The UK’s legal sector returns to growth but Covid-19 and Brexit challenges remain.
Cyber risk is a key challenge for UK law firms and is considered to be the second greatest threat – behind COVID-19.
It’s been an unprecedented year for UK law firms, with challenges such as Brexit and COVID-19 testing their resilience, according to the latest PwC Law Firms’ Survey 2021: Embracing change to succeed.
Prior to the beginning of lockdown measures, the legal sector was already facing challenges which included ensuring sustainable and profitable growth, building an attractive culture for today’s workforce, and investing in the right technology.
The convergence of these pressures may explain that while 2020 showed UK fee income growth for the majority (70%) of Top 100 firms, this is a sharp drop from 89% in 2019 and 84% in 2018.
Average fee income increases across the Top 100 firms fell for the second successive year to 3.7% (5.9% in 2019 and 8.3% in 2018).
Against this backdrop, 81% of Top 100 firms are concerned that the pandemic will stop their firm meeting its financial ambitions in the period to 2022.
Most firms have taken swift action to shore up their balance sheets, with reduced partner distributions, salary freezes and bonus deferrals, curtailment of discretionary spend, and laser focus on working capital management and liquidity.
According to the Law Firms’ Survey, the top three priorities for business support over the next 12 months haven’t changed from 2019 and are: improving the use of technology; standardising and centralising processes; and improving legal service offerings.
The pandemic, however, has significantly increased the priority of ‘cost reduction’, mirroring a trend last seen in the year that followed the 2008 economic crisis.
Cyber security also remains a key challenge for law firms, with the sector increasingly being targeted due to firms holding both a wealth of sensitive data and large amounts of client money.
Kate Wolstenholme, leader of PwC’s Law Firms Advisory Group and editor of the Law Firms’ Survey, commented: “Going into this year, firms already faced many challenges from addressing cultural shifts and backing the right technology investments, to driving sustainable and profitable growth with Brexit looming over them.
“Then COVID-19 struck, and unsurprisingly, it is now cited as the most significant threat to law firms meeting their future ambitions over the next two years.
“But we believe the pandemic also gives firms the ideal opportunity to do things differently, fast tracking a positive change in working culture across areas such as work/life balance, hybrid working, use of office space, diversity and inclusion, mental health, and upskilling staff in digital technologies.
“Those firms that build on the work initiated in their immediate response and embrace the innovation displayed will outpace their competitors, gain the trust of their employees, and position themselves as firms that can look to the future with confidence.”
Further reading on the survey can be found here.