Ahead of the 2020 Legal Business Awards, James Tsolakis of NatWest reports on the past year’s developments for the profession
As the deadline for the 2020 Legal Business Awards entries closes, there is much to reflect on and celebrate in the UK legal sector. Once again, NatWest is delighted to be the headline sponsor of the awards and recognise the success of the legal sector as it continues to support major global transactions, reshaping the commercial world domestically and internationally.
In many ways, 2019 has been a story of mixed fortunes. Taking a step back and looking at the macro business environment, the UK profession has sailed against challenging headwinds this year. Firms have endeavoured against a backdrop of geopolitical risks: in the UK, client investments and business decision-making were stymied by the fog of Brexit, contributing to sluggish domestic growth; abroad, the US-China trade dispute, Middle East tensions, civil unrest in Hong Kong and other global factors also affected demand for legal advice.
Notwithstanding these challenging conditions, the UK profession has held up surprisingly well, with the top 100 reporting robust and steady growth. The group of leading firms achieved total profits of £8.28bn, while profit per equity partner grew 5% to an average of £847,000 across the top 100.
While the sector has held up against Brexit uncertainty, Brexit itself has not yet proven to be the legal advice goldmine first hoped for, although some firms have engaged in advising their clients on the ‘what if?’ scenarios. With a general election now confirmed for December, it is hoped some clarity around Brexit may emerge in early 2020. Whichever way it unfolds, businesses can turn to their legal advisers for essential support.
Arguably, where the profession has shone brightest over Brexit has been at the Bar. The very public cases brought to the High Court most recently over the prorogation of Parliament are an example of the legal profession shaping our fragile but complex constitution and playing such a central role in the defining issues shaping the future of our nation.
In the broader industry, the competitive landscape has intensified in the past 12 months. US firms continue to enter the market and establish strong positions, while more accountancy firms have entered the legal space, putting pressure on traditional, local providers. A significant consequence of both developments – apart from eroding market share from incumbents – is the growing competition in the war for talent driving up the cost of fee-earners, which has, in turn, put pressure on margins.
Firms are under greater pressure than ever before to operate more efficiently and deliver their legal advice more cost-effectively. In this respect, the promise of technology, particularly artificial intelligence (AI), has so far failed to deliver in any meaningful way. Law firms have made a significant investment in technology over the past couple of years, but this has resulted more in staying current rather than providing any real leap forward in the delivery of legal advice.
Where technology has more tangible benefits is in engaging the next generation of talent. Firms that are mindful of what their junior lawyers, trainees and associates want from their employers are demonstrating that they have embraced the use of technology in exciting and innovative ways. Technology allows employees to work flexibly and remotely, providing them with a lifestyle that they want and require. But firms need to deliver robust, secure technology that allows staff to access work away from the office, and communicate with colleagues and clients.
Internationally, mid-tier firms have continued in their trend to grow overseas. Depending on where the firms are in their evolution and life cycle, mid-tiers are building out a credible, meaningful, international network.
More seasoned firms are finding in the current environment – where the domestic economy is not growing very fast – that their international markets are growing more quickly. The international dimensions of those businesses have been advantageous, particularly in the context of foreign currency revenues, given that sterling has depreciated 20% over the past couple of years.
Our firms continue to look to the US and how to build an efficient but meaningful presence there. More commonly we have seen some successful mergers that followed the Swiss Verein structure – where the US profit pools are separate and distinct, as opposed to the global partnership model where profits are shared. These verein-structured firms operate as economically independent from their US counterparts but share the firm name and costs, referring work across their global platform.
Another development in the sector has been the public listing of several firms. With increasing access to new sources of capital, firms have raised public equity, and the market is open and available to firms that need it. There is also increasing private equity in the market too, channelled towards the smaller firms looking to build scale and delivering more commoditised, high-volume legal products, such as retail mortgage and personal injury advice.
With many of these positive developments in mind, when the awards come around in March, it will be an excellent opportunity to celebrate the success of the legal profession and look optimistically into the future of the profession in its ability to serve its clients, the community, and shape and develop outstanding careers.
I look forward to speaking to many of you there in the early spring.