Hi guys, The Lawyer magazine recently released a very interesting article following a survey they undertook with law firms regarding their feelings towards Brexit and how it has impacted them so far. Bearing in mind what is currently happening in UK politics, I thought this would be a good time to share it!
Enjoy!
Dan
Introduction
In its 24th annual law firm survey, produced in collaboration with The Lawyer, Smith & Williamson sought the opinions of more than 130 law firm senior UK executives to understand their current attitudes towards Brexit and the broader levels of business confidence in the market. This barometer of the concerns and opportunities seen by senior industry figures has been running since 1995, providing insights into long-term trends. The clear messages coming out of this year’s survey show that law firms are continuing to fight for top talent in a competitive market but are increasingly confident about the opportunities available, despite the uncertainties ahead.
Brexit uncertainty
In stark contrast to last year, the views on Brexit have shifted, with a level of uncertainty creeping into what had been a clear-cut concern over the decision to leave the EU. Firms that had previously seen Brexit as a threat are now not so certain, presumably reflecting a view that maybe it won’t be quite as bad they had feared. This is the overriding sentiment across England, but in Scotland, the picture is very different, with over half of respondents still considering Brexit to be a threat.
Despite the uncertainty, both the short and long-term impact on levels of business continue to be the greatest threats that firms across the UK believe Brexit will bring. In addition to an impact on business, there is concern held in Scotland that Brexit will bring greater industry regulation, a view that is not held by firms in London. It appears the attitudes towards Brexit are becoming more polarised the closer we get to the departure date.
The level of uncertainty reported by firms, coupled with a growing economy and growing revenues, is perhaps the reason that many in England have not executed a Brexit-specific strategy plan. Again, Scotland stands out here, with over three-quarters of firms saying they had already executed a Brexit plan.
Whatever happens, the change that comes with Brexit will almost certainly generate new client demands, and those with substantial EU-related business should be adopting a more robust approach to contingency planning.
Confidence and competition
Despite uncertainty over Brexit, confidence across the legal market appears to be at an all-time high, which is a surprising result, given the uncertainties, not just around Brexit, that could impact the economy. Firms do, however, see competition within the legal marketplace intensifying over the next three years, reporting they expect to see increased levels of competition from their existing rivals and from niche players who have deep sector or product experience.
This year’s survey shows that law firms are increasingly confident about the opportunities available, despite the uncertainties ahead
One area of competition we believe has been underestimated by law firms is the Big 4 and their growing importance within the legal market. Both EY and PWC are making significant inroads into this market, with double-digit revenue growth that now challenges some of the UK top 50 firms and acquisitions that will enable them to compete, or even begin to lead, in certain markets and product areas. These firms also bring strong client bases and proven track records of delivery, begging the question, how long will it be before companies are just as comfortable asking one of the Big 4 to manage their legal requirements in the same way that they manage their tax and accounting requirements?
The war for talent
As with last year, firms report that attracting and retaining the right people is their number one concern over the next three years. The market has seen significant activity in this area over the past 12 months, with some US law firms pushing associate salaries up by almost 20% to retain the very best people. While these City salaries may not be matched across the regions, they are at the heart of a salary-inflation cycle that will affect all firms over the coming years.
The war for talent is not just confined to the associate-level lawyer. The past 12 months have seen almost a doubling in the number of lateral hires taking place, with the US law firms in London once again leading the way. Law firms are also beginning to see significant personnel changes outside of traditional legal positions, with a new breed of tech-savvy, legal-minded roles emerging. Firms are starting to recruit heads of innovation and to create teams of legal project managers to ensure smoother delivery of client work to time and budget. These roles are only expected to grow in importance and stature in the coming years.
Growth and acquisition strategies
In an increasingly competitive market, firms are looking for ways to stand out and, as in previous years, a focus on specialist sectors is seen as the biggest opportunity for respondents as they recognise the importance of differentiating themselves.
Around 40% of firms responding to our survey indicated they would be looking to expand geographically in the next 12 months but, quite surprisingly, given its imminent departure from the EU, most of these firms were seeking expansion within the UK, with only a few firms suggesting they would be looking for growth in Europe or elsewhere.
Although some firms are seeking growth, mergers and acquisitions are still not considered by many as a viable approach. Just over half of our respondents indicated that they would be seeking growth through more risk-averse methods, such as hiring a new team to build capabilities in new business areas.
Legal technology
Much has been written about how legal technology will impact the industry. However, our research has shown that, over the next 12 months, firms will be focusing their efforts on many of the traditional technologies used to deliver legal services to their clients.
There is continued investment in cyber-security as the legal market strives to ensure that clients’ confidential materials remain secure. Other areas of investment appear to concentrate on operational activities rather than the ground-breaking AI solutions that have been talked about. Investments in document management and workflow solutions appear to be the order of the day, while for firms in London there is continued interest in delivering remote working capabilities to their employees.
Most surprisingly, many respondents singled out AI technologies as areas they were least likely to be investing in over the next 12 months. It would appear that the market is polarised over this opportunity, as some of the larger firms have already made well-publicised investments in these technologies and are now taking their time to assess the return from these new systems. Those that have not invested in this area, however, are biding their time to see which solutions rise to the top and show clear added value to the legal process.
Still not getting the message on lock-up
Increasing competition, challenges in attracting the best people and pressure to deliver new legal technologies all require significant investment. Once again, our survey has shown that leading UK law firms appear to be banking on their ability to improve lock-up to provide the necessary funds. As in previous years, there are encouraging signs that firms are trying to address this issue, with some reporting that lock-up performance is now part of performance management and, in some cases, directly linked to remuneration. Despite these signs, the actual lock-up figures of the top 50 firms continue to go the wrong way.
In practice, firms find it hard to make significant changes to their lock-up and, with the investments in talent and technology taking several years to translate into increased profitability and cash flow, it suggests that firms may need to look to alternative approaches to funding.
To sum up, the legal sector is in a confident mood, with concerns over Brexit appearing to soften. Firms have plans for investments in technology and for business growth while keeping a close eye on familiar competition. Attracting and retaining the best talent remains a key concern and we expect the rising competitive threat from the Big 4 to add to those concerns.
They were pretty vague and mentioned that I have the following: Competency-based interview · Group exercise · Analysis presentation.
