The Bellwether Report Series 2020 OMG or BAU? Bellwether 2020: COVID-19 and the Legal Industry You might think lawyers would be more likely to exclaim “OMG” than insist that COVID-19 has meant Business As Usual. But the LexisNexis 2020 Bellwether report has some surprising findings – confidence is high and work hasn’t dried up (yet). This is a moment of opportunity for law firms. Those that don't adapt to new technology risk being left behind The Future of Law. Since 1818. The Bellwether Report Series 2020 COVID-19 and the Legal Industry Abstract Visit the NEW interactive Bellwether Report 2020 www.lexisnexis.co.uk/ Bellwether2020 The sky has fallen in. Or has it? We asked the legal market and the results may surprise you. Small firms are more confident than expected |most believe they will survive through 2020 and expand in the future. Despite Brexit COVID-19. Download the Bellwether Report 2019 Stress in the Legal Profession Download the LexisNexis Gross Legal Product Index But the crisis has changed the way the legal industry needs to operate. Some firms have quickly innovated - improving staff morale, adopting new tech and seizing commercial opportunities. Other firms risk complacency or inertia. Is your firm at risk of being left behind? Excel at the business of law This year's Bellwether will shed light on what you need to do to stay ahead of the competition. www.lexisnexis.co.uk/ businessoflaw Stand out and thrive as an independent lawyer or small law firm partner - even in a rapidly evolving legal landscape. 1. The commercial implications of COVID-19 3. The human impact of COVID-19 2. Firms’ operational response 4. Final thoughts 2 The Bellwether Report Series 2020 COVID-19 and the Legal Industry Introduction Aiming to explore and investigate the issues facing the legal market, the LexisNexis Bellwether report conducts groundbreaking market research that advises, guides, and offers insights to independent law firms. Last year’s report looked at issues ranging from workplace stress and the challenges of Brexit. It looked at the qualities of the “good lawyer” in today’s legal market and the benefits small firms can offer the market. To say that this year poses all-new issues would be an understatement. In 2020, the industry – and the world – has faced the emergence and subsequent spread of coronavirus and COVID-19. Some firms are thriving in the 'new BAU'. Others are struggling to survive. A third, complacent group don't even know that this moment is passing them by. On Monday 23 March 2020, the UK was put into lockdown. Overnight, firms shifted their working practices. Many embraced home working. Some took government support. Others were forced to furlough staff. Our research reveals that, so far, the legal industry has remained remarkably robust. The outlook remains optimistic, despite the obvious challenges. As LexisNexis’ Gross Legal Product Index found, some areas of the law are actually growing as a result of COVID-19. But are firms making “the new normal” work? Or are they simply fighting to survive? However, opinions are divided on the long-term impact and the future adoption of more flexible working practices. In this report we explore the commercial, operational, and human impact of COVID-19 1. The commercial implications of COVID-19 3. The human impact of COVID-19 2. Firms’ operational response 4. Final thoughts 3 The Bellwether Report Series 2020 COVID-19 and the Legal Industry 1. The commercial implications of COVID-19 "Despite the crisis, we need to ‘keep calm and carry on’. For now, and as a start, that may be enough." Peter JM Declercq of DCQ Legal 1. The commercial implications of COVID-19 3. The human impact of COVID-19 2. Firms’ operational response 4. Final thoughts 4 1. The commercial implications of Covid-19 The Bellwether Report Series 2020 COVID-19 and the Legal Industry COVID-19 Front of mind Reduced Demand “Going forward, I'm going to be more careful to preserve cash. I would have wanted to go into the crisis leaner, with fewer overheads. We hired staff at the start of the year expecting growth.” COVID-19 48 % Brexit Partner Nevertheless, the market is bullish. A third believe COVID-19 will lead to an increase in their workload in both the short and long term. [Fig 1.3] [Fig 1.2] Confidence is down, but not to unprecedented levels Decline 13% 78% [Fig 1.3] Although there has been a short term hit on demand, a third of firms have actually grown, and the outlook is positive 85 % 91% One of the primary concerns is cash flow. Almost half of respondents anticipate a short-term decrease in demand for their services, leading 71% to express concern that they will have insufficient work to cover future costs. 