Latest news – Top-tier firms see the positives; Report urges rethink of law firm model, UK law grads hit pay dirt
Bullish outlook for top-tier Australian firms
Sentiment among legal practices, especially top-tier firms, is “exceptionally positive”, according to the latest edition of the CommBank Legal Market Pulse.
The annual analysis of the trends shaping the legal services industry in Australia turns the spotlight on the way in which firms are future-proofing their operations in response to ongoing changes to client engagement and the industry more broadly.
“Currently, larger firms are enjoying the benefits of heightened client demand driven by activity across practice areas, including disputes, regulatory activity in the banking and aged care sector and strong corporate deal flow. As a result, sentiment among law firms is exceptionally positive, particularly for top-tier firms,” the report concludes. “In fact, firms across the industry have adopted the most bullish stance on the performance of both the broader economy and the legal services market ever recorded in the Legal Market Pulse research series. Heightened client demand is also providing a moderate reprieve from some of the longest-standing challenges facing the industry, such as negotiating prices and winning business.”
The report claims that while firms are benefiting from robust conditions, translating to a tangible uplift in revenues and profits, the medium-term outlook is more subdued. “However, as many firms have increased their headcount to service greater demand, attracting and retaining top talent has become one of the most significant challenges. Many firms are also looking beyond the strength of the current legal services market and focusing on how to manage their longer-term sustainability to deliver growth. When considering their future strategy, firms are most likely to be responding to two dominant forces – changes in client expectations and competitive pressures.”
In particular, the research has highlighted an acute awareness among firms of the increasing power wielded by buyers of legal services and their ability to drive rates down, request more for less and breed competitive tension.
Law firm model ‘broken apart’, claims US report
A new American report has urged law firms to seize the opportunity to question long-standing assumptions and re-examine traditional business models that may not be suited to growing challenges such as competition from the likes of the Big Four accounting firms and more nimble alternative legal service providers.
The 2019 Report on the State of the Legal Market, issued by the Center on Ethics and the Legal Profession at Georgetown Law and Thomson Reuters Legal Executive Institute, suggests that such competition is leading to high levels of talent and client poaching by rival firms. Worryingly, it concludes that firms’ responses may be increasingly counterproductive.
The research claims that the traditional law firm model, which has served firms well for decades, is now largely “broken apart” because of new market realities. It calls on firms to “jettison some long-held assumptions and … imagine a new model of how the legal market now works”, suggesting more dynamic models that adapt to specific client needs, firm strengths and market competition. Clients are demanding more value for their legal spending, reflecting the change in legal services from a sellers’ market to a buyers’ market.
And the market of non-law firm competitors such as the Big Four and other providers continues to grow at double-digit rates to more than $10 billion in annual revenues. This has left law firms vulnerable and exposed to competition. “Unlike other businesses, law firms cannot protect their two most critical assets – their people and their clients … Interfirm poaching of both talent and clients [is] at unprecedented levels,” the report notes.
Law firms have responded with record levels of mergers, lateral acquisitions, new-associate compensation and rainmaker bonuses, but the report argues that “ironically, these steps have sometimes led to more instability rather than less”.
UK law grads fare well with starting salaries
A United Kingdom study has found that top law firms are offering starting salaries to graduates that are second only to investment banks.
According to The Graduate Market in 2019, an analysis of graduate vacancies, starting salaries and undergraduate work experience programs at the 100 leading employers in the UK, the median salary for law firms included in the report is £45,000 (about AUD$81,000). Linklaters offers the highest salary in the sector at £47,000, the same as the median for investment banks. White & Case (£46,000), Baker McKenzie (£45,000), Allen & Overy (£45,000), Freshfields Bruckhaus Deringer (£45,000) and Hogan Lovells (£45,000) are among the other most generous employers for graduates.
However, in a sign of the changing times in the employment market, graduates who take on a job at supermarket chain Aldi can expect a starting salary similar to those who head to the world’s top law firms. The £44,000 pay packet of the budget supermarket’s graduate scheme, which also includes a company Audi, is on par with similar programs at Baker McKenzie and Allen & Overy.