UK law firms demonstrate their agility through turbulent times - PwC Law Firms Survey

• 88% of Top 100 UK firms are concerned that shortage of talent will prevent them meeting their ambitions in the next financial year
  
• 9% is the average fee income growth reported across the Top 100 UK law firms
  
• 83% of Top 100 UK firms have set specific and measurable ESG targets in at least one area
  

Despite a year of uncertainty, UK law firms have seen a healthier than anticipated financial performance across fee income and profits in 2021/22. According to PwC’s 31st Law Firm Survey (LFS), the Top 100 UK firms averaged a 9% growth in fee income.

The Top 10 achieved fee income increases of 10.2%, more than double the 4.5% they predicted. Among the top 11-25 firms, growth averaged 6.3%, the top 26-50 firms, 12.5%, and top 51-100 firms, 7.5%. When it came to profits, 65% of Top 100 firms recorded growth year on year. 

During this period, most practices performed strongly across the suite of services, from high levels of M&A activity through to areas such as litigation, employment, refinancing, restructuring and insolvency. This uplift has been accompanied by savings on property costs as hybrid working continues, although pressure on salary costs remains.

Managing cyber risk remains high on board agendas, particularly as it becomes more difficult to insure against. The survey reveals that four out of five UK law firms are significantly concerned about cyber threats - the Top 10 recorded this as their second biggest issue behind macroeconomic volatility, and one they are meeting with a 55% increase in security spend year on year. This period has also seen an increase in UK Top 100 firms appointing either a dedicated cyber security contact or Cyber Security Chief. 

Kate Wolstenholme, Leader of PwC UK’s Law Firms Advisory Group and editor of the Law Firms’ Survey said:

“Despite a very strong year, law firms now face some headwinds from continuing macroeconomic and geopolitical uncertainty, with high inflation, tightening of credit markets and the energy crisis creating a shift in business confidence.

“Firms may need to look beyond pricing to non-core cost reduction, improvements in operating model, and technology innovation to combat those challenges. But with some market players now focusing on expansion into adjacent service lines, successful firms will maintain a strategic growth mindset to avoid compromising mid- to long- term ambitions.”

Environmental, Social and Governance (ESG) - a moral obligation

The survey also revealed that when it comes to implementing an ESG policy, firms are at various stages of the journey with only 25% having a policy in place, almost half having a largely formulated strategy and 27% still in the early stages. 

What is apparent is that ‘moral duty’ is the major driver in the sector's response to the ESG agenda, closely followed by client pressure, value protection, value creation and staff recruitment and retention.

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

People remain the beating heart of business

According to this year’s survey results, 88% of the Top 100 UK firms are concerned that a shortage of talent will prevent them from meeting their ambitions in the next financial year. 

While FY22 saw recruitment and headcount rise following the pandemic period, with strong investment pulling through in terms of salaries and recruitment, the impact of the ‘Great Resignation’ and high staff turnover is a resounding theme felt by UK law firms. 

After a year that, for some, saw unsustainably busy levels of work, law firms have seen a fall in average chargeable hours this year across the majority of post qualified fee earner grades. 

Leon Hutchinson, co-editor of PwC’s Law Firms' Survey report, said: 

“A significant number of law firms have identified shortage of talent as their number one concern in this year’s survey. Following the end of the last pandemic lockdown earlier this year, we have seen partners and fee earners on the move. This, linked with shortage of supply, has added to staff cost inflation that all firms are experiencing.

“Continuingly increasing remuneration is not a sustainable option. We expect law firms to prioritise their strategy towards other areas, including work life balance, the hybrid or remote working model and their ESG policies, all of which are increasingly valued by staff today.”

ENDS

Note to Editors:  PwC’s Law Firm Survey was conducted in July 2022. The report can be found via Annual Law Firms’ Survey 2022: Agility through turbulent times.