44% are worried that they don’t have the cash flow to meet their current costs. To cope, firms have reduced staff hours, cancelled subscriptions and delayed investments, among other cost-saving measures. 81% Unsurprisingly, recovering from the impact of COVID-19 is seen by more than two-thirds of respondents to be the biggest challenge currently facing the legal industry. Even more agreed that the global pandemic poses a significant threat to their business. [Fig 1.1] [Fig 1.1] COVID-19 has thoroughly overtaken Brexit as the key challenge facing firms Increased Demand Short term 33% 49% Short Term 2016 30% 2019 2020 "How would you describe your confidence looking forward (Very / Quite confident)" Long Term 11% 1. The commercial implications of COVID-19 3. The human impact of COVID-19 2. Firms’ operational response 4. Final thoughts 5 1. The commercial implications of Covid-19 The Bellwether Report Series 2020 COVID-19 and the Legal Industry Confidence is growing 37% 47% 12% 6% Growing Stable Declining Don't know [Fig 1.5] Most firms believe they will survive the immediate crisis - a more confident view than earlier in the crisis Law Society Bar Council 32% [Fig 1.5] BRLN - Firm won't survive next 6 months Total 37% This is a starkly different picture compared to other surveys of the legal market. Both the Law Society and Bar Council have reported higher numbers of legal practitioners fearing they may not survive the crisis. Our fieldwork, conducted a month or two later, may reflect the impact of the government’s rescue plan in shoring up legal firms’ finances. 2020 56% Nevertheless, fewer firms are in distress than many would have feared. 34% 57% 5% Whilst the number of firms in decline is still relatively small, it has nevertheless doubled this year - reaching levels we’ve not seen since 2013-2014. 2019 71% Our survey found that the market is more confident than might be expected, considering the scale of the global crisis. Whilst COVID-19 has knocked 2020 growth prospects for many, firms are reporting stable rather than declining revenues. Looking ahead, more than two-thirds are planning for growth in the next five years. [Fig 1.4] 6% 5% [Fig 1.4] Although growth has slowed, almost all firms are at least stable BRLN - Unsure if firm will survive next 6 months 1. The commercial implications of COVID-19 3. The human impact of COVID-19 2. Firms’ operational response 4. Final thoughts 6 1. The commercial implications of Covid-19 The Bellwether Report Series 2020 COVID-19 and the Legal Industry Confidence or complacency? Government initiatives have been enthusiastically embraced. Almost 8 in 10 respondents are making use of government support, with 78% of firms taking up at least one COVID-19 rescue initiative. [Fig 1.6] The added challenge of updating working practices and systems whilst attracting new business has added pressure. Once the crisis recedes, we expect these themes to reassert themselves. But the COVID-19 crisis hasn’t eradicated the previous challenges to the legal industry – it has just temporarily eclipsed them. Around three-quarters of respondents are still concerned about staying up to date with compliance regulations and changes in the law. 8 in 10 “If I had known what was coming, I almost certainly wouldn't have undertaken a significant acquisition last year. But not doing that would have been the wrong decision – we are now in a position to grow” Founding Partner [Fig 1.6] Firms have enthusiastically taken up government support initiatives Furloughed support staff 32% 57% Taken out small business loans 42% Deferred tax bills Furloughed fee earners 40% 36% respondents are making use of government support 1. The commercial implications of COVID-19 3. The human impact of COVID-19 2. Firms’ operational response 4. Final thoughts 7 1. The commercial implications of Covid-19 The Bellwether Report Series 2020 COVID-19 and the Legal Industry 48 % Nearly half (48%) feel that, while COVID-19 is a critical threat, its impact can be mitigated with an effective response. The industry appears to have faith in its ability to weather the crisis. A paradox emerges from our survey data. Firms are more