Biggest law firms getting mojo back but hiring talent is a worry: CommBank Legal Market Pulse

Law firms are recovering well from the pandemic’s effects but must invest heavily for future growth, especially in top talent.

Almost 60 per cent of firms said they would focus on hiring from competitors as part of their growth strategy.

Confidence among the country’s largest law firms has rebounded despite the disruption of the pandemic, with 85 per cent taking a positive view of the current financial year – and expectations of a favourable operating environment all the way to mid-2023.

The net figure was equal to the previous record, set in mid-2018. Last year negative views exceeded positive ones by 13 per cent.

Profits were more than double expectations at 12.1 per cent mean growth in the year to June 30, compared to the expected 5.5 per cent, according to the annual CommBank Legal Market Pulse.

The survey, taken in July, covered eight top-tier, 29 mid-tier and 18 smaller firms.

It designated the performance of 55 per cent of the total as “leading”, because they had steady or growing profits, and were maintaining cashflow, adapting to remote work and were able to compete with other firms.

This leading group recorded 15.8 per cent profit growth, more than double that of the rest of the firms surveyed at 7.6 per cent. However, profit growth across all firms was expected to ease to about 6 per cent in the financial year with an expected hike in expenses apart from business travel.

Talent acquisition was the biggest challenge, with the eight top-tier firms surveyed twice as likely as the rest to be planning to hire talent from other firms.

Almost 60 per cent of firms said they would focus on hiring from competitors as part of their growth strategy.

Julienne Price, CBA executive manager of professional services.

Keeping staff was also noted as the second-biggest challenge, according to the survey.

The talent problem was exacerbated by the cessation of international travel though the Covid-19 pandemic, which cut off a source of new staff.

One co-founding partner of a smaller firm noted in the survey: “Restrictions in recruiting staff from overseas are forcing the larger firms to pull from smaller firms and driving up wage costs.

“Excessive staff movement … I don’t see it getting any easier over the next three to five years.”

At least 75 per cent of firms had responded to the imperative by offering staff flexible working arrangements, mentoring, support for mental wellbeing, internal learning and development or pro bono programs as lures.

For some, that is a worrying trend. One top-tier firm executive said: “There is a growing tension between the desire of lawyers to achieve a satisfactory work/life balance and demands of higher remuneration.”

 

The survey showed a high demand for lawyers and other staff with marketing, business development and client relationship management skills, as well as communication and soft skills.

“It’s like in any industry – people want to work in an organisation that has great technology and a great culture, and this is what’s at the forefront of the minds of the organisations that participated in the research,” said Julienne Price, CBA executive manager of professional services. “Demand for legal services is elevated and firms are finding it considerably easier than last year to keep staff fully utilised and win new business.

“While the favourable business conditions are expected to continue over the coming two years, profit growth is expected to moderate as cost pressures re-emerge … This partly reflects the need for firms to spend more on their people and reconnect in person with clients,” she said.

The top growth strategy across the board in the next three years was to invest in marketing and business development activities, followed by hiring top talent from competitors and adopting new technologies.

Mergers and acquisitions were not a top priority, with 55 per cent not planning for any within two years, although more than 60 per cent expected an increase after that.

“Business confidence is a lot stronger than was first anticipated because firms have been heavily relied upon for these services,” Ms Price said.

However, despite firms having adapted to remote and hybrid working, the survey showed this was becoming more difficult; only a net 7 per cent said it was easy, compared to 29 per cent last year.