt to this new world where we’re forced to work remotely”, they explain. “They’re struggling to survive but also can’t do much else if litigation is paused.”

The private equity partner adds that boutiques will probably survive but will be “struggling”, and that they could see an exodus of talent should they freeze associate salaries, which is happening across developed markets.

“If you’re big, you have big shoulders and can navigate better in crises”

“Firms are discussing this”, the partner says. “One possibility is laying off associates and staff, but most firms are more likely to consider freezing at least the increase of salaries.”

“If you’re big, you have big shoulders and can navigate better in crises”, the partner continues. “As always, crises push you to think about your model and whether the model is the best possible one in terms of efficiency.”

Tech ‘a big differentiator’

Size is not the only concern. A lawyer in an Italian legal arm of a Big Four firm also sees smaller firms that are not technology-literate, putting them at risk of being impacted negatively, particularly as digitalisation and e-commerce continues to boom.

Describing the current situation as “strange days”, the lawyer explains that technological ability “could be a big differentiator” as it is the key to ensuring business continuity. “These new ways to work are here to stay”, they add, “they will be the new normal”.

“Bigger firms are usually more tech-friendly than smaller firms, notably outside big cities. Clearly, this is not just an Italian situation. The key here is the ability of those in charge to adapt quickly to new needs. The evolution theory is nothing new. Bottom line, as Darwin used to say, it is the most adaptable species that survives.”

The need for adapting to a new scenario also applies to larger firms, which partners admitted would also be badly affected by the crisis.

“We still have things to do but we do not receive many emails every day. I don’t”

The partner at the elite firm says the firm’s billable hours are down by around 30%, while another partner adds that although their billing hasn’t vastly been affected yet, it “certainly will be”.

“We still have things to do but we do not receive many emails every day. I don’t”, they add, also stating that they expect to see firms make redundancies.

A financial services partner at another domestic firm suggests that big law firms with a corporate and M&A focus will be seeing a lot of difficulty. A real estate partner at a large international firm predicts there won’t be a significant recovery until 2021.

The Big Four lawyer does think that bigger firms may suffer “due to the contraction of the capital markets and financial activity”. Yet, the lawyer does not think the larger firms are likely to shut down. They pointed to their time as a lawyer during the 2008 financial crisis, where they found they benefited with an influx of work.

“Firms didn’t close then and they won’t close now”, they added. “Whatever happens, there is always a need for lawyers unfortunately”.

The partner at the elite firm echoes this, stating “there will always be things to do in the firm – we’ll survive, of course”. They add that although the work now may be small, when you “put together many small things, in the end it can be great amounts”.

Some expect a ‘V’-shaped crisis, where you shoot back up as fast as you went down. But they are also conscious of the virus returning if things return to normal too quickly. One partner says: “Everybody could come back to work in May, but then there could be a bounceback of the virus in, say, September.”

“Depending on the magnitude of the bounceback, we may again be in trouble”.

Read More:

Stay Flexible and Get Your Sleep: Life in Lockdown for a Working Parent in France

Slaughters, Linklaters Halt Associate Recruitment Amid Pandemic Disruption