Brexit, growth and the economy were the main challenges reported in the findings of the Annual Smith & Williamson Survey of Irish Law Firms 2017/18.
The most striking findings were the huge number of firms not having a Brexit strategy in place and the large number of major UK law firms planning to open offices in Dublin.
This is evident in their responses to Brexit, as most Top 20 firms are currently executing a Brexit strategy while 97% of non-Top 20 firms do not have a Brexit strategy in place albeit most firms see Brexit as either an opportunity or a threat to their firm.
Another concern arising from the study is the large number of UK firms who are now in extremely advanced stages of planning to move into Ireland as a result of Brexit. 44% of the Top 20 firms have been approached by a UK law firm in the past 12 months with regard to a possible merger, acquisition or strategic representation arrangement.
Other findings from the survey include a continuation of the steady growth in the Irish legal sector with 67% of legal firms reporting increased revenue growth and 62% reporting increased profits in the last 12 months. There has, however, been a notable divergence this year with Top 20 firms not reporting as much revenue and profit growth in the last 12 months as against regional firms who seem at last to be enjoying some of the fruits of the recovery.
According to the results of the survey, recruiting and retaining staff is an increasing concern for many firms, with 67% of the Top 20 firms identifying it as a key issue. Competition for talent is intensifying in the marketplace.
Salary increases continued to outstrip inflation in the sector last year with 63% of all firms (89% of Top 20) reporting pay increases of more than 3% while 40% of all firms (56% of Top 20 firms) paid increases of more than 5%.
Aside from the burning issue of Brexit, the study found that the key issues which face legal firms over the next 12 months are:
- Maintaining profitability
- Managing cash flow
- Pressure on fees
- The economy
- Recruitment and retention of staff
The survey also found that there are large differences in the importance placed on these issues between large and small firms. For the Top 20 firms, the economy, recruitment and retention of staff and Brexit are the main concerns for the next 12 months while for smaller firms it is maintaining profitability, managing cash flows and pressure on fees.
Commenting on the impact of Brexit on the legal sector, Smith & Williamson Managing Director Paul Wyse said; ‘’we are in a period of uncertainty about Brexit and many firms are concerned about the impact it will have on their business. Two thirds of the Top 20 firms are executing Brexit strategies and there are also concerns about increased competition from UK firms setting up operations in Ireland An increasing number of firms outside Dublin are reporting negative Brexit impacts but only 3% have Brexit strategies in place.’’
With improved firm performance and increasing staff numbers, recruitment and retention of staff is an increasingly important issue for firms as the competition for talent heats up. This is reflected in increasing wages but also in the number of firms making lateral hires form other firms in addition to UK firms setting up greenfield operations. Firms are having to introduce innovative reward mechanisms. Firms are having to introduce or increase the availability of flexible working for staff as identified by 43% of all firms and 78% of Top 20 firms. Other measures firms are using to attract and retain staff are unpaid leave (26%), financial rewards (47%) and flexible benefits (39%).
Commenting on this, Paul Wyse said: "Companies are finding it increasingly difficult to attract and retain talented staff, and are offering more attractive salaries, flexible working arrangements and benefits as a result. Younger solicitors are seeking a better work/life balance and more and more solicitors are moving into in-house and public sector roles, and these now make up 20% of all Irish solicitors, up from 12% in 2007. These roles are generally less pressurised and have shorter hours than most legal firms.’’
Another key theme of the survey findings is the increasing awareness of and importance placed on technology, both its opportunities and threats. 60% of firms have updated or improved their IT infrastructure in the past 12 months or see it as an immediate priority. The acceleration of technological advances in the sector and the potential disruption of same to practices, working arrangements and staffing is now considered a major challenge over the next five years by most firms. Three in four firms are also looking at IT to improve the client experience and better manage workflows.
Cybersecurity has emerged as a major challenge to the sector, with 70% of all firms regarding it as a key technology issue. This is not surprising as cyber-attacks on Top 20 firms are up 60% with 61% of such firms reporting cyber-attacks in the last year up from 34% in 2016. More than 1 in 3 law firms reported cyber-attacks this year as against 29% last year an increase of 23%. Commenting on this, Paul Wyse said: "we have once again seen a dramatic increase in cyber-attacks. It is clear that firms are now beginning to invest in cybersecurity and they are also seeing the necessity for and benefits that updating their IT infrastructure can bring.’’
The survey was conducted by Amárach Research during September and October. 115 law firms, a range of large, mid-tier and small firms, were canvassed their opinion across Ireland.