ESG moving up agenda as mid-sized law firms seek growth


Blech: Firms can control their focus and strategy on growth

Mid-sized law firms are focused on growth but recruitment troubles risk holding back their plans, according to new research.

These firms are also increasingly taking environmental, social and governance (ESG) issues seriously, in part because they are seen as important to potential new recruits.

The poll, conducted by accountants MHA in association with the Law Society, also showed that senior management do not believe that remote working has damaged staff productivity – in the week that former supermarkets boss Lord Rose said working from home has meant a generation of people “not doing proper work”.

The Strategic Legal Sector Insights Report surveyed 64 partners and other senior representatives of mid-sized law firms with eight to 50 partners and found that growth was “the ultimate objective” of most firms, whether organic or through a merger and acquisition (M&A).

“Many firms are seeking to sustain the momentum gained post-Covid-19, while others aim to increase it further. Organic growth has emerged as a central theme,” it explained.

“Firms are focusing on expanding their internal talent pool and enhancing productivity through targeted investments in people and technology. This includes looking at pricing of services provided.”

There was also enthusiasm for spreading their geographical footprint, with 80% looking to open a new office or expand their space in a new or existing location,

However, difficulty with recruitment and developing staff was the key threat, with 41% identifying it as the greatest challenge, followed by rising costs (23%).

This meant that achieving growth “may prove difficult”, the report said. “Although there are opportunities to upskill trainees, this process will take time and may not align with short-term goals.”

The findings also suggested that the traditional partnership path may become less appealing, “potentially due to individuals weighing the risks against the rewards of taking on partnership responsibilities… it is evident that many professionals prefer to focus solely on practising law rather than taking on business management duties”.

Over the previous year, 13% of respondents engaged in M&A, while 17% planned to pursue it in the next year; 3% were considering selling up.

“We find the low percentage of firms looking to grow in this way interesting, bearing in mind the legal market is still highly fragmented compared to other professions and a merger provides a short-cut to growth,” the report said.

“Anecdotally, we believe this may be due to firms not knowing where to start with a merger or how to identify targets, as well as a reluctance to dilute control. The accountancy profession provides a stark contrast, where M&A activity is at an all-time high.”

The survey revealed that 84% of firms reported increased or comparable levels of productivity under hybrid working policies – 72% of firms had staff in the office either three or four days a week, with smaller practices more likely to require four or five days.

The report said growth should be measured more broadly to encompass the wider ethical responsibilities and technological advances which a mid-tier law firm must also embrace. “ESG is now not seen as an aspiration but a necessity for a legal practice in 2025.”

Many firms provided equality, diversity and inclusion, as well as unconscious bias, training, while “a surprisingly large minority of firms” reported “considerable progress” on environmental matters.

“A surprising feature of the results was the number of below £10m fee income firms that have a well-defined plan in place relating to ESG. The reason we find this surprising is that there is clearly a cost involved in the use of external consultants, lost time, changes to the physical working environment and so on.

“Responses indicate that ESG actions are now considered more important in the recruitment process, and we suspect that, over time, there is a risk to the reputation of firms that get left behind…

“Whilst most firms said that they are on a journey in relation to ESG, it is interesting to note that there is momentum and that there are many examples of firms making tangible changes to their ways of operating rather than the ‘best intentions’ of the recent past.

Half of firms were planning a “significant update” to their IT systems in the next year, although caution prevailed over artificial intelligence (AI) – only 25% of firms surveyed were currently using it, while a third of the rest have no intentions of looking at it within the next 12 months. Most firms felt further guidance was needed.

But the report warned that firms risked being left behind “if they do not consider the implications [of AI] to their operational processes”.

MHA partner Robert Blech commented: “It seems that for the first time since Covid, firms can control their focus and strategy on growth. Financial success, however, will not be the only measurable of growth, but also responses to technological change and progress with ethical responsibilities.

“People, however, remain the core to achieving and maintaining a successful law firm and ensuring retention of staff and having a good recruitment process is essential.”




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