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Legal firms: remaining healthy after lockdown

The Royal Bank of Scotland Legal Report found that there is optimism in the legal sector, but plenty to think about to stay future fit. Here, David Weaver, Head of Professional Services at the bank, looks at the road ahead for law firms.

The report showed that 86% of firms  were optimistic or very optimistic about the future of their business. They were also eager to transition their business to be more robust and thrive. And it is encouraging that more than 50% of firms surveyed for the report are now making plans for their business more than 12 months ahead.

However, unsurprisingly, managing partners have issues to grapple with as they embed many of the changes brought about and hastened by the pandemic. We compiled a post-pandemic checklist in the report to help firms take stock and prepare for the future.

1. Staffing: engagement, retention, mental health and well-being

Staff engagement and retention is a high priority. More flexible working will be a permanent feature among most firms, and many are experimenting and weighing up the optimal home/office working day ratios. One upshot of remote working is that it gives firms a greater recruitment reach and can bring in fee earners who do not live as close to the office as would have been practical historically. The flipside is that existing staff may be lured away by firms that they might previously have considered too far afield to commute to.

Firms need to think about how they can support their people when they  may be considering a new role or career move and equally be as good at attracting the best talent. The report posed the following questions to managing partners:

  • What improvements can be made to processes so that we better understand what our staff want?

  • Do we need to think again about rewards and benefits to ensure we can retain and accommodate a wider and more diverse employee group?

  • Do we invest enough in the development of our staff?

  • Do we have clearly identified and communicated career paths that are open to everyone?

  • What further investments are needed to hardware, software and home office kit (stand-up desks, for instance) to ensure remote working is both a productive and comfortable working environment?

  • Have we adequately adopted the use of AI or automation?

  • Do we have the breadth of skill sets and specialisms within the firm to take advantage of the digitisation trend and new ways of working?

The new way of working may also have an impact on productivity, with the well-being of staff at home being one critical element. Leaders need to assess how they can make both remote and office working more productive. What further investments are required to both hardware and software to ensure remote working is productive? Firms might think about investments in equipment, such as stand-up desks, to improve the quality of remote working.

Finances: having sufficient capital and cash flow

While many in the legal sector have weathered the pandemic and emerged in sound financial health, firm finances should remain in focus. In previous reports, we've always encouraged legal businesses to retain cash to withstand shocks. But the past year has been unusual. Many firms have found themselves with more liquidity – with some drawing on government loans but not yet utilising them –  and this has provided them with a safety net that allows them to take advantage of any investment opportunities.

Several managing partners we spoke to for the report said the 2008 financial crisis had prepared them financially for the pandemic. They also said more partners had taken an interest in the firm’s financial accounts and improved their understanding of how the business works.

Asked what financial aspects keep managing partners awake at night, respondents to the report cited professional indemnity costs; staff pay and conditions; inflation; interest rates; and further IT investment.

Many firms are aware that they would have struggled without government support during lockdown. Looking ahead, they need to assess if they have adequate capital to face a future crisis and survive even without emergency government support. Firms may wish to reflect on whether they have the necessary banking facilities in place and whether they are comfortable with their debt levels. As they look to grow, firms also need to assess if they have sufficient finance for the capital investment they wish to make, such as IT and technology. They might also ask what further steps they can take to accelerate cash flow and reduce lock-up.

Business development: attracting and engaging clients

Business development was initially very challenging for firms when lockdown occurred. However, in the course of the pandemic, many legal firms adapted and experimented.

Similar innovations may be required post lockdown in the hybrid office, agile working environment. While trying new engagement methods may help firms stand out, going back to basics and determining what clients to target, and understanding what those clients value and delivering to that value, is essential housekeeping.

Some firms are also thinking again about how they quote for work; asking what changes they could make that could result in being more profitable. With lock-up and cash flow in mind, firms should also be assessing how well they talk to clients at the outset about estimates, money on account, billing frequency and credit terms. It’s worth noting that quality and speed of service was more important to clients than price during the pandemic; this may give firms more confidence to request better payment terms over the long term.

There is much for leaders to consider, but getting to grips with these business issues early will pay dividends when it comes to new opportunities and withstanding any future uncertainties.

This material is published by NatWest Group plc (“NatWest Group”), for information purposes only and should not be regarded as providing any specific advice. Recipients should make their own independent evaluation of this information and no action should be taken, solely relying on it. This material should not be reproduced or disclosed without our consent. It is not intended for distribution in any jurisdiction in which this would be prohibited. Whilst this information is believed to be reliable, it has not been independently verified by NatWest Group and NatWest Group makes no representation or warranty (express or implied) of any kind, as regards the accuracy or completeness of this information, nor does it accept any responsibility or liability for any loss or damage arising in any way from any use made of or reliance placed on, this information. Unless otherwise stated, any views, forecasts, or estimates are solely those of the NatWest Group Economics Department, as of this date and are subject to change without notice.

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