Overview and Key themes: Introduction
Our survey results this year reflect both the impact of ongoing uncertainty over the terms of the UK’s departure from the EU, and the coronavirus (COVID-19) pandemic in the last quarter of the year to 30 April 2020. From the implementation of UK lockdown in March, most law firms moved swiftly to put measures in place to reduce the impact. These included a combination of reduced partner distributions, salary freezes, bonus deferrals, reduced working weeks, curtailment of discretionary spend, and shoring up of debt facilities. Against this sobering backdrop, our more optimistic theme for this year’s survey is ‘Embracing change to succeed’, reflecting the opportunities that exist for firms to drive positive improvements from the disruption that has been forced on the sector.
Prior to the beginning of lockdown, the legal sector was already facing challenges. Last year’s survey highlighted these under the theme ‘Adapting to a new world’ – which continues to be relevant in the current environment. Challenges included:
- ensuring sustainable and profitable growth
- building an attractive culture for today’s workforce
- investing in the right technology.
These challenges have not gone away, but firms will now be considering how to tackle them in a very different environment. Our survey reveals that COVID-19 is viewed as the most significant threat to law firms meeting their future ambitions over the next 2-3 years. Budgets, ambitions, and strategies have been and will continually be revisited and refreshed accordingly.
The challenge of achieving profitable growth is reflected in the current year results across all key metrics; for example 42% of Top 100 firms experienced falls in net profit; Top 10 firms’ UK net profit margins fell for the sixth consecutive year; and UK PEP has reduced across all Top 100 bandings. Whilst it’s easy to blame COVID-19 for these results, analysis of our quarterly surveys throughout 2019/20 reveals that profits had already begun to deteriorate well before the start of the final quarter of the financial year.
The workforce itself has experienced the biggest impact from COVID-19. Very quickly, staff have had to adapt to remote working. Whilst the impact has been severe, law firms have been given an opportunity to fast track positive cultural changes in areas such as work/life balance, hybrid working, use of office space, diversity and inclusion, mental health, and upskilling staff in digital technologies. With trust under the spotlight due to COVID-19, employers have the opportunity to build trust with their workforce by acting transparently and fairly, shouldering the financial burden whilst protecting jobs so far as possible, and demonstrating their core values of care and community.
With technology progression becoming an increasing priority for many firms in recent years, the importance of IT came to the fore right at the start of the COVID-19 lockdown. IT systems were put to the test and some firms had to invest quickly to ensure they could support their entire workforce remotely at very short notice. This stimulus will allow firms to assess the extent to which their IT systems are fit for purpose and make important further changes for the future. Considerations will include: moving data and applications to the Cloud, making more effective use of IT in firm-wide decision making, increasing efficiency and digitisation in end-to-end processes, and encouraging ongoing innovation to take advantage of emerging technologies.
Whatever IT improvements are introduced, it’s of equal importance that the workforce have the capabilities and motivation to use this IT and generate the intended benefits and, therefore, firms should ensure there is a clear focus on change management, communication, and training alongside their IT investments.
Investment in IT should also include responding to the ever growing cyber risk, which has further increased during the pandemic. Whilst the response to cyber risk has improved over recent years, support and commitment at the governance level could be improved. Less than a quarter of all Top 100 firms have cyber committees that report into those charged with governance and this could impact the ‘tone from the top’ in this critical area.
So, the future will definitely have its uncertainties for the legal sector. But we believe those firms that build on the work initiated in their immediate COVID-19 response, and embrace the innovation displayed, will emerge the strongest.