Future analysis

A look to the future

It’s with some certainty that we can say the competitive nature of the legal sector will remain. The survey results show that there will be a continuing need to invest in technology, and new entrants, along with US law firms, will look to disrupt. Further, the challenges of Brexit and the Cyber threat will not go away. Despite the challenges facing the sector, law firms are generally optimistic about the short term. But based on past experience, are these expectations too optimistic? Read our 'at a glance' preview below for more on this section.

Below we outline four key areas and questions law firms need to consider to remain resilient through change.

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Four key areas and questions law firms need to consider to remain resilient through change

Brexit

  • What changes in structure in respect of EU offices will be required?
  • Will processes and procedures need updating to adapt to a new regulatory environment?
  • Will the firm’s people be able to move freely to work throughout the EU?
  • With the current outcome on Brexit still very much an unknown, is the firm ready to quickly adapt upon conclusion of Brexit negotiations?
  • Is the firm ready and able to respond to the opportunities that Brexit will bring?

Shortage of talent

  • Is there a process to spot and nurture talent?
  • Is there clear career progression so that such talent can see how they will progress through the firm?
  • Is there a flexible working culture that meets the needs of the workforce?
  • Is there a policy on hiring and attracting new talent?
  • Is the total package to employees, above cash remuneration, made clear?
  • Does the firm communicate enough and in the right way with its employees?

Cyber threats

  • If your firm were to experience a cyber event, how agile will it be to respond and recover quickly?
  • Are Board members aware of their role and what they would need to do in response to a cyber event?
  • Is there a clear documented business disaster recovery and business continuity plan that has been tested in at least the last twelve months?
  • Would all employees know what to do in a cyber event?
  • Have employees received adequate training in the last twelve months on their role in avoiding a cyber event?

Technology

  • Are the technology ‘basics’ in place that allow the firm to operate effectively on a day to day basis?
  • Does the firm have a technology improvement plan?
  • Is the firm aware of all available emerging technologies and do they know which ones have a ‘best fit’ for the organisation?
  • Is the firm able to ensure all new technologies adopted are secure?
  • How will the firm fund the continuing need for technology investment?

At a glance

Fee income and profits 2018 to 2020

• The vast majority of firms are optimistic on fee income and profit growth from 2018 to 2020, with a significant number of firms predicting that profit growth will outstrip fee income growth in the period 2019 to 2020.

• Top 26-50 firms’ expectations stand out, with fee income expected to rise by 5.3% from 2019 to 2020, but profit to grow by 7.3%. Top 10 firms expect fee income and profit growth of 3.9% and 4.3% respectively, and the Top 11-25 expect increases of 4.8% and 5.2%. Top 51-100 firms expect fee income to fall by 0.1% on average and profits to increase by 1.9%. It should be noted, however, that previous years’ surveys have shown that forecasts in the sector are invariably overly optimistic.

Merger activity by 2020

• The results of our survey suggest merger activity will continue over the next 2 years.

• 40% of Top 10 and 46% of Top 26-50 firms state that merger is somewhat likely, whilst 9% and 18% of Top 11-25 firms state merger is very likely and somewhat likely respectively.

• Merger types, though, will vary. Larger firms will seek mergers with non-UK based law firms (with UK/US mergers likely to lead the way), whilst mid-tier firms expect to merge with smaller UK organisations.

Threats to meeting the firm’s ambitions

• Cyber threats, Brexit, shortage of talent and the speed of technological change are the threats that attract most concern for law firms.

• Cyber leads the way: 86% of Top 10 firms, 80% of Top 11-25, 92% of Top 26-50 and 86% of Top 51-100 firms are either extremely concerned or somewhat concerned about this threat. Clearly, law firms need to be focused on data security and the need to continuously protect themselves against the risk of cyber attack.

• New market entrants are also a concern for many mid-tier firms. 70% of Top 11-25 and 58% of Top 26-50 firms are somewhat concerned about this threat.

• The threats posed by inflation, exchange volatility (except a small number of Top 10 and 11-25 firms) and inability to finance growth are not a concern for the vast majority of firms.

Impact of Brexit

• No firms expect to relocate a head office, close a regional office or relocate a shared service centre due to Brexit and only a small number of firms expect movement in partner and staff headcount (maximum of 18% per banding).

• More firms expect movements in fee income (between 50% and 64% across the bandings) and costs (between 29% and 62% across the bandings) due to Brexit.

• A significant number of firms do not expect Brexit to impact their headcount, fee income or costs: 43% of Top 10, 27% of Top 11-25, 15% of Top 26-50 and 36% of Top 51-100 firms.

• All Top 10 firms have a committee focused on regulatory and structural aspects of Brexit and 86% on people aspects. The prevalence of Brexit committees falls through the bandings; for example, regulatory aspects of Brexit are covered by a dedicated committee in 73% of Top 11-25, 46% of Top 26-50 and 29% of Top 51-100 firms.

Key challenges facing the legal profession between now and 2020.

• 100% of Top 10 and 40% of Top 11-25 firms view technology as the key challenge facing the legal sector over the next 2 years.

• 80% of Top 26-50 firms view Brexit and 50% of Top 51‑100 firms view shortage/retention of talent as the key challenges.

Contact us

Kate Wolstenholme

Business Services Leader, PwC United Kingdom

Tel: +44 (0)7740 923078

Leon Hutchinson

Senior manager, Assurance, Law Firms Advisory Group, PwC United Kingdom

Tel: +44 (0)7739 449052

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