Annual Law Firms’ Survey 2022: Agility through turbulent times

UK financial performance

Despite a year of uncertainty, UK performance has been better than anticipated with almost 90% of firms increasing fee income and 65% seeing a rise in profits. In terms of fee income, firms in the Top 10 achieved average increases of 10.2%, considerably ahead of their predictions of 4.5% this time last year. Top 11-25 firms saw an increase of 6.3%, more than doubling their prediction. Top 26-50 firms grew top line by 12.5% and Top 51-100 firms by 7.5%. All of the Top 100 bandings also significantly outperformed their expectations in respect of profit growth.

People

Last year we saw COVID-19 limiting headcount movements; however, this year’s survey shows an increase in lawyers across the sector. The so-called ‘Great Resignation’ impacted staff turnover in UK law firms, with for example attrition of 17% in Top 10 and 28% in Top 26-50 firms at 1-2 years PQE level. In this context, it is unsurprising that firms have identified a shortage of talent as a key challenge to meeting future ambitions.

After two years of increasing activity for lawyers, chargeable hours have either remained flat or have fallen slightly across the majority of law firms. The effects of this are being felt mainly in Top 11-25 and Top 26-50 firms and across post qualified grades.

The diversity metrics from our survey reinforce the trend noted in recent years with only limited change in this important strategic area of focus for many firms.

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Cyber risk

Cyber threats remain a key concern across the legal sector with 78% of the Top 100 indicating that this is something that they are extremely or somewhat concerned about. This challenge is being met with increased cyber security spend across the Top 100 bandings (up between 50% and 79%).

There has also been an increase in firms appointing a dedicated Cyber Security Chief or point of contact responsible for focusing on cyber security. As it becomes more difficult to insure against cyber risk, managing cyber threats is likely to remain a key challenge with a heightened focus in the future.

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Environmental, Social and Governance (ESG)

As ESG is becoming an increasingly important consideration across the legal sector, we introduced a number of questions on this topic for the first time this year. Our survey showed that “moral duty” was the most important driver behind ESG activities followed by client pressure, value protection, value creation and staff recruitment and retention.

In terms of implementing an ESG policy, firms are at different stages in their journey with only 25% having already imbedded a well developed policy, 46% having a largely formulated policy that has not yet been fully implemented, 27% with the policy and its implementation still in its infancy and 2% having no policy in place at all.

As ESG and the benefits of introducing ESG strategies become more prevalent, focus in this area is likely to heighten with law firms expected to imbed policies into their corporate governance structure and firm-wide strategies.

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