Profitability will be a key challenge for law firms over the next two to three years, according to a sector survey by accountancy and professional services firm Smith & Williamson.

Its annual survey of large commercial Irish law firms found that almost two-thirds have recorded a decline in revenue over the last year, and six out of ten say that maintaining profitability will be a key challenge for the sector over the next two or three years.

As well as the economic challenges posed to the country by Brexit, almost all firms (94%) believe Covid-19 has resulted in a negative outlook for the sector, while 56% said it was “significantly negative”. 

A third of firms had to cut staff in 2020, but 40% of the top 20 firms boosted numbers. One in three practices also reduced fee earner salaries, while 40% of the top 20 cut pay by 10% or more. Seven out of ten chose availed of the Temporary Wage Subsidy Scheme and almost one in three practices laid off staff.

Of the two-thirds of law firms where revenues had declined, half recorded a decline of more than 20% over the last 12 months.  More than half also saw their profits decline, a dip of 10% on average among the top 20 firms and more than 20% elsewhere.

In Association with

Cyberattacks affected 66% of the top 20, but by and large most firms’ technology infrastructures coped well with the transition to staff working from home. One in six respondents noted a significant adverse impact from a cyberattack.

Smith & Williamson managing director Paul Wyse (pictured) commented: The Covid-19 pandemic has demonstrated the need for all organisations to be able to weather major unforeseen disruption.  Legal firms have had to adapt and will need to develop their strategies further for the new era in the areas of business development, team culture and work flexibility, while being increasingly diligent around lock-up, cash collection and maintaining profitability.”

Challenges that law firms faced before Covid-19 have not gone away, the report says.

“Growth rates are slowing, there is still an increasingly competitive market for talent, and Brexit looms.  The pandemic may widen the gap between technology-enabled larger firms and under-invested smaller firms. The Covid-19 pandemic has caused major disruption to our working lives in the short term and is likely to change the way we work in the long term.”

One in five firms reported making an approach to another law firm for merger discussions. More than half the top 20 that who received approaches were approached mainly by UK law firms. Sixty per cent of the top 20 continue to use lateral team hires as a key aspect of their growth strategies. 

Looking to the future, the report finds that:

• Most firms see the outlook as stabilising or deteriorating in the next 12 months, with almost 50% of non-top 20 saying trade will deteriorate.
• British and international law firms are seen as the main potential sources of competition by half of the top 20 and by Dublin firms. Smaller firms were more concerned about niche firms and online legal service providers.
• Two in three view focusing on specialist sectors as their biggest opportunity.

Pic: Maxwells