Law firms have shown increased resilience as demand for legal services remained strong over 2020 and 2021, with 81% of UK firms recording financial results which either slightly or greatly exceeded their expectations, according to new data from audit, tax, advisory and risk firm Crowe.
The sector’s resilience is underpinned by strong average revenue growth of 5.9% (7.2% for the City; 3.8% for Regional firms), while average profit per equity partner (PEP) rose for most firms, by 17% for City firms and 28% for those in the Regions. Half of City firms saw an increase in PEP of more than 10%, while three quarters of Regional firms saw an increase of more than 10%.
Ross Prince, Professional Practices Partner at Crowe, said: “Cost control was a key theme over the past year, particularly for Regional firms. Looking ahead, it will be interesting to monitor which costs are embedded efficiencies versus those windfall savings that are unsustainable and may not be carried forward.
A stark contrast in headcount numbers reinforces the Regional focus on cutting costs. The all-City firm headcount grew across all headline categories – partners, fee earners and support teams – while Regional firms saw headcount fall, suggesting either previous excess capacity or potential caution over future workload.”
With hybrid working models and ‘The Great Resignation’ upon us, hiring and nurturing of talent is firmly on the minds of leadership teams as 2022 approaches. Recruitment strategies will need to be carefully managed. Our research shows that how firms operate is more important than ever, with management teams viewing ‘firm culture and values’ and ‘work-life balance’ as key factors for existing and potential employees, alongside ‘baseline salary’.
People matters dominate the broader risk outlook for 2022, with ‘availability of people and the skills we need’ and ‘retention of key people’ cited by 100% of our respondents as a high priority risk. ‘Health and wellbeing’ was also highly ranked, while ‘cybercrime and fraud resilience’ and ‘data integrity and protection’ lead the non-people-focused risk factors.
Prince added: “While 2021 has seen strong performances from City and Regional law firms, managing partners will be kept busy dealing with new and emerging risks throughout 2022. The current focus on people matters is just the tip of the iceberg – we see talent management and employee wellbeing and satisfaction as key trends to monitor for the year ahead. Firms that continue to prioritise their people will be those that thrive going forward.”
In terms of external risk factors, price competition in the legal market was the top concern, with 80% expecting price competition to increase significantly and almost three quarters (73%) saying that a law firm’s brand will be a significant factor in winning new clients amidst this price squeeze.
Despite these risks, law firms remain bullish about 2022, with 82% of regional firms, indicating a very positive or positive outlook for their firm, dropping slightly to 71% for sentiment around the broader legal market.
Louis Baker, Head of Professional Practices at Crowe, said: “The legal sector has shown resilience against the operational headwinds of the pandemic and the resultant economic uncertainty over the past year, and most firms have outperformed their previous projections.
That said, operational dynamics have shifted. Many leadership figures tell us they are benefitting from honing their operations during the pandemic and are confident that they now operate leaner, more competitive practices. Hybrid working practices have started to become embedded and digital transformation has been adopted at a faster pace than previously thought possible within their firms.”
Download the full Report: Law Firm Benchmarking | Crowe UK