Optimism is back, but financial performance challenges remain for Ireland’s legal sector writes Paul Wyse from Smith & Williamson.
After a turbulent and uncertain economic period, optimism has returned to the legal sector in Ireland with the majority of firms expecting an improvement in the outlook for 2022. However, the shadow of the pandemic continues to linger, as the financial performance of many firms is not yet back to pre-pandemic levels and there is a degree of continuing uncertainty in the business outlook.
These findings come from Smith & Williamson’s 10th Annual Survey of Law Firms in Ireland, which found a marked improvement in confidence within the legal sector in Ireland for the year ahead, as two-thirds of firms now expect an improved outlook for the sector in 2022.
“39% of all firms reported an increase in turnover during the last 12 months, and more than half of those reported increased revenues in excess of 10%”
This represents a change from the previous year, when, in the early months of the pandemic, most firms viewed the year ahead with some trepidation and predicted a deterioration for the sector.
Now, as many countries around the world are currently grappling with the emergence of a new variant, and are experiencing high levels of Covid-19 case numbers, the pandemic remains an ever-present threat.
In this context, law firms, like so many other sectors and businesses, have had to adapt to a new reality and way of working. It is possible that the challenges posed by the last two years may also now bring about some fundamental changes in how firms in the legal sector operate in the future.
There is an improved outlook for almost half of all firms over the last twelve months, with almost two in three firms expecting improvement over the next twelve months, which is a significant improvement in sentiment on the previous year.
However, Covid-19 continues to have an impact, negatively affecting nearly three-quarters of all firms. Around two-thirds of all firms also said turnover is still below pre-Covid levels. Despite this, 39% of all firms reported an increase in turnover during the last 12 months, and more than half of those reported increased revenues in excess of 10%.
It is important to note that, like many sectors, many law firms are still dependent on government support, with almost half of all firms continuing to use the Government’s wage subsidy scheme. This is down from 70% in 2020 but is indicative of the impact of Covid on the Irish legal sector. Equally, there is still widespread deferral of pay reviews and appraisals, while more than a third of firms continued to reduce discretionary overhead spending.
Perhaps the most obvious shift brought about by the pandemic is the move to agile working. Law firms have the chance to create a new, more effective operating model that works for both businesses and people as they navigate a world filled with increasing uncertainty.
Our survey showed that a disconnect between employees, who want flexible working, and employers, who would rather people were back into the office, remains. The survey shows that Ireland’s law firms are continuing to work out how employees can combine remote work with time in the office, to get the best mix of productivity and collaboration.
Our survey showed most Top 20 firms are preparing to facilitate remote working going forward. However, approximately one in three regional firms and smaller Dublin firms say that they are unlikely to do so. We believe this may prove to be a disadvantage in the longer term when it comes to retaining staff, given the competitive pressures on recruitment and retention
Competition for talent appears to have returned, as our report shows attracting and retaining professionals has re-emerged as a significant challenge for the Top 20 firms and most firms based in Dublin.
Pay has recovered from the cuts reported by firms last year, as just 3% of firms report salary cuts this year when compared to a third of firms in 2020. Only 3% of firms said they had not reinstated wage cuts implemented in last year. And, one in three firms reported an increase in their staff numbers this year.
Senior equity partners are looking towards retirement and exit, but the succession path may not be clear. The next generation are not as enamoured with the traditional long hours working model.
The pandemic has also not helped as many individuals are reappraising their work/life balance and realigning priorities. In our experience both the firms in their own right and the individual senior partners in smaller and mid-sized firms are seeking external advice to help plan for the future and create exit strategies.
This is the 10th anniversary of Smith & Williamson’s Annual Survey of Law Firms in Ireland, and for a decade now we have carried out annual studies of the Irish legal sector, delivering key insights into the outlook and attitudes, performance and opportunities, and talent and challenges.
Working with our extensive client portfolio of professional and legal firms, their managing partners, and senior management teams to help them manage key issues like succession, mergers and acquisitions, financial performance and practice finance, has given us a deep understanding of the needs of firms in the legal sector. Every firm has different needs and we tailor our approach bringing our insight and using sector benchmark. We provide solutions and strategies to help leaders and their teams plan successful exits and succession plans.
Strategies for the future
Overall, our survey this year showed a sector in recovery, but one that needs to innovate to find the right working practices, strategies and succession plans for future.
The pandemic has brought challenges but has proven to be a powerful force for change.
We believe law firms need to embrace the opportunity to build successfully for the future.