One of the sectors facing the greatest challenge in a changing world is the legal profession.
Increased regulation, globalisation and the rise of international conglomerates has created huge legal challenges for the legal profession – but also an enormous amount of new work. Alas most of this work has fallen into the hands of the large magic circle and international firms that have the requisite skills and expertise to handle it.
But, what about the rest? The financial newspaper, City AM recently reported that of the 6,900 Law firms in the UK, 2,000 were in financial trouble.
The causes of this comes from both within and outside the profession. Many mid tier firms have simply not created or maintained strong enough balance sheets that can ease the financial pressure when market conditions weaken or a need arises to invest in new people, skills or technology going forward. Put another way, partners in firms have either not retained sufficient capital in the practice or withdrawn too much money. Traditionally, banks have been willing to advance debt predicated on receivables and work in progress. However, the appetite for debt by UK banks has weakened and thus putting pressure on many firms. It has not helped either when several banks have lost a lot of money due to legal firms going into administration. Barclays are currently at risk to the tune of £30M from one firm alone.
Outside the profession the pressures continue to grow. Over half of fee revenue has historically been generated from conveyancing and probate work. The value of these services is today greatly reduced due to price competition from outside the legal profession, the extension of qualifying professionals eligible to perform estate and probate work and the threat of the Big 4 accounting firms starting to crank up their resources to process standard basic legal service work.
For legal firms to survive outside the magic circle they must look to specialist services such as intellectual property, tax advisory and consulting work and the more complicated end of commercial contracts. They need to become experts in niche areas – i.e. media, film, property, environment, hotels.
And, I have not mentioned the threat of artificial intelligence that will provide easy access to a plethora of legal issues free to the public.