As the UK economy continues to experience ongoing if not rapid recovery, so the legal sector is gradually coming back to life. In their 2014 Law Firms’ Survey, PWC provides some interesting insights into how the legal sector has responded to the long period of largely stagnant growth, and how firms are now preparing to exploit new opportunities.
With UK long-term growth forecasts remaining modest, larger firms have sought to expand into Africa and the Americas. Yet the US remains a tough nut to crack, with US firms successfully defending market share. In fact, US firms pose a significant threat to domestic firms as, unconstrained by lockstep remuneration, they are able to lure leading talent away from the UK.
Mixed performance on margins
On the upside, PWC report that 70% of all firms in the study have increased fee income above the rate of inflation, which is the strongest overall annual performance since the start of the downturn in 2008. However, margin performance differs markedly according to turnover, with Top 25 firms reporting margin growth and Top 26 – 50 firms experiencing a decline. This appears to be due chiefly to a growing need for smaller clients to rein in legal costs, although ongoing over-supply within the legal sector is also having an effect.
Information security – an emerging challenge
PWC report that information security is a growing concern, with 45% of all firms experiencing a security-related event over the previous year. It’s an interesting trend, and one that looks set to continue in the face of the relentless growth in the use of digital information, systems and processes. This is a challenge that firms must respond to in a robust way, as the reputational risk associated with a security breach can be catastrophic, both for law firms and their clients
Greater focus on recruitment and retention
The ongoing low-growth environment has spurred many firms to restructure their workforce, with the overall objective of reducing costs. A shift towards more junior lawyers, together with growing utilisation of paralegals is not uncommon. Yet this trend has run in parallel with an increase in competition for leading talent, driving recruitment and retention to the top of the agenda. This is particularly true for firms seeking to expand into new international territories, and today, partners and senior staff with strong international experience certainly demand a premium in an increasingly globalised marketplace.
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