As with most businesses, law firms are continually in pursuit of increased profitability and growth. However, they are often hindered by a shortage of talented staff.
Recruitment and retention of partners and staff will undeniably be the most important issue facing firms over the next 12 months. Retaining key personnel is rated by many firms as the most important factor likely to influence their businesses over the next three years. In short, the dearth of suitable talent in the present economic climate is a major limitation to many firms’ plans for growth.
It is a candidates’ market, with young entrants judging firms on ‘quality of life’ issues and not just salary levels. In previous years such issues might not have featured so significantly on the radar of managing and senior partners, but today the list of law firms vying to be included in The Sunday Times’ ‘Best Companies to Work For’ survey demonstrates the desire for firms to be seen as good employers which nurture talented young staff.
Some firms, such as Macfarlanes, proudly boast that they take their graduate entry from Oxbridge or similar universities and retain 100 per cent of these graduates upon qualification. Any Oxbridge candidate must surely be influenced by these statistics.
Some multinational firms are rumoured to attract the best talent by raising the financial rewards for newly qualified candidates to as much as £100,000. The sacrifice for such a reward can impact dramatically on an individual’s personal lifestyle, although some argue that five to 10 years at such a reward level is worth the sacrifice.
However, the pressure is not just at graduate and newly qualified levels. Partners and teams are increasingly being poached by aggressive, or perhaps progressive, firms. A recent survey by Smith & Williamson revealed that 45 per cent of firms had acquired a team of individuals from another firm within the last year, up from 32 per cent in the previous year. Moreover, 80 per cent reported that they would be happy to buy a new practice area from another firm.
But while there is increasing pressure on firms to hold on to their most talented individuals, they should not lose sight of the overall commercial position. An individual or group of individuals may have been targeted by another firm, but this should not obscure the true value of the team to the firm’s business.
I was once asked by a managing partner to meet with him following the resignation of a team considered important to the business. After a short discussion it was acknowledged that the team was not yet profitable and there were doubts about its actual ability to build a profitable business. Rather than contest the departures, it was decided that the business should be sold for a significant capital sum, relieving the burden of a loss-making team for the benefit of the remaining partners.
The implications of the battle for talent within the legal sector are clear – increased salaries have to be paid by increased fees, but who actually comes off best? Invariably the individual chasing the higher income will need to make personal sacrifices, while even in the largest firms it is the quality of service and the client’s willingness to pay that will determine whether increased salaries are viable economically.
No matter how the battle for talent progresses, the only way to pay increased salaries is by passing the additional cost to clients. If the current economic situation declines, the ability of firms to pass on these rises will be challenged and the pressure on firms to reduce their overheads will increase.