The pandemic

The pandemic has resulted in a broad range of challenges for firms. There will inevitably have been a reduction in large-scale M&A work and other transactional work that corporates and financial sponsors traditionally engage law firms to work on. 

This reduction in work will largely have resulted from businesses needing to conserve – rather than invest – cash in light of the commercial challenges and negative economic impact of the pandemic, as well as other businesses either becoming insolvent or experiencing financial difficulties and lacking the cash to invest in transactions. 

As a result, the transactional teams in many large firms will likely have seen a drop in revenues and to mitigate the effects of this, some firms have tried to hedge their positions by introducing temporary pay reductions, pay freezes, bonus freezes and the like. However, in contrast, some firms have taken the opposite approach and gone as far as paying COVID bonuses to their lawyers to reward them for their hard work during these difficult times.

It’s worth briefly noting that as businesses file for bankruptcy and others look to shed unprofitable assets, this could result in an uptick in M&A work if a range of assets are suddenly available to acquire on the cheap.

Restructuring and insolvency work

Now wherever there’s a challenge, you should also look for any corresponding opportunities when analysing and discussing particular issue. For example, when there’s a drop in M&A work because of broader economic and political factors, this tends to be somewhat counterbalanced by an uptick in disputes work (as businesses get more panicky and start suing to try to recover money they are owed). 

There also tends to be an uptick in restructuring and insolvency work, as businesses that are struggling with cash flow and meeting their existing debt obligations may well need legal advice to steer them through the options available. Unfortunately, it’s likely there will be many more bankruptcies following this lockdown and future lockdowns as further lockdowns continue to impact the economy and businesses struggle to cope. As a result, we’ve seen some corporate and finance lawyers transitioning into restructuring and insolvency roles, using their transferable skills to learn new areas of commercial law.

On the other hand, there has been ample legal work available from businesses seeking to benefit from the many government grants and initiatives that have been put in place throughout the pandemic, so firms that work with such businesses – which are typically smaller, earlier-stage businesses - may have been well placed to win this type of work. 

It’s worth noting that because many early stage start-ups tend to rely initially on money raised through investment rounds - rather than revenue from customers - to operate, lockdowns may not have had the same level of impact, at least in the short-term, on their ability to grow, invest and pay for legal advice. Few large City law firms advise start-ups however, as their fees are simply too high for start-ups to afford.

Remote working

The pandemic has also resulted in lawyers, who have traditionally been office-bound, transitioning fully to remote working. Whilst remote working for lawyers appears to have worked pretty well throughout 2020, it still poses a number of challenges in the longer term.

For example, it might be far harder for firms to adopt firm-wide procedures to maintain client confidentiality, especially in respect of lawyers who live with friends or family members. Also in this context, the prevalence of “smart” devices in homes could pose further issues, given that the likes of Amazon’s Alexa device may record and retain conversations – including conversations involving confidential client information - that take place within homes. 

It might also be harder to impose robust cyber security measures, given the distributed nature of team members and their internet connections, although most City firms seem to require their lawyers to continue accessing client documents via firm-specific virtual private networks (or “VPNs”), which tend to be pretty secure.

Supervising and training new recruits in a remote environment also poses a number of challenges, especially given that there are now a large number of trainees who have never visited their offices or met their supervisors in person.

One unfortunate consequence of all this is that junior lawyers will lose direct access to more experienced colleagues, which can make it more difficult to learn on the job from others’ experiences and build rapports with colleagues. I learned so much by just being in the same room as everyone else during the junior stages of my career, and this is an opportunity that many juniors are now missing out on.

It will also likely be more challenging for lawyers to collaborate in large teams and maintain a positive, supportive firm culture. For example, many of my friends in the City enjoy working from home, but most have said it can – at least to some extent - be more difficult to ask questions and work through complex problems when working remotely during the busier phases of legal matters. 

