Gus Sellitto, Byfield's managing director
What keeps managing partners awake at night? Two surveys, one by LexisNexis and the other by Byfield Consultancy, show UK law firm leaders are acutely aware of existential risks facing their businesses—but remain focused on managing the basics that enable them to traverse turbulent times.
Both firms surveyed managing partners for their views on the legal, business and professional challenges facing UK law firms.
Cash is king...
The Byfield survey showed that the top six concerns of managing partners were cash flow, employee wellbeing, client service, Brexit, data and regulatory breaches and professional negligence claims.
Produced in association with management students at London Business School, it was based on a relatively small sample of ten in-depth interviews, supplemented by a survey of 20 UK-based managing partners, all of whose responses were anonymised.
First and foremost, managing partners are worried about the costs of doing business, and getting paid for it. Some 90% of managing partners cited law firm expenditure as a concern, while cashflow issues, client losses, and a lack of new business concerned 85%.
A minority of respondents (30%) said that client retention may be aided by the pandemic, with the survey finding it was “largely attributable to [firms] having a significant focus on litigation and insolvency and being able to focus resources accordingly.”
Along with retention, 75% of managing partners cited difficulties in maintaining a high-quality client service as a major concern, while 65% of managing partners were concerned about Brexit, with no deal in sight and legal services emerging as one of a number of sticking points in negotiations.
There were also concerns about reputational risks, such as potential data breaches, regulatory investigations, including conduct-related issues, and professional negligence claims.
…but people matter
At the survey’s heart, however, was some powerful messaging about people. In keeping with other surveys stressing how law firms should manage relationships sympathetically, 80% of respondents cited future employee wellbeing and safety as a concern, while 75% also cited employee motivation as a major challenge.
Only a small minority (20%) suggested there would be a negative impact on employee retention because of the pandemic; 25% said there would be no overall effect, while 55% were sure that Covid-19’s impact on employee retention would be positive.
As one law firm partner put it: “Law firms will be remembered for how they treated staff during the pandemic and in its immediate aftermath.”
The partner added: “Eventually, the market will change for jobseekers, and if law firms are not keeping their people motivated and incentivised, then they will struggle to keep them, and attract new talent.”
Simon Slater, the non-executive chairman of Byfield, told The Global Legal Post: “It’s no surprise that cash flow tops the list of things keeping law firm leaders awake at night, particularly at this time.”
He added: “More heartening is the fact that employee wellbeing is their next highest concern in relation to Covid-19. Unprecedented times have caused seismic changes to people’s lives and it cannot be underestimated how this may have affected employees’ wellbeing.”
That, to Slater, highlighted the importance of communication, echoing Tony Williams’ comments for this site. “Managing partners, CEOs and partners rapidly have had to learn new ways of communicating with staff to maintain engagement, motivation, resilience and—above all—mental wellbeing in this new era.”
Gus Sellitto, Byfield’s managing director, agreed, saying that internal communications was a key focus for law firm leaders and their teams, noting: “Clear and consistent internal communications will be the glue that holds the culture of law firms together in an increasingly agile working environment and where people are spending less time in a physical office space.”
For LexisNexis, the annual Bellweather report, published at the end of July, produced findings which it called “interestingly paradoxical”. It was based on interviews with 15 law firm leaders, and surveying more than 150 solicitors in small firms and small offices of larger firms.
Law firms, it said, are surprisingly bullish about their futures, with more than two-thirds expecting growth over the next five years; 38% of them, however, saw the pandemic as a critical threat for their clients, mirroring similar concerns seen in the Byfield survey. A separate House of Commons select committee report warned that, without direct support, high street firms and law centres “could collapse”.
As the Lexis report itself acknowledged: “There can be no path to recovery without a buoyant consumer and commercial market,” whatever lawyers may believe about their own abilities to generate work. As the Byfield survey shows, cash is king.
Some 33% of law firms expected a short-term spike in demand, similar to those shown in the Byfield canvass of managing partners, although nearly half (49%) predicted falls in demand, in common with other polls. While law firm confidence remained high—at 78% for the future—it was down from 91% in the 2019 survey.
Such confidence, the report suggested, could be misplaced, given a doubling of the number of firms perceived to be in decline, ahead of what will be a tough professional indemnity insurance round, and the withdrawal of government financial support.
Employees featured prominently in the Bellweather survey. More than half of firms (57%) said they had furloughed staff, with 36% furloughing fee earners, while 17% believed redundancies may be a necessary step, which LexisNexis said showed “a gulf between the post-Covid world and growth.” Brexit, too, remained a concern.
Remote working, meanwhile, went from zero to hero by necessity. The survey found, from a non-existent base, 75% of employees worked from home, despite issues over the supply of technology, and age-related issues in adapting to the new normal—61% of over 45 year olds experienced difficulties adapting compared to 34% of those aged under 45.
Where it has made a difference was mental health and well-being. Last year, a staggering 90% of respondents said stress and mental health issues were problems at work, but in 2020, that number dropped to 64%.
Working from home, it seems, has brought better work-life balance, and lockdown has allowed for a greater focus on health for more than half of respondents replying.
Despite UK government calls to return to the office, supported by the CBI and senior Tory MPs, Britain’s lawyers seem to be happier and healthier with a balance between home and office— something recognised by UK law firm Linklaters in devising its own agile working policy.
Chris O’Connor, who leads for smaller law firms at LexisNexis, said: “With high growth predictions, improved wellbeing and an uptake of new technologies—law firms have a lot to look forward to.”
He added, however, “with commercial and consumer market-places stuttering—much rides on a sharp recovery.”
Economic uncertainty ahead
Much, then, depends on the state of the economy going forward, as both surveys have shown. The UK government’s own figures, released in August, showed legal sector revenues had increased nearly 20% since May, generating revenues of £2.79bn in June, albeit down 3.6% compared to June last year.
Louis Young, who runs litigation funder, Augusta, said: “Firms will welcome this news, having been hit hard by the pandemic,” adding they would take time to recover, in looking for options to manage costs and enhance balance sheets. Much will depend on what the autumn holds.
After a summer break, managing partners will be watching.