Latest news Revenue growth subdued Innovation mindset emerging Faster cheaper solutions the key

Squeeze on revenue and margins for law firms

A new report suggests top and mid-tier law firms continue to feel the impact of subdued revenue growth, margin compression and demanding clients. However, the 2017 edition of CommBank Legal Market Pulse, an analysis of the trends shaping legal services in Australia, also reveals that many firms believe Australia’s economy is gaining momentum, which is likely to create better business conditions overall. The net confidence reading of participants has rocketed from –24 per cent to +20 per cent.

Key factors behind the surge include a rise in mergers and acquisitions, more frequent capital raisings and optimism in the wake of a well-received Federal Budget. At the same time, though, two of the key difficulties for firms are price negotiations and winning new business. To offset these issues, the report claims, many firms are taking control of their own destinies, responding creatively to a changing market by exploring alternative business and pricing options.

Encouragingly, firms have continued to meet and exceed their profit forecasts, although by a smaller margin than a year ago. Top-tier firms were most likely to beat budgets, forecasting an average 2.3 per cent outperformance, compared with 1.1 per cent among their mid-tier rivals.

Legal sector adopts innovation mindset: ALPMA

Law firms and their clients are benefiting from a growing innovation mindset within the legal industry, according to the Australasian Legal Practice Management Association (ALPMA). ALPMA president and CEO of Sladen Legal Andrew Barnes says that “after years of talk” there is now evidence that law firms are actively embracing innovation. “Developing an innovation mindset requires firms to allow staff time to just think, to experiment with doing things differently and a willingness to fail – which can be the antithesis of how firms have traditionally operated – yet a growing number of firms are successfully embracing this challenge,” he says.

Announcing finalists for the 2017 ALPMA/LexisNexis Thought Leadership Awards, Barnes highlighted the work of Legal Economy, a new digital platform enabling solicitors to engage with barristers directly via tender process. It provides an opportunity for solicitors to access a different and potentially wider pool of barristers to accept their briefs, and may help reduce unconscious bias whereby male barristers typically win more briefs. Following the release of the Law Council of Australia’s equitable briefing policy last year, a national target has been set for women barristers to be briefed in at least 30 per cent of all matters, and be paid 30 per cent of all brief fees by 2020.

The 2017 ALPMA/LexisNexis Thought Leadership Award winners will be announced at a gala dinner on September 14 at the Brisbane Convention and Exhibition Centre.

Corporations want “faster, cheaper solutions’

The 2017 Mahlab Report indicates that an increasingly savvy corporate client group, along with investment in technology and innovation, are the key elements driving the growth of the legal profession. An annual insight for employers and professionals into Australia’s legal industry, the report notes that “corporates are demanding faster and cheaper solutions from their law firm panel members, but also expect innovation and business partnering”. The upshot is that competition on price and service, including value-adds, is more “ferocious” than ever.

Mahlab says that while many law firms are investing heavily in new technologies, many still struggle with flexibility of resourcing and that “outsourcing of legal process by mid-sized and larger firms and companies with a sophisticated in-house legal function is now the norm”.

The report suggests that private practice ‘winners’ are those firms with clients not large enough to hire their own lawyers yet. Government continues to provide a steady work flow to panel firms, albeit at lower hourly rates. New entrants, including US firms, have disrupted the local market, particularly in Sydney and Melbourne. Well-established global firms are facing aggressive competition for their partners, many of whom have moved to new global entrants with deep pockets.

Mahlab says firms feel pressured not only to cut their fees, but also to provide secondees, CLE, entertainment and engagement opportunities for their in-house counsel clients.