Posted by Nigel Wallis, consultant at Legal Futures Associate O’Connors Legal Services Limited
Wallis: Leaders better equipped than ever to seize opportunities
More than three-quarters of those responding to our law firm leaders survey said their most pressing business concern was recruiting staff, with over a third having difficulties retaining staff.
Notwithstanding these challenges, more than half said they were planning to increase their headcount and only a tenth planning to reduce it.
These findings will come as little surprise to many law firm leaders who have been engaged in a candidate dogfight over the last few years. With increasing economic uncertainty ahead, one wonders if the tide may be about to turn.
The survey, conducted during September and October, attracted 38 full responses from firms ranging in turnover from £2m to over £100m, a quarter serving only business clients, a quarter serving only individual clients and the rest in both markets. Just under two-thirds of the firms were private limited companies, just under one-third were limited liability partnerships and the remainder were a mixture of traditional partnerships and sole traders.
Over a third of the firms were alternative business structures and less than a fifth planned to change their legal structure in the foreseeable future.
After recruitment, the next most pressing concern for law firm leaders was overhead inflation (62% of firms), particularly the rising cost of professional indemnity insurance (54%). Indeed, two firms mentioned the extreme difficulty of obtaining cover at all, though they said they did eventually manage to do so.
According to the survey, 43% of the firms predict posting an increase in net profit for their current financial year over their previous financial year, with 35% expecting it to remain steady and only 22% forecasting a fall.
Working patterns remain flexible, with the majority (71%) allowing staff to formally elect to work partly in the office and partly from home.
One in 10 firms were still require everyone to work full-time in the office and 13% were happy to let their staff work in whatever way they chose (what we termed the free-for-all model).
Fewer than 3% allow staff to work permanently from home. Nobody expected their working patterns to change greatly during 2023.
A fifth of the law firm leaders are currently considering a trade acquisition, just under a fifth are considering a trade sale, a quarter considering merger talks and just under a third actively looking for significant lateral hires.
To emphasise the diverse fortunes within the legal sector, one firm said it is planning a stock market listing and another is planning an orderly wind-down and closure.
The risk of a cyber event weighs heavy on the minds of many law firm leaders, with 46% saying it is one of their greatest concerns.
This is perhaps not surprising given that 10% of the firms said they had experienced a cyber event in the last year that had had a material impact in terms of financial outlay, management time or reputational damage.
Most (85%) firms have provided cyber risk prevention training to all their staff (hopefully the remaining 15% are on the case), 71% have taken out cyber liability insurance and 50% have secured Cyber Essentials, Cyber Essentials Plus or an equivalent accreditation.
Only 16% of the firms have reviewed the cyber security provisions in their supplier contracts, which is probably a good action point for everyone else.
Although a quarter of the law firm leaders said they expect 2023 to be quite a tough year – with one proclaiming ‘I’m a Law Firm Leader… Get Me Out of Here!’ – half the respondents said they were expecting 2023 to be ‘an OK year’ and 16% feeling ‘it’s going to be a cracker’.
Albert Einstein said that in the midst of every crisis lies great opportunity. Our experience of working with law firm leaders across the country suggests they are now better equipped than ever to seize whatever opportunities 2023 presents.
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