From a talent war to inflation and looming economic turmoil, Ireland’s law firms are bracing themselves for a slowdown in growth.
Internationalisation of the sector, the war for talent, cyber risks, and economic turmoil are all factors that will challenge profitability in the law sector in the coming 12 months, according to a new report.
Evelyn Partners, an integrated wealth management and professional services group created from the merger of Tilney and Smith & Williamson, has launched its 11th Annual Law Survey.
“Challenging times have been felt across all sectors including law firms, as the last 12 months have thrown up more than its fair share of complexities”
Completed by Red C Research, the survey collated the views of Ireland’s most senior legal practitioners with Managing Partners and Senior Partners from law firms across Ireland taking part.
It’s the economy, your honour
“Challenging times have been felt across all sectors including law firms, as the last 12 months have thrown up more than its fair share of complexities,” said Paul Wyse, head of Professional Practices at Evelyn Partners Ireland.
“The war in Europe, a surge in inflation, increasing interest rates, and an energy crisis have all contributed to the turmoil being experienced. Despite all of these challenges most Top 20 firms continued their growth trajectory but are reporting a more competitive marketplace with more international firms now established in Ireland with aspirations to grow their presence here even further.”
The economy and subsequent rise in inflation was viewed as the key issue for the legal sector by two-thirds of firms (65%). Most firms (88%) thought the current economic environment would have a negative impact on the legal sector over the next twelve months.
However, having survived the challenges of 2020, and tentatively recovered in 2021, revenue has increased for the majority of firms (55%) this year. 93% of the top 20 Law firms, 67% of Dublin based firms, and 44% of regional firms have reported an increase in their revenues in the past twelve months.
Internationalisation of the market
The influx of UK or international firms has had a significant impact on the legal market here.
Most Top 20 and Dublin based firms reported that the entrance of UK and International legal firms has presented challenges for recruiting and retaining partners and staff, salary levels, the reliance on technology, service innovation, and competition in the Irish legal marketplace.
The research has shown that in the last 12 months, more than one in three firms surveyed had been approached or made an approach with a view to a merger and most of them were approaches made by a UK or International law firm. Currently seven of the Top 20 firms in Ireland are now international and or UK firms.
The Covid-19 pandemic opened up huge opportunities for employees to enjoy more flexible working, which has resulted in lawyers moving away from cities and larger towns. If an employer has not been open to accommodating remote working, employees have left and moved to firms that will accept senior lawyers working remotely.
Here in Ireland, the Right to Flexible Work Bill 2022 is on the horizon, meaning firms need to be prepared for further upheaval in the way their employees work. Ireland must also adopt the EU’s Work Life balance directive extending the right to request flexible working arrangements to carers and working parents of children up to 8 years of age.
Most Top 20 firms continue to use lateral hires as part of their growth strategies with 71% confirming they had made more than five lateral hires in the last twelve months.
Based on extrapolating the survey responses it appears that more than 150 lateral hires were made by the top 20 firms in the last twelve months. However, many recently qualified solicitors are moving to London where salaries are now six figure sums. This category has seen the most significant pay rises in the last twelve months with most top 20 firms (57%) and Dublin based firms (39%) reporting pay increases in excess of 10%.
Another reason for large amounts of UK and international firms opening offices in Ireland is to service their largest clients with operations here, give them access to EU Courts and dealing with Irish businesses with UK subsidiaries or operations to give them access to the UK post Brexit, which increases competition in the marketplace for legal firms in Ireland.
War for talent
It’s no surprise that the legal sector is also experiencing recruitment and resourcing difficulties. Almost all Top 20 firms (93%) surveyed in the report, view recruitment and staff retention as a key concern, and unsurprisingly this will have a potentially significant impact over the coming 12 months. For Dublin based firms, this issue is far greater.
While last year gave rise to the ‘great resignation’, this year will see the emergence of ‘silent quitting’. The nature of the silent quitter is to work the hours per the contract – and no more. However, in a sector like legal advice, contracted hours are a rarity as client servicing requirements do not fit neatly into a contracted hours scenario. As a result, efforts to maintain a culture of staff working extra hours as part of their normal career progression are increasingly being resisted more typically by younger staff.
There is no surprise that rising inflation is having a significant impact on maintaining profitability as it continues to be a priority for almost one in two legal firms. 45% have stated that they are expecting a deterioration in outlook for the next 12 months. Increasing salary and operating costs are putting pressures on margins for law firms across the country. Competitive pressures are increasing significantly in the Dublin marketplace as reported by more than one in two firms according to the latest research. Outside Dublin, 40% of legal firms have reported a decline in profitability over the past 12 months.
Cyber security risks
Traditionally, Irish law firms have always been conservative when it comes to investing in IT and are reluctant to embrace disruptive transformational change. However, there are signals that change is happening, 73% of firms are reporting that they intend to increase their spend on cybersecurity in the next twelve months. The research found that 64% of the Top 20 firms reported attempted cyber-attacks in the last 12 months.
Post-pandemic, we are seeing more employees working remotely therefore data security has become a hot topic particularly with legal firms.
The confidential nature of corporate and personal data handled by law firms make them a valuable target for cyber criminals. Law firms have, by and large, implemented plans to mitigate cyber risk and data breaches for remote workers. Nine in ten firms and 100% of the top 20 firms reported that they have created and implemented a data security policy.
“The Annual Law Survey provides excellent insight into the challenges, outlook, performance, opportunities, and talent in the sector,” said John O’Callaghan.
“We’re seeing huge changes in the legal sector in Ireland with the internationalisation of the market, particularly as London is making a very attractive case for young solicitors to move across the water. As we know, each legal firm has different needs and Evelyn Partners professional practice service team tailors its approach to each firm’s unique circumstances and requirements. Our focus is on delivering the power of good advice to help firms weather the headwinds and be ready to rise on the tailwinds.”