Full Disclosure:​

The biggest challenges facing law firms in 2024​

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By Jaysen Sutton​

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Hi Reader šŸ‘‹šŸ½,

1. How do law firms attract and retain talent in 2024, given the changing needs of a new demographic?​

The success of a law firm is based on the success of its people. Not only do they need to attract diverse, smart lawyers to work at the firm, but they also need to keep them there, which is increasingly important given how fierce the competition is between law firms.

In the past, lawyers used to have a deeper sense of loyalty to the firm they trained with. This is not so much the case now; when the US law firms entered the London legal market, their willingness to attract lawyers with high pay packages and bonuses changed the market. Why stay at my firm, when I can move to another for a few more hours but a much higher pay?

The current trends related to this include:
  • How the pandemic normalised remote working (and see some law firmsā€™ attempts to battle this, with Slaughter and May and Clifford Chance monitoring attendance);
  • The increasing reputational impact of the clients that law firms advise: According to The Lawyer, only 10.6% of the lawyers surveyed in 2024 would feel comfortable acting for states condemned for human rights abuses, down 4% from 2022, while Womble Bond Dickinson came under fire for the role its legacy firm played in the Post Office scandal (a FOI request shows the firm pocketed over Ā£37m from its representation);
  • The ongoing salary war - can law firms offset their rising salary costs by generating more fees, or will they take the hit on their profit margins? And Is high compensation enough to attract talent?
Anecdotally, I expect law firms will see the real effects of the changing needs of new talent soon. Most aspiring lawyers I speak to already think in terms of ā€˜Iā€™ll stay at this law firm for X and then leave and do Yā€™.

Pay packages are great but not enough to compensate if the working conditions are poor.


2. The new competitors to US law firms in London​

I'd describe this as Suits in real life.

When Kirkland & Ellis and Latham & Watkins entered the London legal market, the press was all over their willingness to target rainmakers at the magic circle law firms, and draw them in with large pay packets and bonuses.

But have these firms scaled too fast? Paul Weiss, a big-hitter in the US, has now made a huge splash in London, raiding star partners Roger Johnson and Neel Sachdev from Kirkland. Many associates have now also moved, as the firm makes a huge investment to build out its private equity practice in London. For the lawyers that move, itā€™s an opportunity to operate like a start-up, retain a close-knit culture, and make a mark on the legal industry in London.

How do you deal with losing star partners and the clients that follow? Should you crack down on non-compete clauses? Some law firms are not taking it lightly; Linklaters is reportedly considering withholding profit distributions from partners that leave competitors.

Iā€™d pay close attention to Paul Weiss this year; itā€™s a perfect example of why even the leading law firms can never get too comfortable.


3. Generative AI: Is it just hype for the legal profession?​


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Everyone is talking about AI. This is something to be mindful of; if you bring this up in an interview, I would expect the interviewers to hear many candidates mention this topic. This doesnā€™t mean you shouldnā€™t mention it, it's going to absolutely transform the commercial world, but I would only be mindful that it's important for you to understand the implications if you bring it up.

For example, recently I have heard multiple candidates state that ā€˜AI will automate work and lead junior lawyers to have more time on client relationshipsā€™. When I push them on this topic, they struggle to explain why.

Here is one example relating to productivity:

Remember that there are many tasks to be undertaken in a law firm, and a lot of them are administrative. You need trainee solicitors to format tables, undertake preliminary research into specific legal issues, put together indexes, or drafts of an agreement using precedent.

Now imagine if a law firm trained a generative AI model using its materials. Suddenly, you have this tool to rely on whenever you have a query. It could research legal issues for you, sense check your draft to a client, and produce easy-to-understand comparisons between documents.

This is useful when thinking about the important metrics for a law firm, like utilisation. It's profitable for a law firm if generative AI means you can spend more time in your day working on billable work.


4. Will we see more consolidation in the legal sector?​

Allen & Overy made a big fuss about its merger with Shearman & Sterling last year, pushing out the press before its partners had approved the merger. The challenge with mergers is that itā€™s easy to announce but extremely hard to implement. (See SJ Berwin and KWM: a friend of mine sadly had their training contract revoked when KWM collapsed).

Integrating two cultures comes with the pain of removing duplicate roles, simplifying systems and promising individuals that they wonā€™t lose their autonomy.

What it does give the two firms is scale. The magic circle has been trying to establish a deeper presence in the US for decades; Clifford Chance merged with Rogers & Wells all the way back in 2000, while Allen & Overy previously considered a merger with Oā€™Melveny & Myers in 2019. The US market is huge and profitable, but the challenge is entering a market where clients have long-standing relationships with rival US law firms.

It will be interesting to watch what the other magic circle law firms do in response this year: will there be more consolidation in the legal sector? How will they compete for establishing a stronger presence in the US market?


5. The economy in 2024: the role of interest rates, inflation, supply chains and upcoming elections​

Traditional M&A, private equity and capital markets work slowed down in 2023 (global deal value halved between 2021 and 2023!) as companies held off on dealmaking because of the higher cost of borrowing money. This corresponded to a slowdown in transactional work for law firms in London.

US inflation was higher than expected in December, tampering expectations of interest rates cuts. The conflict in the Red Sea and geopolticial tensions has also led to inflation risk as companies raise prices to account for the transportation disruptions.

The big deal in 2024 is the elections. Will companies continue to hold off on dealmaking until they have clarity over the outcome?


6. ESG - is it genuine?​

ESG is just as important for companies as the law firms that advise them. This is an important problem that has reputational implications, with some publications ranking law firms on their performance. Several law firms have also set new targets for the reduction in their emissions.

There have been many interesting developments for clients recently, including sustainability-linked loans, where banks provide borrowers with a lower interest rate based on their ability to meet an ESG target. There have also been increasing concerns over greenwashing by regulators.


Why does this matter?​


Read 'The Business of Law Firms' here.


Have any thoughts? I'd love to hear your perspective below!

ā“Contact [email protected] with any queries.