The legal landscape
Heading into this crisis, law firms were feeling confident: revenues were up, margins were stable and around four-fifths were optimistic about the year ahead. The coronavirus has changed all that. Many law firms were forced to furlough staff and are now contemplating an uncertain future.
Competitive pressure has been a fact of life for law firms in recent years: they must now compete with some accountancy firms as well as each other to hire the best staff. This has seen significant wage inflation, which in turn has stifled margin improvement. At the same time, there is greater competition for work, which puts additional pressure on fees.
From here, those firms that have invested in technology, managed lock-up successfully and, perhaps most importantly, are in the right areas for the post-coronavirus world are likely to steal a march. Expect areas such as bankruptcy and litigation to forge ahead, while other segments, such as real estate, to struggle.
Respondents say the legal industry is battening down the hatches for the foreseeable future. That means M&A and team hiring may be off the table in the short-term. That said, those firms with greater vision may spot the opportunity to pick-up high-quality lawyers at a time when they may be disillusioned.
Last year, we warned that the slow progress on lock-up could pose a real threat to firms in a crisis. Today, we are in the white heat of a crisis and the end of the transition agreement is just around the corner. Firms may now be regretting they didn’t do more to build resilience into their businesses when times were good.