Latest news – Profit-growth fears for law firms; Small firms dream big on tech; In-house ethical conundrum
Fall in business confidence hits profit-growth hopes
The profit-growth expectations of Australian law firms have fallen, according to the 2019 CommBank Legal Market Pulse report.
In its November report, CommBank notes that business confidence has dropped from its 2018 peak and, as part of their response, law firms are making a continued push into non-legal services to meet changing client demand. The report reveals that firms’ confidence in current business conditions has eased from a net positive reading of 85 per cent in 2018 to 54 per cent in 2019, and the outlook looking forward two years has fallen to just 10 per cent. However, despite conditions softening, confidence levels are still currently running above their 5-year average and firms report still-healthy profit growth of 6.3 per cent in FY19, down from 8.2 per cent the prior financial year.
Marc Totaro, National Manager, Professional Services Business & Private Banking, Commonwealth Bank of Australia, said: “As firms grapple with fluctuations in client demand, striking a balance between efficient service delivery and quality, sustainable client service has come into sharper focus. While profit growth continues to underpin short-term confidence, firms are starting to look further ahead at where they can invest. In fact, firms are still vying for top talent and lifting training and development budgets to ensure they have the capabilities they need in future.”
To meet future changes in workload and address the needs of value-conscious clients, firms are implementing a number of strategies. From a staffing perspective, firms are most likely to be hiring junior and senior lawyers in the year ahead, with 51 per cent of firms indicating a net increase in these roles. While mid-tier firms are also looking to increase the use of contractors in these roles, top-tier firms have decreased the proportion of contractors in all positions, except for paralegals.
Commbank says firms are also looking closely at their service delivery models, and have increasingly engaged legal process outsourcing (LPOs) and legal services outsourcing (LSOs) providers. However, this has only edged up, with 51 per cent of firms now using or planning to use outsourced providers, up from 43 per cent six years ago (the last time the Legal Market Pulse addressed this topic). Firms also report that outsourced work accounts for only 2 per cent of their fee-earning activity, well below the forecast 7 per cent cited by firms in 2013.
Smaller firms quicker to embrace technology
Australian law firms are embracing new technology, but smaller practices are more open to technological innovation than their larger cousins, according to a new survey by Australian technology company GlobalX and the Australasian Legal Practice Management Association (ALPMA).
When asked to rate how open they and their employees were to adopt new technology in the workplace on a scale of 0 to 100, small firms returned an average score of 71 out of 100, compared with large firms’ average of 55. The average for all respondents, independent of size, was 66.
The findings form part of the “Move Forward with Confidence: Your Roadmap to Transformation” report. Practice management and document management software were the two most widely implemented and established legal innovations, but artificial intelligence was the least used, with almost 70 per cent of firms saying they had not introduced AI technology.
GlobalX CEO Peter Maloney said that even though AI had a relatively low uptake, it had the potential to grow into a popular industry trend. “While it’s the least utilised legal innovation now, for those early-adopter firms it’s a point of difference in the market and potentially a real competitive edge that other firms are yet to explore,” Maloney said.
Ethical challenges for in-house lawyers
A new survey indicates that a large proportion of in-house counsel face significant ethical challenges when they are asked to provide advice.
The study, released by LOD: Lawyers On Demand, found that a third of in-house lawyers agree, to a greater or lesser extent, that they are sometimes asked to advise on something that makes them feel uncomfortable ethically. About one in four agree, to a greater or lesser extent, that there are tensions between the way they and their business respect obligations to uphold the rule of law. Almost half of in-house lawyers have been asked, with varying regularity, to advise on something where the ethicality of a proposed action by the organisation is debatable.
The study, titled ‘Which way is the wind blowing? Recalibrating the moral compass of in-house legal practice’, is the work of Steven Vaughan, professor of law and professional ethics at University College London, and Richard Moorhead, professor of law and head of Exeter Law School in the United Kingdom. The professors surveyed 400 in-house lawyers and conducted 67 in-depth interviews.
The research shows that corporate counsel have to balance the best interests of their business and ethical standards and responsibilities as members of the legal profession.
LOD is calling the survey “the largest-ever study of in-house lawyers anywhere in the world”. While there was no correlation between the size of the legal team and ethical pressure, lawyers working in the public sector showed significantly higher ratings of ethical pressure than those working in a business, LOD noted in a statement.