There was no time to pick out a Baedeker, plan what provisions to pack or plot the best route on the map in March 2020, when it became apparent that Covid-19 was going to be a much bigger and fiercer problem than the Government had anticipated and put the UK into lockdown. And how much juice to put in the tank? Back then, no one knew how long the crisis would last and what to prepare for. It was a ‘get everyone on board and let’s go’ moment – unprecedented for law firms with their meticulous and cautious ways of working. Yet, for an industry often criticized for not keeping up with the times, it has been a surprising and enlightening time as firms demonstrated a real knack for adapting – and thriving.
Now 18 months on, will that taste for agility and the open road of possibility fade; will firms ease off the innovation pedal and slowly come to rest, to return to their old attitudes to change? Or has the pandemic sparked an actual cultural shift? Smith & Williamson’s latest annual law firm survey, in collaboration with The Lawyer, sought to pin the answer down, as well as get to the bottom of the trends affecting the industry this year. The opinions of 176 key decision makers (managing partners, chief officers, partners and senior partners) at UK law firms were taken, and the overwhelming response was one of confidence in the business outlook of their firms.
More than two-thirds of respondents said they believe that change has been accelerated by between two and four years as a result of the pandemic. Only 2.6% said they detected no acceleration of change within their practice.
Last year’s survey was conducted mid-lockdown and with Brexit a major concern, and so it was with some surprise that we found confidence as high as it was within the legal industry. This year that optimism has grown: 97% of respondents are reasonably or very confident about the business outlook for their firm, compared with 80% in 2020, and 87% in 2019. That’s right, legal executives’ confidence is higher now than it was in 2019, back when pandemics were only mentioned in low-budget sci-fi films. The legal industry is high on its relative success.
The confidence demonstrated in 2020 has, to an extent, been borne out, with several firms reporting revenue growth for last year. But now that the lifeline of furlough has been withdrawn and the UK faces a period of high inflation, can the optimism last? Firms’ profitability has been boosted in the past 18 months due to falls in discretionary spend, but the longer term trend is that firm profits are being squeezed: analysis by Smith & Williamson shows that operating profit margin across the UK’s top 50 firms fell to 29.8% in the year to March/April 2020, its lowest level in seven years.
Firms are also having to come to terms with the cultural impact of the pandemic, such as striking a balance between demand for flexible working and the growing importance of developing a strong firm culture. Therefore, this year’s survey focuses on the relationship between law firms and change, be that new approaches to office space, to firm culture, or fundamental changes to the way lawyers work.
Change and accelerated decision-making in law firms
Factors such as remote and flexible working, and diversity and inclusion were already in the works before the pandemic hit, but since then have been given the turbocharge treatment. When asked how the pandemic has accelerated change at their firm, the majority focused on a general hastening of decision-making.
“It has done away with mindless consultation exercises and compromises over new ways of working with dinosaur partners,” said one respondent.
Another commented on the new opportunities for those in the profession with children: “Our recent partners retreat had two young mums attending with babies in arms. That was only made possible by means of the remote meeting we were hosting and so that was great to see.”
Not all were so optimistic, however. One respondent stated: “I don’t think it has [accelerated change], I think there is a wildly unrealistic idea that suddenly everyone can work from home and that it will be business as usual but law firms don’t work this way. As soon as one firm breaks ranks and forces staff (including partners) back to the office, everyone will have to follow suit.”
The question is, did the pandemic spark a permanent shift in the pace at which law firms make key decisions?
Macfarlanes managing partner Julian Howard said: “There is a cynic in me that worries that in two to three years’ time firms might have slipped back to slow decision making, but I would hope not. I think the challenges for firms is to take the lessons of the past months forward, particularly where there has been a greater acceptance of the need for change than there was beforehand.”
What impact has the pandemic had on work/life balance and productivity?
Work/life balance and productivity are two areas on which the pandemic appears to have had a positive impact. When asked to elaborate on the productivity aspect of this, respondents generally mentioned that any desk-related work, such as contract scanning or drafting, was far easier away from the buzz of the office.
However, collaboration and cultivating firm culture has been more difficult since the start of the pandemic. Just under half of respondents said the pandemic has had a negative impact on collaboration, and over 60% believe that the pandemic has had a negative impact on cultivating culture.
If remote working hinders firm culture, how do firms differentiate themselves and attract the right talent? Without culture and without regional barriers, salary may become the most important differentiator, putting all power in the hands of the big spenders.
Covid-19’s impact on the use of office space
The office is here to stay, but how the space is used has permanently changed it seems. Firms have considered the permanency of flexible working arrangements and the appetite for agile working, and many have already made permanent decisions on their use of office space. For example, firms such as Baker McKenzie, BCLP, Freshfields and Linklaters have cut their office space. These appear to be precedent setters: 41.8% of respondents said their firm will cut office space over the next two years; 11.5% have already done so since the outbreak; and 15.2% would have cut space if they weren’t tied into longer term leases.
This rapid shift in approach to office space underlines the pace at which law firms are now willing to change. In 2018, a CBRE Law report on agile working found that 28% faced resistance from senior management to implementing flexible working. This resistance has now flipped, and attention is now on overcoming challenges when adopting a flexible working policy.
The future world of work in law firms
The key lesson that firms will take from the pandemic is that they can change at speeds that many within and outside the legal industry thought impossible. The test now is whether they can retain that new-found adaptability. It could be crucial: being able to make decisions and introduce change quickly might be vital to succeeding in the uncertain conditions of the post-pandemic world.
The pandemic has also put a lens on law firm working practices, and talent will increasingly scrutinise their approach to wellbeing and work-life balance when deciding where to work. The competition for talent is going to get fiercer, with culture at the heart of the talent war.
Read the full findings of the 2021 law firm survey, including how lawyers expect the competitive landscape to change and developments in the recruitment market.