Section one reading time: 9 minutes
Section 1.1: Law firm resilience
The 2023 global economic bounce back has boosted law firms' fortunes. The Law Firm Financial Index (LFFI) for the first quarter of 2024 illustrated the current resilience of law firms, with all the major metrics of the large law firm sector moving in the right direction. To add, Citi’s Global Wealth at Work Law Firm Group found the industry continued it's momentum from the first quarter with double-digit revenue growth into the first six months of the year.
Despite this strong start, changing client behavior should not be forgotten, with almost all firms (96%) experiencing client attrition and 81% of firms confirming a drop in demand for legal services in the past 12 months, continuing a similar story from the previous year. Therefore, the current uptick in demand, in particular for large AMLaw 50 firms that are surging ahead in market performance this year, must be put into context. The last few years have demonstrated the ability for client demand to ebb and flow, emphasizing the importance for firms to have solid, holistic talent management strategies and tools in place to suit any market.
Section 1.2: Competitive landscape
Thomson Reuters reports that clients are becoming more aggressive about splitting work among lower-cost firms to reduce costs and this research confirms the primary reason for this level of attrition is clients reducing their spend on legal budgets (40% confirmed). The competitive outlook is also changing. Not only have 33% of clients found cheaper legal services elsewhere, but 34% are reducing the number of firms they have on their panels. On the plus side, those firms that can meet client expectations and secure a position on a smaller panel will be better placed to retain and improve business moving forward.
However, client expectations for value and timeliness of service delivery continue to evolve. The shift towards clients bringing more legal work in-house (33%) continues, underscoring the desire for better visibility and control over expenditure. While this shift in-house is not as high as was predicted last year, suggesting it is taking longer for clients to build the depth and breadth of skills in-house required to manage the increased or specialized workload, the trend is undeniable.
Section 1.3: Chasing talent
This evolution of client demand and the moving of more legal work in-house comes at a time when many firms are over-staffed following the lateral hiring frenzy BigHand has reported for the past few years. While the extent of lateral hiring has slowed from the peak, the disruptive trend continues, especially in senior roles including law firm management (54% confirm it’s increased) and equity partners (53%). With 32% of firms also confirming they lost work when departing partners took clients, the operational and cost implications of lateral hiring (and/or lateral losses) continue to be felt.
It is interesting to note that lateral hiring is beginning to impact the mid-market. AM Law 200 firms are now targeting successful mid-market equity partners and associates, creating new waves of disruption for a tier of firms that has enjoyed significant growth over the past few years.
Section 1.4: Continued attrition
Despite the decline in lateral hiring, high levels of attrition continue throughout the legal sector, with firms reporting attrition at every level, from equity partner to support staff. While firms continue to chase top talent, with newly qualified salaries breaking records seemingly every month on both sides of the Atlantic, salary is far from the only reason cited for leaving a law firm.
Workers’ attitudes to work are changing, with hybrid working, work/life balance, and professional development being high priorities for individuals seeking a new role elsewhere. The level of equity partner attrition, and the associated business loss, should be a concern, especially when 25% cite hybrid working arrangements and 23% professional development opportunities as the reasons for leaving. Hiring managers (91%) in the legal industry face challenges finding skilled candidates, compelling firms to become far more receptive to staff demands beyond financial remuneration – with some law firms attempting to become more attractive as an employer by reducing the time it takes to make partner or making career paths much more transparent. Are firms able to deliver on promises to fast-track partnerships? Almost half of all firms have also forced exits through redundancies or reductions over the past 12 months in all roles, underlining the constraints created by practice level rather than firm-wide resource management. Chasing talent in one area while forcing exits in another is inefficient and costly. It also undermines staff confidence and constrains potential career development opportunities through regional or client secondment.
Firms need to look hard at internal resources across the entire business and ensure they are maximizing opportunities to retain valuable talent wherever possible.
Section 1.5: Effective support services
In addition to focusing on the challenge of retaining lawyer talent, law firms must not forget the challenge of support staff attrition, where the loss of skills directly impacts their lawyer's ability to deliver first-class client service. BigHand’s survey suggests the highest levels of attrition are within the support function, with over two-thirds (69%) of firms confirming support staff loss has risen or remained steady in the past year. Given the accelerating loss of talent in support staff in recent years, this continuing trend raises concerns regarding firms’ ability to support client demands for more cost-effective and responsive legal services.
