The end of the year is approaching making it the perfect time to look back on all the legal developments that have taken place throughout the year. From law firms’ financials to the transfer market, or the challenges that the legal industry has had to face – in this article we review the year in full.
Frist of all, this year, we saw a number of moves – from Kirkland’s whirlwind months of intense hiring to the occasional departure and hire at smaller national firms. Considering the events that took place this year, the transfer market shows no sign of slowing down.
On the financial front, despite a year of uncertainty the performance of UK law firm exceeded expectations with almost 90% of firms increasing fee income and 65% seeing a rise in profits. Firms in the top 10 achieved average increases of 10.2% in terms of fee income, considerably ahead of the predictions made this time last year of 4.5%. However, with the looming economic downturn, the tail end of the pandemic, the Ukraine war, and the ensuing political upheaval both at an international and national scale it’s no surprise that the legal market has had to respond to various other factors that have put pressure on the legal system to adapt.
More specifically, here are some the central themes and trends that we have noted. Firstly, UK law firms are still grappling with trade and labour implications and the shifting regulatory and compliance landscapes created in the aftermath of Brexit.
Secondly, the cost of external legal advice has increased, and the needs of companies have complexified. This has led to more companies leaning towards in-sourcing with a growing number of companies expanding their in-house legal team in order to reduce this cost through minimising work given to external advisors. This has in turn created a lower demand and higher competition for corporate legal services. This trend has further been supported by the supply side effect of an increasing number of lawyers looking for career opportunities with improved work-life balance following the fall out of the pandemic, which caused a shift in many lawyers’ mentality. This trend is only expected to increase, although at a slow rate due to the growing disparity in salaries between top law firms and in house teams. Which leads us to our third point, lawyer compensation.
There is increasing competition for hiring top talent, also referred to as the “war for talent”, which is in turn increasing lawyer compensation across law firms. Salaries were already trending upwards in previous years. In private practice in 2021, the base salary of an NQ in an upper quartile UK law firm ranged between £85k-£105k up from between £82k-£95k in 2020. The pace of change has only markedly increased in 2022, where we’ve seen international firms paying NQ lawyers a base salary of up to £120k. This has been reflected at all levels of seniority within private practice salaries.
Another pressing issue on the forefront of law firm’s agenda is that of global reach. Law firms are engaging in a more M&A activity in order to expand their geographic reach. This market consolidation has been occurring as part of a global strategy in which top law firms look to expand geographically and supplement various practice areas.
Alongside this already charged environment, UK law firms are beginning to see the legal needs of their corporate clients evolve. For example, UK clients now are placing a huge emphasis on a lawyers’ ability to grasp the strategic challenges with which their clients are wrestling. Furthermore, legal services models have diversified with new structures available to seek legal advice. From the traditional full-service law firm to specialist law firms to contact lawyers and online services, people and businesses are now choosing legal services from a wide range of providers, who are delivering their services in new ways.
Lastly, technology is an increasingly significant theme not only in the legal world, but across all industries. Technology has infiltrated the legal market with a growing number of law firm increasingly investing in order to improve client service and to drive operational improvements.
Technology is actively redefining the legal field. Online research databases, digital contracts alongside countless other advancements have transformed the legal industry, leaving law firms asking themselves how they can continue integrating technology to make the business efficient whilst maintaining the ability to deliver high standard clients services. However, legal tech comes with its own host of risks, the most significant being the heightened risk of cyberattacks.
All these factors are tied together by more trivial issues. Since the pandemic, digitisation and remote working have moved to the forefront of the legal industry’s mind. A lot of companies, including law firms, have successfully adapted to remote working and research shows that hybrid work and remote communications are here to stay. However, the pandemic has left additional challenges, such as the test of retaining employees who are feeling burnt out in an increasingly competitive industry. In fact, burnout has been a recurring theme in legal news with new research from the CIPD Health and Wellbeing at work 2022 report showing that almost half of employees strongly agree that health and wellbeing activity at work encourages a more inclusive culture. Even though the same report reveals that there has been a 16% drop in management focus on health and wellbeing in the workplace compared to the first year of the pandemic.
This year we have in fact seen a lot of movement in terms of diversity and inclusion from implementing a menopause policy, to talking more about mental health and disability in the workplace – progress is being made. However, other research further highlighted that there is still a long way to go. In recent years, law firms have been talking more about diversity. Terms such as ‘diversity committee’, ‘targets’, and ‘mentoring’ are becoming commonplace within firms, as they attempt to improve the make-up of their ranks, to better reflect the societies in which they work. But reports say that it could take more than 125 years for the judiciary system in England and Wales to reflect the right proportion of women, Black and Asian people that is found in the wider population at the current rate of progress, according to analysis from the Law Society.