pessimistic about their clients’ prospects than their own. There is no path to recovery without a buoyant consumer and commercial market. Firms need to take a hard look at their sources of revenue before becoming too complacent. [Fig 1.7] [Fig 1.7] Firms believe COVID-19 to be a greater threat to their clients than themselves. But, without clients - where is the work? Firms Clients 10% 38% 1. The commercial implications of COVID-19 3. The human impact of COVID-19 2. Firms’ operational response 4. Final thoughts 8 The Bellwether Report Series 2020 COVID-19 and the Legal Industry 2. Firms’ operational response “There are decades where nothing happens, and weeks where decades happen” “The crisis has forced the issue…it is now apparent that working from home can work with the right technology, the right attitudes, and the right level of trust and communication.” Neil Smith, Legal Ops Specialist Neil Smith, Legal Ops Specialist 1. The commercial implications of COVID-19 3. The human impact of COVID-19 2. Firms’ operational response 4. Final thoughts 9 2. Firms' operational response The Bellwether Report Series 2020 COVID-19 and the Legal Industry When the crisis came, the legal industry responded. Our survey finds that the majority of firms acted quickly to keep working. Most reduced staff hours, are actively working to get new clients and quickly engaged with existing clients to better understand their businesses’ COVID-19 needs. [Fig 2.1] But drastic measures haven’t been necessary. Fewer than 20% of firms reported needing to take the kind of painful measures that are common during recessions. [Fig 2.2] [Fig 2.1] Firms moved quickly to protect their business… 32% Furloughed support staff Reduce staff hours Incredibly, only 4% of firms have needed to make redundancies – evidence of the furlough scheme’s success in maintaining employment levels. As the scheme starts to taper and eventually comes to an end (planned for October), job losses could rise – but only 17% of firms believe it will be a necessary step. [Fig 2.3] [Fig 2.3] Apocalypse next? Up to a fifth of firms plan redundancies 4 83 % Other 13 % 49% Acquire new clients 44% Collect overdue payments 35% Recruitment on hold 28% [Fig 2.2] …and most didn't need to take drastic measures % Carried out already 57% Delay planned investment 18% Cut bonuses / profit share 18% 16% Reduce salaries Take on debt Cut prices / fees 14% 8% Planned 1. The commercial implications of COVID-19 3. The human impact of COVID-19 2. Firms’ operational response 4. Final thoughts 10 2. Firms' operational response The Bellwether Report Series 2020 COVID-19 and the Legal Industry Working from home is working [Fig 2.4] 29 % Average fall in productivity as a result of home working 32% 16 % Working at 80% or more of previous productivity levels Working at less than 50% of previous productivity levels At the start 2020, research suggested home working was a long way from the norm, particularly at small firms. Driven by a lack of technology and, ultimately, the preference of senior leaders, very few firms reported having flexible working. The picture has flipped since the start of lockdown. Firms now report that they have been able to move 75% of their staff to effective home-working. A feat that would have been almost unimaginable at the start of the year. This shift has not come at the expense of productivity. Very few firms believe they had seen a drop in effectiveness of more than 50% when working remotely. On average, the impact on output has been less than 30% - much better than feared. [Fig 2.4] "Pre-crisis attitudes suggested a culture clash between solicitors and their managers" “Bigger firms are starting to do open plan offices and some are working from home, but not my firm….Some partners work from home if they chose to, but junior staff are not able to do that. There are technologies that could allow us work from home. But they don’t want us to.” Junior solicitor, Small law firm “Young lawyers coming through are too quick to see it as a 9-5 job. You shouldn’t work 20 hours a day, but they are too quick to put their coat on. Stay a bit longer and show that you are keen.” Partner, Small law firm 1. The commercial implications of COVID-19 3. The human impact of COVID-19 2. Firms’ operational response 4. Final thoughts 11 2. Firms' operational response Zooming ahead The Bellwether Report Series 2020 COVID-19 and the Legal Industry [Fig 