The Legal Market Pulse is based on a survey of 11 top-tier legal outfits, 31 mid-tiers and 14 other firms and targeted key criteria including profit growth, maintaining cash flow, managing staff utilisation, adapting to remote work and firms’ ability to compete. 

Belinda Hegarty, national head of professional services, Commonwealth Bank, said the Australian legal sector had faced operational and financial disruption brought about by coronavirus, defining the ability to manage a firm that could weather a crisis.

“Distinct differences exist between more resilient and less resilient firms in terms of where they intend to invest, the areas where they are cutting back expenditure, the reasons they invest in technology, and changes to their operations and objectives post-coronavirus,” she said.

“Understanding what sets more resilient firms apart can provide a guide as we collectively navigate the future.”

As the pandemic hit across the legal sector, legal leaders faced a range of new challenges and legal firms had to quickly adapt to their unique dynamic and uncertain operating environment. 

The report revealed more resilient and less resilient firms share a number of similar experiences. Both groups of firms are just as likely to have experienced downturns in revenue in at least one practice area in the last financial year, and both find it problematic to plan and forecast with any certainty. 

Yet more resilient firms perceive overall current business conditions to be positive, the study found. That is in contrast with the negative view that less resilient firms have of their business environment.

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“When looking at some selected elements of business conditions, more resilient firms are finding it easier to do business across the board than less resilient firms,” the report analysed.

“The difference is most apparent in terms of attracting and retaining quality staff and keeping expenses under control.

“As a result, their expectations for profit growth in the current financial year are higher, forecasting a 7.8 per cent increase in the next 12 months compared to the expected 4.1 per cent growth among less resilient firms.”

What really sets resilient firms apart, however, is a continuity to invest more in technology and people, the study revealed.

“This is how leaders are positioning the firm to take advantage of a recovery in business conditions, despite a highly uncertain future,” Ms Hegarty.

The Legal Market Pulse research suggests that less resilient firms realise they must double down their investment in technology, as well as digital service delivery and enabling staff to work remotely. More resilient firms continue to invest in these areas too, but they are at the vanguard. 

“During 2020, the industry’s agility was on full display. Central to resilience was years of investment in technology that enabled staff to work remotely and to deliver services to clients digitally,” Ms Hegarty said.

“Care and compassion were also on show as team members were forced to work for a prolonged period without face-to-face contact with their colleagues and managers. Legal firms introduced more wellbeing initiatives and regularly checked in with their staff about how they were personally managing the dramatic changes.”

Another notable difference between the two groups of firms is that the more resilient firms have been faster to adopt new technologies, notably data analytics and e-discovery. 

This investment and implementation of technology are central to more resilient firms making the rapid and smooth transition to delivering services digitally and working remotely as a firm. Only a few of the less resilient firms could claim the same, the study found. 

“More resilient firms’ faster embrace of technology also explains why they are maintaining staff productivity even as staff work from home, and better connected with their teams and clients. These three elements of business operations are among the most challenging for less resilient firms,” Ms Hegarty said.

However, the study found both groups of firms are struggling with business forecasting and planning as the trajectory of the coronavirus and economic recovery remains unclear. 

Coronavirus has also added to the ongoing expectation from clients that legal services must be delivered differently. Agility, collaboration and responding swiftly to opportunities and threats will be critical to continued success for firms.

The report found all firms recognise that coronavirus necessitates changes to the way they operate and where they invest. Differences between more resilient and less resilient firms are again apparent.  

“Compared with pre-coronavirus, more resilient firms expect to have an emphasis on equity partner incomes, while indicating lower numbers of professional and support staff,” the report analysed.

“In the early months of the pandemic, the traditional relationship between the working hours of partners and those of associates reversed, according to Thomson Reuters’ Peer Monitor. 

“While associates’ billing hours in the June quarter were steady with the same period in 2019, partner billing hours increased notably by nine hours per month. This is a function of both client demand and partners doing more billable work themselves.”