While the shift to centralized support services is helping, firms face significant pressure to ensure lawyers have on-demand access to the required skills and experience to ensure they are providing world-class service to their clients. The loss of institutional knowledge as senior legal assistants exit firms is a dynamic firms need to deal with. As this research confirms, support staff are not just leaving due to retirement or attractive salaries, 25% cite professional development and 23% work/life balance. If law firms are to build and sustain a support model that ensures lawyers’ needs are met, more robust resources, and delivery planning as well as training and development will be required. Efficient support functions are increasingly data-led. Understanding individual and team performance while assessing the skill gaps in the support function is critical to evolving support structures to meet the evolving needs of lawyers and ultimately clients. Developing these skills in-house, creating career paths for support staff, and creating specialized teams versus an army of support generalists, are just a few areas firms are focused on. These areas all help to provide exceptional service in an environment where clients are not afraid to move their business in response to perceived apathy from their legal service providers.
Lawyers’ responses to this cultural shift in support model differ notably, especially across generations, leading to challenges with morale, utilization, and, critically, productivity. Effective change management, including training for both lawyers and support staff to embed effective resourcing practices, is becoming core to ensuring productivity and utilization at every level. Underpinning this evolution with technology is critical to success.
Section 1.6: Equitable environment
While Diversity, Equity, and Inclusivity (DEI) strategies have become embedded in corporate behavior over the last decade, law firms are still falling short of clients’ expectations. A third (33%) of firms' report losing clients because they found other firms more in line with their goals around DE&I. Clients have strong DEI expectations, with many setting targets for all service providers, including law firms. They expect firms to commit to improving equity and they want proof these goals are being attained: 87% of firms report an increase in client requests for DEI data around matter staffing.
Law firms are not currently well placed to respond to these demands – a fact that may explain why so many are losing business due to not meeting DEI expectations. Less than a fifth (19%) of firms include DEI as a priority when resourcing matters, suggesting there is a significant cultural shift still required to transition DEI from a strategic objective to an operational deliverable.
Almost half (47%) of firms do not have systems or technology in place to provide reporting on DEI across matters, seriously raising the risk of losing more work in the future. For those that do have systems in place, are they proactively communicating the changes with clients to demonstrate their commitment to improvement and potentially raising their profile above those firms earlier on in their DEI journey that might still treat it as a tick-box exercise? Effective DEI policies are also key to reducing lawyer attrition by delivering equitable access to work required to support their professional development. DEI strategies may be robust but without the data, process, and systems to support DEI goals day to day, firms will continue to lose both clients and talented staff.
Conclusion
The market may have bounced back well over the past 12 months but with the US economy showing signs of recession and global financial market confidence dropping, clients will inevitably become even more cost-conscious. BigHand Resource Management (work allocation technology) and BigHand Workflow Management (task delegation technology) are transformational tools that enable law firms to mitigate the implications of changing client behavior and expectations. Improved efficiency and resource allocation support firms’ financial and operational goals in periods of peak demand, and periods of lagging demand.
BigHand Resource Management is a legal work allocation and resourcing tool that allows law firms to identify resources, forecast utilization, manage workloads, and add structure to career development for lawyers. BigHand Workflow Management is a support services task delegation solution that allows work to be automatically routed to the right support staff, with the right skills at the right cost to the firms, putting transparency in a typically opaque process.
Together, these tools transform the day to day working environment for support staff and lawyers and provide a robust platform for their career development. Using Workflow Management, lawyers can seamlessly access support resources, delegate tasks, and track progress across a hybrid workforce, improving their productivity and ultimately billable time, while also reducing stress. Resource Management delivers real-time visibility of their associates skills, availability, and career aspirations, ensuring lawyers are effectively utilized day to day, maximizing matter profitability while also meeting clients’ value expectations.
In addition, Resource Management underpins motivation strategies, leveraging insight into lawyers’ skills, experience, and career development goals, to ensure lawyers gain access to opportunities such as secondments and pro bono work, in addition to client matters. Further, it can support their career growth by ensuring associates are not pigeonholed into the same type of work and ensuring they can gain access to working with different partners and/or clients. It can support far more effective succession planning to ensure individuals are identified and prepared early for their next role to minimize disruption when senior partners retire or leave.
Workflow Management also supports far more equitable allocation of work across support services, improving efficiency and cost-effectiveness. It delivers the insight required to understand the evolving support model, highlighting key metrics such as work type, volume, capacity, and utilization to support resourcing and productivity decision making, and highlights opportunities to train and develop support staff to enhance career development and reduce attrition.
Critically, with a robust foundation provided by both technology and a dedicated resource management process, firms can deliver not only the cost-effective legal services demanded by a competitive market but also the transparency of service delivery, including DEI, required by clients.
In the next two sections, this report explores the implications of these trends on both lawyers and support staff and highlights law firm strategies to respond to both client and staff attrition.
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