2019 was a provocative year for the legal market, largely due to the prolonged and often dark shadow of Brexit, which meant that many firms were only able to execute on short-term strategies rather than make meaningful strides on business plans. 2020 is set to be equally compelling.
Against a backdrop of continued macroeconomic and geopolitical uncertainty – including US/China sanctions, unrest in Hong Kong and more recently Iran, as well as Brexit – the legal market has genuine concerns about a potential recession and some firms are proactively preparing for a bumpy road ahead.
Despite noise around a potential downturn, London remains second only to New York in terms of growth opportunities in the legal sector. The capital should continue to be a hothouse for financial markets, private equity (PE) houses and hedge funds, and as long as that continues (and there is no reason why it wouldn’t) they will keep London's legal industry ignited. While clearly London faces challenges, the opportunities eclipse them by far. There is plenty for law firms to be upbeat about as we enter the new decade.
As the UK’s future rapport with Europe starts to become less clouded, we should expect to see an uptick in Brexit-related work. Brexit brings plenty of opportunities in the areas of competition and antitrust, commercial contracts, restructuring and litigation, so firms with a balanced service offering will be able to profit from this.
We should see some proliferation this year coming from M&A/corporate. As Brexit unfolds, there will be opportunities for inward investment, in particular from the US, China and even Russia, which could bring a surge of M&A deals in the short to medium term. The demand for legal talent in M&A will therefore remain contested. PE also has a very positive outlook as many houses have dry powder from a prolonged wait-and-see period, so we anticipate reasonable deal flow in 2020 that again will translate into demand for PE talent.
Litigation will also likely continue to be a fundamental source of legal work. We anticipate seeing an increase in demand in the areas of white-collar crime and regulatory investigations, and as such there will be competition for attaining this talent. In addition, the areas of financial and bankruptcy restructuring will reach new heights and firms are pro-actively recruiting in this area in preparation for some clients becoming unstuck. Further areas that will not be in decline are data protection, cyber and even IP.
In terms of sectors through 2020 and beyond, technology will likely remain the pre-eminent growth sector by some strides. As the sector continues to augment exponentially, as well as diversify, the opportunities in the UK are significant. Other sectors that may have continued success are healthcare, life sciences, pharmaceutical, as well as media.
Competition for work and winning clients will continue to be fierce throughout 2020 and the war on talent will continue. Firms will likely become more creative with their enticements to attract lawyers. We may see more creative bonus structures, signing on bonuses, more flexible working arrangements, sabbaticals and a no limit on holidays, making more of an indent in the market.
Law firms with purpose is a trend likely to continue. The sector is seeking to deliver more meaning to working lives than just the execution of deals and cases, and as such ‘purpose’ is a key driver in attracting talent. Further, we may see more diversified partners who may carve out a percentage of their time to be dedicated to areas such as diversity. We’ve seen more women made up to partner in the last year and we hope to see more of that, as well as more BAME lawyers reaching partnership in 2020.
The investment by law firms to bring in lateral partners is significant and yet anecdotally, the market says only about 50% of laterals are successful. There is some debate on what ‘successful’ looks like and it varies across firms but as we enter 2020 we anticipate seeing more law firms creating a designated ‘Integration Partner’ role to ensure new hires land well and are supported to enable them to achieve success and thrive.
The theme of thriving will continue as we see initiatives around health and well-being at the forefront of many firms’ strategies. Mental health continues to dominate such initiatives and firms are hiring full-time well-being professionals to support their people at all levels.
Law firms are placing an ever-increasing focus around developing areas such as innovation, technology and practice profitability. Firms are investing more in business development tools, e-Discovery tech and artificial intelligence. They’re also doing this in new ways such as through strategic partnerships and even buying in small start-ups to provide this tech support for them.
With a continued focus on practice profitability, and indeed should we enter into a period of recession, it may be that law firms will start to look at alternative staffing models with greater determination, especially for mid-level associates. The contract lawyer market will therefore likely continue to proliferate (particularly with IR35) and we may see new entrants here doing it differently.
It is not expected that the sector will face intense consolidation. Market compression generally occurs through lateral hires, firm acquisition and firm mergers. The lateral market is likely to continue to be active but it is unlikely that we will see firm mergers occurring at the pace at which we have seen them in recent years.
So, lots to look out for and plenty of opportunities. The best managed firms will see the opportunities that the market presents, seize them and potentially have a profitable year ahead. Good luck!