As the United States heads into its ninth year of uninterrupted economic expansion, a familiar word is making a resurgence in public discourse: Recession.
With an inverted bond curve, a global wave of protectionism, interest rate hikes and, in South Florida, a condo market slowdown, the signs of a downturn are out there. The questions for economists and law firm leaders are when will it come and how bad will it hit South Florida.
Legal industry analysts are still bullish on 2019. A recent report from Citi Private Bank’s Law Firm Group predicts another year of growth, despite worries from some economists of a downturn. Half of the economists polled in a recent Wall Street Journal survey predicted a 2020 recession, and 10 percent see one coming next year.
“I think everyone has on their mind a possible recession in the next year or two,” said Cartwright. “But we’re prepared. One of the strong points of Holland & Knight is that it’s very diversified.”
A recession puts a damper on the real estate and land use practices that are so central to South Florida’s economy, but the firm’s presence in other practice areas such as bankruptcy, coupled with little debt, put it in a strong financial position regardless, she said.
Cartwright expects the firm to rake in $905 million in 2019, a 7 percent increase over the $848 million in revenue it brought in this year.
From all the lessons learned from past recessions, low debt may be the most important, said Joe Ankus, founder of Ankus Consulting.
“Firms that are debt-free are absolutely five miles ahead in the marathon,” he said.
Salary holdouts, where partners may miss out on some end-of-year pay distributions to keep the books balanced, are a common way to keep debt low, he said. It takes discipline to stay debt-free in a world of salary wars and record profits, and Ankus points to the spectacular implosion of Dewey Lebouf in the last recession as the gold standard of recession mismanagement.
“To attract talent, Dewey would offer these preposterous guarantees to partners and when the end of the year comes and a partner pulls in only half of what they promised, the firm would be in the hole,” he said.
Greenberg Traurig also touts practice area diversity as the key to withstanding a recession. Fears of a downturn can bring a lot of refinancing work before it even begins, and lower company valuations can make M&A’s more attractive to private equity firms. Additionally, South Florida’s unique relationship with Latin America and Spain puts firms that have a strong presence in the region — firms such as Greenberg — in a better place, said Yosbel Ibarra, co-managing partner of Greeberg Traurig’s Miami office.
“When there’s a perception that the U.S. market softens, there tends to be inbound investment because foreign buyers and investors still see the U.S. as a place with a good investment environment,” said Ibarra, pointing to clients in Brazil and Spain who invested in the U.S. in 2008 and 2009.
Jaret Davis, co-managing partner of Greenberg Traurig’s Miami office, added that South Florida’s market is much more diversified than last time around. Trade and logistics, health care and technology have made large strides, he said, and South Florida isn’t as exposed as it was a decade ago. “Our city is more hedged than ever before,” Davis said.
And when sheer size doesn’t cut it, smaller firms such as AXS Law Group in Wynwood, have different tricks. The firm prides itself in innovation and regularly offers alternative fee structures ranging from flat fees to equity in the client’s business. This puts the firm in a good position when clients start looking for ways to cut costs on legal fees, said Ben Wolkov, co-founder of AXS.
“We’re more recession-proof because of our flexible billing,” Wolkov said. “It’s much less costly for clients than per hour.”
In the end, Ankus said the most important metric for a recession-proof firm is its leadership. Hard times challenge a firm’s management and philosophy, and the worst thing a firm can do is reduce itself to an every-person-for-themselves pit fight and regress into a meritocracy.
“Size doesn’t matter. Management matters,” he said.