2.6] Firms did not necessarily have the technology to support home working before the crisis… Laptops to allow remote working 58% Cloud-based file sharing A majority of firms cite a lack of appropriate technology as the key challenge to working from home. Before the crisis, most firms were not well-prepared with the tools they now need – almost a third report not having laptops! [Fig 2.6] Things have changed quickly with widespread adoption of tools – even if fewer than 5% are going beyond the free versions to buy a subscription. The next challenge is ensuring staff can use the technology effectively. [Fig 2.5] Teleconferencing software 44% 35% VPN Collaboration tools (i.e. Slack, MS teams) 28% [Fig 2.7] …but they have quickly adopted them 45 % 48% of respondents said they are struggling to get to grips with the adoption of new tech. Unsurprisingly, this difficulty is particularly acute for respondents over the age of 45, who will perhaps look to the younger generation to lead the way. [Fig 2.8] “We should have been more advanced with our 49% Growth in firms using teleconferencing software [Fig 2.5] investment in technology than we were. But the 57% Technology is a barrier to effective homeworking availability of interest free, govt backed loans and delayed payment of tax will enable us to invest back into the business sooner” [Fig 2.8] Percentage struggling to get to grips with new technology since the start of home working 61% Over 45s Senior Partner Under 45s 34% 1. The commercial implications of COVID-19 3. The human impact of COVID-19 2. Firms’ operational response 4. Final thoughts 12 2. Firms' operational response [Fig 2.9] Conflict of interests? Not everyone agrees on how we should return to office-based work "How would you personally prefer to work once the crisis is over?" WFH full time 47% 54% Average 60% 13% Over 45 58% 4% Decision-makers 54% 44% 37% 15% Disillusioned with the pre-existing attitudes of their firm management, under 45s assume pre-crisis that their firms will return to the status quo ante when lockdown ends. But this cynicism may be uncharitable and inaccurate. 11% The future of home working post-crisis divided respondents. Our survey found that women and younger members of the team are more likely want to continue home working arrangements after the crisis. The older generation (who tend to make the decisions) are more likely to favour a return to (office-based) business as usual. [Fig 2.9] 52% 40% 51% 10% Generation game The Bellwether Report Series 2020 COVID-19 and the Legal Industry Under 45 Women WFH part time [Fig 2.10] Whatever their personal preferences, most decision makers recognise some measure of WFH will outlast the crisis. 50% of those surveyed think that their firm is likely to permanently change their WFH policy. This is reflective of what staff want - 53% would like to work from home full- or part-time in the future. [Fig 2.10] "Do you think your firm is likely to change its working from home policy once the crisis is over?" Decision-Makers No Don't know 50% 11% 39% 50% Junior Staff 20% 30% Yes 1. The commercial implications of COVID-19 3. The human impact of COVID-19 2. Firms’ operational response 4. Final thoughts 13 2. Firms' operational response The Bellwether Report Series 2020 COVID-19 and the Legal Industry Here to stay (in some form) Though a mostly positive picture, there have been drawbacks from working remotely. The biggest issue, cited by 71% of respondents, has been the lack of face-to-face contact with clients. Given this, the anticipated death of the high street may not come to pass. Others mention struggling with isolation (48%) or finding it tricky to work successfully as a team remotely (39%). Though productivity has held up, quality of work has been more likely to suffer than efficiency. “I have worked from home for 20 years. It is interesting seeing the legal world understand that it is possible and it does not result in a lower standard of care for clients.” Suffered 12% Total 60% [Fig 2.11] More than a third report lower quality work when WFH [Fig 2.11] 48% Unchanged Improved Firm founder Despite these challenges, firms are making it work. Home working has helped the legal sector survive the crisis. Now, to help teams thrive, it is time to invest in the right tools and to improve ways of working. 