Corporate activity has re-ignited, with a corresponding uplift in transactional work, and firms are busy again. Change in the legal sector is set to continue, and firms looking for success and substantial growth will require clear leadership and vision, strong discipline over business practices, and agility to ensure they are able to take advantage of new and emerging opportunities.
In this year's survey, we see evidence of some recovery in the financial performance of law firms and a degree of confidence is returning to the sector as a whole.
Looking first at Profit per Equity partner or PEP we see a marked improvement in all segments of the market, other than the Top 26-50.
Whilst firms continue to be some way behind where they were in 2008 in real terms, it is encouraging to see a better PEP performance, and particularly the Top 10 where PEP is back above the £1m mark for the first time since 2008.
Average chargeable hours are also up by between 1.9% and 8.7% across the sector, with the Top 26-50 firms once again showing the weakest performance.
So far so good, chargeable hours are up, fee income is up and profit is up. However, despite significant merger and lateral hiring activity over the year, there is still an apparent over-supply of law firm service providers. And this, together with changing client behaviours is driving significant pricing pressure within the sector.
We see fee income per chargeable hour falling across all segments in 2014 and by as much as 9.3% in the Top 26-50.
Pricing is a complex area and firms need to think carefully about whether they have the right management information to make good pricing decisions. And whether they fully understand what their clients value and are willing to pay and whether they have sufficiently dis-aggregated the services they provide and differentiate the pricing accordingly?
Finally Some 45% of survey respondents reported that they had suffered a security breach during the year, with the most common incidents being staff related. And recently we have also seen evidence of sustained hacking attacks on law firms, with attempts to extort money (and particularly client money) through interception of client e-mail. We expect this to be a topic of increasing focus in the coming months and years from clients, regulators and not least of all the media.