LexisNexis: Buoyant growth meets rising costs in the SME legal environment. Will law firms want to invest and restructure to meet future challenges?
Around 75% of small and medium law firms reported financial performance at or better than expectations. Confidence is high for the immediate future. But, with PII premiums skyrocketing and employees challenging established ways of working, the SME legal environment is changing rapidly – but will firms adapt quickly enough?
The latest Bellwether report titled “Small law in the pandemic: The good, the bad and the new” was released today by LexisNexis Legal & Professional. The report highlights that 31% of firms have outperformed profit expectations since the pandemic. Perceptions of the future market are bullish, with 93% having confidence in their firm’s future – higher than all pre-pandemic scores.
Unlike the larger end of the market, smaller law firms predominantly grew organically, rather than higher risk M&A. Many firms reported that they had grown and diversified practice areas by acquiring staff that had been laid off by other firms quickly and easily.
However, whilst today’s market is rosy, lawyers recognise that the world has changed around them. 70% predicted that there will be tough challenges ahead. Indeed, the cost of Professional Indemnity Insurance (PII) premiums has risen dramatically, putting yet more pressure on the operational costs of running a law firm. 66% of respondents said that the PII cost was the biggest threat to their business. There is a growing expectation from insurers that firms have robust legal technology embedded to minimise their risk exposure. Unsurprisingly, only 5% felt that free legal information online was trustworthy.
Another clear challenge is the changing workplace and expectations from employees. The work location of the future is unclear. Whilst there is no clear consensus on the future of hybrid working, many expect that law firms will return to their traditional ways. The biggest reported challenge was the recruitment and retention of good talent. Interestingly, job satisfaction in the small legal market is excellent, with an average satisfaction score of 8 out of 10. Yet, conversely, the average score for stress was high at 7 out of 10.
Chris O’Connor, Director of Solutions, commented, “It has been a tough slog for law firms through the pandemic, with many depending on government grants and furlough to survive. So, it is excellent to see the strong growth trajectory in the market. But, with stress and wellbeing continuing to be a challenge – it is clearly crucial for firms to identify the root cause and seek to invest in solutions that will help to mitigate it.”
Read the report here: www.lexisnexis.co.uk/research-and-reports/bellwether-2021.html