37% 1. The commercial implications of COVID-19 3. The human impact of COVID-19 2. Firms’ operational response 4. Final thoughts 14 The Bellwether Report Series 2020 COVID-19 and the Legal Industry 3. The human impact of COVID-19 “I want a good work-life balance. That’s more of a priority to me than having a senior position.” Junior solicitor, Small firm 1. The commercial implications of COVID-19 3. The human impact of COVID-19 2. Firms’ operational response 4. Final thoughts 15 3. The human impact of COVID-19 The Bellwether Report Series 2020 COVID-19 and the Legal Industry Stress - finally being prioritised Even before the COVID-19 crisis hit, the legal profession was struggling with mental health issues, particularly stress. The 2019 Bellwether report, “Stress in the Legal Profession”, found that 90% of respondents considered stress and mental wellbeing to be a significant issue at work. Over 60% of the solicitors we spoke to articulated high levels of stress, with 1 in 4 experiencing extreme or very high levels. Despite almost 25% believing that more should be done to support them in the workplace, we found there was a “BUSINESS AS USUAL” attitude to stress. This year, wellbeing issues have been pushed down the priority list by the unrelenting [Fig 3.1] Wellbeing issues have been (temporarily) overtaken by pressing business challenges… "A significant issue at work..." 2019 Bellwether - Stress 2020 Bellwether - Staff morale and wellbeing 90% 26% Decline 64% commercial challenges posed by COVID-19. But despite the overriding business and operational pressures, firms still placed staff morale as their fourth highest priority ahead of retaining clients. [Fig 3.1] [Fig 3.2 overleaf] Promisingly, the crisis appears to be the long-awaited trigger for meaningful action. Almost half of respondents report that they have seen a greater focus on their mental health in the wake of COVID-19 home working. [Fig 3.3 overleaf] “Motivation and morale is down…which makes practicing law and running a business harder.” Senior Manager, Small firm (<5 FEs) 1. The commercial implications of COVID-19 3. The human impact of COVID-19 2. Firms’ operational response 4. Final thoughts 16 3. The human impact of COVID-19 The Bellwether Report Series 2020 COVID-19 and the Legal Industry 14% 47 % Better Same Less efficient Struggling to retain existing client base Impact of staff morale and wellbeing Insufficient cashflow 18% 35% 44% 45% Matters / cases interrupted 13 % 36 % Worse [Fig 3.3] Some positives have come out of lockdown 51% 40% Troublingly, despite increased focus, only 13% of respondents feel the situation has improved during the crisis. The majority feel it is either at their firm the same, or worse. [Fig 3.4] “Some of my bosses have the whole ‘live to work’ syndrome. I like to go out in the evenings, I don’t want to spend it in the office. I want to leave at 5 if Better work / life balance Greater focus on wellbeing I can…Some of the partners hang about, it is almost More flexible working hours This is understandable. Last year, our research revealed that small firms are better at fostering a holistic culture of staff wellbeing - so it isn't surprising that they are reporting fewer concerns now. [Fig 3.4] Overall morale and wellbeing has become worse under lockdown for a third of respondents 63% Larger firms appear have a higher preponderance of staff morale and wellbeing issues. 40% of firms with six to 20 fee earners ranked it as one of their main COVID-19 concerns, compared to just 17% in smaller firms. Less work coming in David and Goliath 71% [Fig 3.2] …but firms still view staff wellbeing as a top priority like they feel they have to be there.” Junior solicitor, Small firm 1. The commercial implications of COVID-19 3. The human impact of COVID-19 2. Firms’ operational response 4. Final thoughts 17 3. The human impact of COVID-19 The Bellwether Report Series 2020 COVID-19 and the Legal Industry 42% "The following have gotten worse since the start of the crisis" Junior lawyers Founder Stress Hours 1. The commercial implications of COVID-19 3. The human impact of COVID-19 2. Firms’ operational response 4. Final thoughts 13% 24% Senior lawyers 17% “My work personally has suffered as I am home-schooling and looking after my 2 very young children, so I am working half days plus evenings. I just feel more stressed trying to get things done in the limited time that I have.” [Fig 3.5] Senior lawyers have bourne the brunt of added COVID-19 pressure 26% For a third of lawyers – particularly senior