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Has the LLP had its day? 1 @SmithWilliamson Smith & Williamson 1 Contents Executive summary 3 The changing competitive landscape 5 Changing business structures 11 Continuity and change 17 The continued dominance 21 of legal technology Is lock-up coming down at last? 25 Brexit 29 2 Executive summary In this, our twenty-fifth annual law firm survey, we have sought the opinions of over 130 senior executives at law firms from the UK to understand current levels of business confidence in an increasingly challenging global economy. Our barometer of the concerns and opportunities seen by senior industry figures has been running since 1994, providing insights into long-term trends. The clear messages coming out of this year’s survey are that retention of top talent in an increasingly competitive market is a priority, while law firms also recognise the need to invest in technology to keep pace with the competition and to fend off cyber-attacks. Confidence and years with 52% of respondents next generation of legal project competition selecting this as one of their managers while in December top three concerns. The legal Norton Rose Fulbright launched a Confidence across the legal market press continues to be awash with graduate scheme focussing on legal is a key factor we have measured stories of high-profile moves operations. These two initiatives since our first publication. It of both individuals and entire show a significant shift over the last has tracked both the highs teams as firms vie for position 25 years where these roles would and lows of the legal sector, in jurisdictions and product not have existed and firms would alongside domestic and global specialisms across the globe. not have considered employing economic trends. It has provided In 1994, when we started running non-graduates. a startlingly accurate insight into the law firm survey, movement of the business cycle for legal firms. partners between firms was the Corporate structures and This year, confidence has taken exception rather than the rule strategies for growth and trainees often built a lifelong a significant dip from last year’s For the first time, the survey career at their firm. all-time high with the US-China asked about corporate structures trade wars, tensions in the Gulf, Today, stories run on almost a and whether the Limited Liability the ongoing Brexit saga and weekly basis, highlighting the Partnership (LLP) model still signs of a weakening global and tensions between the traditional best served the needs of the domestic economy all taking their UK firms and those US firms business. There is a clear view toll on the levels of optimism seeking to strengthen their throughout the legal sector that across the industry. Running position in the UK market. New being a pure LLP is not necessarily alongside this dip in confidence law companies and the Big 4 the best structure to take these is the continued expectation of accountants are also posing a organisations forward. This is a competitive pressures, both from challenge to the traditional law strong sign of just how much and familiar quarters and, increasingly, firm model by offering a greater how rapidly the legal sector has from the perceived threat of level of flexibility in working been changing over the last three international firms cited to have patterns. Key examples of this to five years. superseded that of niche firms. are the continuing success of Although mergers and acquisitions The 'Big 4' accountants are also PeerPoint or Vario. starting to make their mark. continue to play their part in the As reported last year, the number of reshaping of the industry, there The war for talent non-legal roles continues to grow. are an increasing number of firms floating on the stock exchange to Retaining the right people is In June, Clifford Chance announced become a Public Limited Company reported as the number one an A-level apprenticeship (PLC). However, many firms have concern for the next three training scheme to build their not taken this big step, possibly 3 Giles Murphy Head of Professional Practices +44 (0)20 7131 4369 [email protected] because they do not see a need to deliver broad benefits to both the strategy in this area, lock-up will do so or they are uncertain about firm and its clients. remain the same and quite possibly what model would work for them worsen at a time when uncertainty and therefore the risk is considered In the last three years, much has should encourage law firms to build too great. been written about AI. Initially it strong cash reserves. was heralded as the next great However, we have seen a growing revolution, but then there were Brexit’s final act? number of off-shoots and law firms questions about whether it was all The almost 53:47 division as expanding into other services. hype and just another buzzword. to whether Brexit will offer up Twenty five years ago, law firms Time has shown that it is not hype opportunities or create increased stuck to the practice of law. but AI cannot be considered in threats to business is similar to last Today, some are expanding into isolation. It is a composite part of year’s survey; a continued division consultancy based services. a broader solution and is beginning of opinion that closely mirrors the to deliver results for the firms that referendum of three years ago. Any Legal technology have invested and persisted. speculation in this report on the Investments in technology continue Still, still not getting the outcome of Brexit would be folly to dominate both law firm budgets as it is published only weeks before and their strategic direction. The message on lock-up the latest deadline of 31st October. focus is on improved efficiency and In each of the past 25 years firms We will leave our detailed analysis client integration through greater have said they will improve lock- on that topic to next year. transparency and collaboration. up and every year the figures only show a marginal change. This year Our report shows that the simplified is no exception, with 36% of survey approach of defining technology respondents saying that improved investment by an individual term lock-up will be the key source of – collaboration, pricing strategy, increased funding over the next 12 automation – does not do justice months and 79% expecting a slight or to the complexity of the solutions significant improvement in lock-up being put in place. Improved pricing over the next 12 months. analysis comes out of implementing AI solutions across large data sets, For some, these hopes may not which in turn deliver efficiency be unfounded if they are making gains through improved resource significant inroads into their management, and greater billing pricing analysis, time recording transparency to clients – multiple and billing solutions. However, for technologies coming together to those who don’t employ a new 4 The changing competitive landscape 5 1 1 6 The competitive landscape Are law firms beginning to feel the competitive pressures in an increasingly challenging market? Looking back over the last few years, the data shows a shift in the perception of competitive pressures within the legal sector. Last year, 26% of firms felt there was little or no change in the competitive landscape. In 2019, declining confidence has seen this figure erode to just 15%. Conversely, the number of firms experiencing a slight or significant increase in the competitive landscape has risen by 10 points to 84% this year. How do you think the level of competitive pressure in the legal profession has changed over the last year? respondents citing this as their top competitive threat. The impact of international firms has jumped four places to become the second most 51% 33% 15% 1% common concern. Firms may be 2019 looking to Europe and the potential lift in work from the (eventual) conclusion of the Brexit story. 51% 23% 26% While the issues that Brexit will 2018 raise in the short to medium term will not deeply affect firms in the Slightly increased Significantly increased top 50, due to their international reach, the smaller UK outfits may Little or no change Slightly decreased well be right to be concerned by the outcome. The Big 4 accounting firms Although all regions generally Russia and the West all adding to a and the other legal companies reported an increase in competitive tougher trading environment. have also moved up the table, pressure, respondents in London While law firms are not able indicating that 12 months on, law appear to be feeling this more firms are finally realising that keenly than other regions. to control these factors, they can mitigate other competitive this threat is here to stay and 94% of London respondents said threats. However, new entrants to this group is beginning to make they felt increased competitive the legal market, competition for serious inroads into their market. pressure compared to an average talent and rising salaries remain However, while there is no doubt of 76% across all other regions. key challenges. that the Big 4 and new legal This correlates with other research companies are making an impact, Who do you anticipate it appears that large law firms are that shows the growing threat of being the main sources US law firms in the City. reacting to this competitive threat of competition? by creating their own alternative There are many reasons for these When rating these sources of services. Firms are continuing to changes over what has been a competition in order of priority, make investments in technology turbulent 12 months, with a myriad the trends reported last year are to help streamline legal service of geopolitical issues, including the little changed 12 months on.

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