Looking beyond the global pandemic
We don’t always get to choose if we want to change
Lawyers and law firms are usually too busy to stop and think about whether there are things that they could and should change. When others suggest that change is needed, they are quick to resist and give reasons why the change is not necessary. The result is that lawyers and law firms can often drift for long periods.
The global pandemic has quickly taken the decision to change away from firms, with the Government needing to push through huge changes in the economy and to the way in which we can work, to save lives. It has been heartening to see just how quickly firms have adapted to the new normal. There were a couple of weeks of shock, followed by some serious reflection about the consequences for a firm if it does not rapidly adapt, and now the implementation of changes so that the firms can continue to serve their clients at a time when clients may need more legal advice than usual.
So what will be different in the medium to long term?
All firms must learn lessons from this period of history. Those that do should feel more confident about the future. If we look ahead now, what might be the fundamental changes?
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- Building resilience
If you listen to financial advisors giving advice, they will often say that an individual would feel more secure if they have about 3 months of net pay saved in a deposit account. This should be enough to cover expenses for a while if they were to lose their job or suddenly have to spend money on an emergency.
Perhaps this is what law firms should always have done too, to prepare for emergencies of any nature including a global pandemic. You can’t survive for ever but if you have saved 3 months income as cash or if you have access to that with bank facilities then you could weather the storm and still be around to thrive later.
- Agile working
Firms have long talked about allowing people more flexibility over the way they work but many have hardly moved at all. There is currently no alternative, so firms are now seeing how best this works and finding that technology and communications can normally allow everyone to work perfectly effectively while away from an office. If it works for a firm that is great, but there are multiple benefits for people too. Everyone has more flexibility as to exactly when work gets done and there can be considerable savings both in terms of the time wasted getting to and from an office or a client, plus the financial costs associated with this travel.
If agile working continues, employees are in effect being given a tax-free pay rise equal to their current cost of commuting, and they have more time available for themselves.
- Overhead reduction
Traditionally, a sole practitioner may have chosen to work from home, but once there were other partners or employees most firms would find it necessary to have an office. After payroll costs, property costs are normally the largest expense and they are commonly 5-10% of fee income. If people are not going to be in the office as much in future, then firms should think long and hard about the amount of space they need and the best way to configure the office to ensure that when people are in it is easy to interact while still fostering great productivity.
Competition in the legal services market will continue to increase and this will inevitably put further pressure on fee levels over time. Managing overheads down to the right level will help firms to remain competitive while still achieving sustainable profits. Some of the newer firms and ABSs have already structured themselves with far lower property costs and traditional firms should now look to move this way too.
Another strategic issue for all firms to consider is the level of operational gearing with which they are happy. You have low operational gearing with low fixed costs and high operational gearing with high fixed costs. With high operational gearing you can make more money in the good times, but you can come unstuck very quickly when times get tough.
- Mergers based less on geography and more on fit and culture
Traditionally firms have usually looked to merge with other firms in their geographical area. There is no problem in doing this, but when firms become increasingly virtual everyone might start to think about a wider range of firms with which to merge as geography becomes less important. It has always been true that mergers are more likely to be successful if the cultures of the two firms are similar and that the two firms have complimentary offerings.
We will all have to watch this space and see what happens. It worries me that some firms may be so pleased to return to normal that change is forgotten, but I think collectively the sector is going through a seismic change and to remain competitive there is no going back.
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