practitioners – home working has had a negative impact on stress and working hours. Younger lawyers have enjoyed spending more time with their families or getting the chance to work flexibly. Decision-makers, however, have been caught in a perfect storm of tougher trading conditions, needing to manage their firms remotely and having to get up to speed with new tech. [Fig 3.5] 47% Tough at the top Work / Life Balance 18 3. The human impact of COVID-19 [Fig 3.6] Isolation is the leading concern for younger lawyers 66% For juniors, isolation is their primary concern. [Fig 3.6] They miss the buzz of the office and the networking opportunities it offers. For those at the start of their careers, reduced support and oversight from managers is also cited as a concern. When the biggest business priority is keeping the show on the road, less focus is put on professional development and upskilling. The Bellwether Report Series 2020 COVID-19 and the Legal Industry It seems there’s a risk of solicitors replacing at-desk visibility in the office with round-the-clock availability from home. When you are working from your living room, where do you draw the line between work and home? 37% The culture of presenteeism is an ongoing issue for the industry. As Maaike de Bie, General Counsel at Royal Mail, told us: “The profession has lots of issues around mental health and part of that is being ‘on’ all the time.” Junior lawyers Senior lawyers 1. The commercial implications of COVID-19 3. The human impact of COVID-19 2. Firms’ operational response 4. Final thoughts 19 3. The human impact of COVID-19 The Bellwether Report Series 2020 COVID-19 and the Legal Industry "How would you personally prefer to work once the crisis is over?" Flexible working Flexible working here to stay here to stay However, for the majority, the flexibility of working hours and overall work-life balance has improved – or at least stayed the same. This is a welcome development for many, particularly junior lawyers. [Fig 3.7] More than half of younger lawyers want to retain some form of home working after the crisis. But, interestingly, junior staff are keener to return to the office in some form at least. It is senior staff who are more likely to prefer working from home indefinitely in greater numbers. [Fig 3.7] Most want to retain some home working after the crisis, but younger lawyers are keener to get back (a few days a week) Full time from the office Part time from home 37% Once the crisis subsides, flexible working won’t disappear. As Dana Denis-Smith, CEO of Obelisk Support, says: “For anyone juggling caring responsibilities or other commitments alongside their day job, flexible working can make a massive difference to stress levels.” Full time from home 54% 15% Senior lawyers The survey found that women have a greater tendency than men to prefer the idea of home working – possibly explained by a greater focus on childcare needs. 37% 40% 4% Junior lawyers “There are fewer time-wasting and repeated conversations. We are more focused and efficient – we get straight to the point. We should use COVID-19 as a trigger for working remotely and reduce the need to go to offices.” Associate Solicitor 1. The commercial implications of COVID-19 3. The human impact of COVID-19 2. Firms’ operational response 4. Final thoughts 20 The Bellwether Report Series 2020 COVID-19 and the Legal Industry 4. Final thoughts 1. The commercial implications of COVID-19 3. The human impact of COVID-19 2. Firms’ operational response 4. Final thoughts 21 The Bellwether Report Series 2020 COVID-19 and the Legal Industry Final thoughts The impact of COVID-19 has not been as bad as feared – so far. Confidence is surprisingly high – a function of more resilient demand for legal services than many expected and the enormous impact of government initiatives. 71% [Fig 4.2} Now is the time to make sure you have the right legal information and technology 25 % Reviewing existing subscriptions The legal industry has also surprised itself with how quickly and smoothly it has adapted to practices it had resisted for years. 