However, the shift to remote working presents an opportunity for firms to cut costs by reducing their overheads and therefore increase profitability, and some firms have already taken action in this regard. According to the Financial Times, leading international law firms are now looking to reduce office space by as much as 50 per cent - including Norton Rose Fulbright, DWF and Fieldfisher – which might involve subletting space within their offices, whilst other firms have scrapped plans to move to new offices. This shows that firms are embracing a permanent shift to some level of remote working as they seek to downsize or sublet space.

Brexit

On a different note, Brexit will undoubtedly result in significant challenges and opportunities for law firms, as their clients will need legal advice to guide them through the changes they will need to make to their businesses in order to comply with the new laws, regulations and requirements that will apply as a result of the UK’s withdrawal from the EU. 

Lawyers will need to get their heads around these changes, which is no easy feat given the constantly evolving nature of the agreements reached with the EU and the national laws enacted to deal with issues that were previously dealt with primarily at the EU level.

The laws relating to data protection, cyber security, intellectual property protection, the employment and immigration status of workers and a broad range of other areas will likely pose significant challenges – and ample opportunities for firms to win related legal work - over the coming months and years.

The competitive landscape

New entrants into the legal sector – including start-ups focused on more commoditised legal work (such as Seed Legals and Contract Express); legal technology firms (such as Avokka); networks of highly experienced freelance legal consultants (such as Keystone Law); and boutique law firms comprised of ex-City lawyers – have saturated the legal market with offerings that have somewhat transformed clients’ expectations in terms of price and client service. 

Smaller, boutique firms – for example Ignition Law (a firm that I work for) - are offering out senior lawyers at a fraction of the usual hourly rates charged by City law firms, which is made possible by the fact that these firms tend to have much lower overheads than your large, traditional City firms. This is because they have smaller offices with cheaper rent, need not offer benefits such as in-house gyms and cafeterias, and do not have large business support teams (meaning the vast majority of employees are fee earners, i.e. employees who generate revenue for the firm). 

Similarly, flexible outsourcing networks of freelance, highly experienced legal consultants have comparatively low overheads (as they don’t tend to provide office space), so are also in a great position to compete with City firms on price. 

Some firms are reacting positively to this shift towards more flexible resourcing. For example, A&O has developed its own global flexible resourcing platform of freelance lawyers and legal consultants called Peerpoint.

Companies also seem to be increasingly moving elements of their legal functions in-house. If this trend continues, larger firms could experience a reduction in the more routine work that they have traditionally carried out for clients (such as working on non-disclosure agreements, engagement letters and employment contracts). However, it’s unlikely – at least in the short-term– that companies will have the in-house capability to work on large, complex legal matters.

As a result, law firms more than ever need to be flexible and responsive to clients’ needs in light of the many other avenues through which clients can now seek legal and commercial advice, whilst also seeking to adopt legal technology where possible to reduce costs (This will enable them to compete more effectively on price – more on this later).

Lawyer retention

Retaining lawyers is also posing a significant challenge for firms. Over the past few years, lawyers have been increasingly seeking more control and flexibility from their careers, attributes for which some have been willing to accept significant pay-cuts and forgo many of the benefits offered by large private practice law firms. I’m one of them! 

This has only been exacerbated by COVID-19, with many lawyers also now calling for the opportunity to spend a significant proportion of their time working from home, even after the pandemic eventually calms down.

The aforementioned boutique firms and networks of freelance legal consultants tend to offer lawyers much more control over their time and a much better work/life balance (including options for flexible working), which has helped to entice many senior City lawyers away from full-time employment in private practice firms.

There also appear to be a far broader range of options for lawyers looking to leave traditional private practice. In-house opportunities are no longer largely limited to investment banks, large corporates and government bodies; many well-funded start-ups are now shifting elements of their legal functions in-house, whilst legal and financial technology firms tend to actively recruit lawyers into non-legal roles (I have two friends that have already made the jump from large City law firm into operational roles at FinTech start-ups).

This means large private practice firms may need to be more flexible in the future if they wish to retain a large proportion of their lawyers, which has led to many considering allowing employees to work from home for at least 2-3 days per week after the pandemic.