If a law firm engages in currency hedging, it is either putting form ahead of substance or painting over a much deeper issue.
One reason cited for firms hedging their international revenues is to prevent, say, a decline in sterling from lowering the firm’s revenues as stated in U.S. dollars. It’s not obvious why a firm would care about this kind of artificial revenue decline; it certainly doesn’t reflect on the fundamental strength of the business. It does affect the dollar-denominated revenue growth rates reported in the legal press. This is unfortunate; ideally the press would restate prior year numbers using current exchange rates before determining growth rates. However, unsophisticatedly-reported growth rates are not a compelling reason to hedge. The issue is readily explained to a firm’s partners and, indeed, a firm can use the constant exchange rate approach to report an accurate rate internally.