The average number of Black lawyers across the largest U.K. law firms remains well below the national average in the U.K. population, according to the latest research. Across 68 major legal institutions, 2.2% of lawyers and 1.05% of partners are Black, the research found, compared with 4.1% of the U.K. population recorded by the Office for National Statistics in 2020. However, steps are being taken to remedy this with the Law Society of England and Wales publishing a diversity and inclusion framework to help the legal industry create faster and lasting change. It includes an action plan template, links to additional guidance and resources, and a call for law firms to submit diversity and inclusion case studies so that ‘best practice that actually worked’ can be shared.
Following the Russian invasion of Ukraine, many firms and companies were quick to respond. With several firms, of the likes of Allen & Overy, Clifford Chance, Herbert Smith Freehills, Bryan Cave Leighton Paisner and Winston & Strawn shutting down their Moscow offices in response to Russia’s invasion of Ukraine. Further law firms set up initiatives in aims to support refugees – such as DLA Piper who set up a pro bono project which provided free legal advice to Ukrainian refugees and connected Ukrainians fleeing the war with lawyers who can advise about legal pathways into the UK. Similarly, James Goold, a partner in Taylor Wessing’s private equity practice, travelled to the Ukraine border to hand deliver aid, travelling with 400 sleeping bags, donated by Mountain Warehouse, as well as a consignment of medical kits. Or the fantastic opportunity that is available at the University of Pittsburgh who is offering legal study options for Ukrainian law students and lawyers, with specialized programs aimed at preparing them for the global practice of law. They also have funding resources available for a full year of study in Pittsburgh.
At Fides Search, we had the idea that if we could help even just one Ukrainian lawyer who had been displaced by the war get settled in the UK and help them find suitable employment, then that could provide an entire family with a degree of stability, so we launched our Fides Ukraine Initiative. Since March, we have connected with hundreds of wonderful Ukrainian lawyers, and we have been working with many top law firms and companies who have shown initiative in their compassion to hire these individuals. This crisis is ongoing and unfortunately there appears to be no immediate end in sight, and we are still working with many lawyers who are looking to settle in the UK and continue their legal careers.
Another substantial topic this year was the COP 27 and what this entails for the legal system in terms of ESG and green washing. In recent years, when it comes to climate change mitigation, it is a lot of talk and very little action. Across all industries, there is a significant reluctance to take the necessary steps and changes to limit global warming by 1.5 degrees Celsius above pre-industrial levels. Law is no exception. Even those firms with net zero targets largely ignore the impact of the deals they facilitate.
Slaughter and May being the latest firm scrutinised for its difficult moral choices. By defending Shell in climate change litigation while promoting its Net Zero aspirations Slaughters is left itself wide open to greenwashing accusations.
However, when considering the environment legal professionals are in fact at a crossroads: How can law firms and lawyers reconcile conducting their business in a sustainable way all the while mitigating the impact this could have on the advisory work for longstanding clients in a highly competitive market. Especially as a recent open letter to the legal profession, signed by 150 UK and international lawyers, urged lawyers to abide by an ethical rule to guard against the risk of a global warming catastrophe. Law firms were called upon to advise clients, where relevant and appropriate, of the risks associated with certain deals that are inconsistent with the UNs climate change targets.
The future calls for caution, according to a new survey by KPMG, the environmental, social and governance programs that many legal departments have putting in place up could take a hit as companies put resources elsewhere in attempts to weather the economic storm ahead. The survey also found that, as economic uncertainty continues, 50% are pausing or reconsidering their existing ESG efforts, and 34% have already done so.
In conclusion, as was noted in 2021 the legal market experienced some disruption during the pandemic but when compared to other sectors it fared well through this challenging time. In response, the market is now showing renewed growth. This renewed growth has been channeled by law firms into adapting their long-term strategy to fit a changing world. With all that has come to pass and everything to come on the horizon, we can say that this year has been an eventful year which has been well weathered by those at the forefront of market. However, with all signs pointing to an equally lively time next year the novel strategies put in place by law firms in attempt to soldier on will inevitably be tested by the challenges to come as another year rolls around.
Written by Imogen Scott, Researcher