71% of firms see the crisis as an opportunity for innovation. “We need to accelerate the move from paper files to digital working” Managing Partner [Fig 4.1] Firms are using the temporary slowdown to catch up on technology and legal content Improving use of tech 52% Improving legal processes 51% Improving business practices (i.e. HR, Finance) 51% Staff training 48% Improving library of legal content 48% Pro bono work 33% 47 % Other 26 % Plan to What form will this change take? Alongside new working practices, legal technology may finally break through into the consciousness of small firms. Tech-averse lawyers have come to realise that Zoom isn’t so scary. So they are now more willing to look again at the role of technology in their firm. It is no surprise that half of firms are using lockdown to fully audit their tech needs and review legal information providers. [Fig 4.1 and 4.2] “The firm now needs to invest more in IT and hardware so we are able to work remotely more effectively” Junior solicitor 1. The commercial implications of COVID-19 3. The human impact of COVID-19 2. Firms’ operational response 4. Final thoughts 22 4. Final thoughts The Bellwether Report Series 2020 COVID-19 and the Legal Industry Don’t miss the boat 56 % I am using COVID-19 as a chance to replan the firm's strategy Despite the well-understood challenges the industry is facing, relatively few respondents say they would have acted differently had they foreseen the crisis. This stretched our credulity and we fear firms run the risk of confidence slipping into complacency. Those who fail to plan now could be caught out if the crisis prolongs or a second wave hits in the winter. [Fig 4.4] The legal industry can be proud of its response to the crisis. Firms have made years of progress in a matter of weeks. Whilst the long-term impact of COVID-19 is yet to be seen, firms are taking steps to future-proof themselves. The industry’s confidence may prove warranted after all. had good practice management software in place at the start of lockdown. That meant we were in a better position than our competitors to adapt quickly and take advantage of the opportunities COVID-19 has created.” Founder [Fig 4.4] Seriously? Only a fifth of firms would have done things differently if they had a second chance to prepare for COVID-19 Had better tech in place Is your firm at risk of being left behind? Had better procedures in place 3% COVID-19 is an opportunity for innovation While three-quarters of those surveyed believe the crisis offers them the chance to drive change, they may be missing the opportunity. Only 56% are currently using the time to plan their firm’s longer-term strategy. [Fig 4.3] very recently done a big IT update, so we 9% 71 % “We already worked flexibly and had 20% [Fig 4.3] If firms don't act quickly, this opportunity for innovation could slip away Rehearsed home working 1. The commercial implications of COVID-19 3. The human impact of COVID-19 2. Firms’ operational response 4. Final thoughts 23 The Bellwether Report Series 2020 COVID-19 and the Legal Industry Gross Legal Product Report It has rapidly become a platitude, but it is hard to overstate the impact COVID-19 has had on the legal community. Our industry is facing its greatest operational and commercial challenges. The long-term impact is still hard to gauge. Whilst most areas of the market have proved innovative and resilient, there will inevitably be some organisations - firms, corporates, chambers, charitable groups and academic institutions who will struggle to survive the next few months. GDP (Gross Domestic Product) is a measure of the level of demand in an economy, tracked using a representative basket of goods and services. Our GLP (Gross Legal Product) index works in exactly the same way – it measures a set of influencing factors and activities to estimate demand in the Legal Market. Download the Report LexisNexis GLP Index LexisNexis GLP Index 6. Recommendations 6. Recommendations Market Demand Index report Market Demand Index report Make use of government schemes: Build robust business practices • Where you need to, have you made use of government COVID-19 schemes? You can find what financial support is available for your business (including loans, tax relief, cash grants, job retention scheme) on HMRC’s website NOW • 78% of firms we surveyed had made use of at least one of the government’s COVID-19 business support initiatives, with 57% furloughing staff and 42% taking out a Coronavirus Business Interruption Loan NEXT (continued) Keep control of your cash: • Outbound – are there any unnecessary costs you can strip out or delay? Review your variable costs, placing restrictions on any non-essential items. Seek payment holidays or negotiate discounts (particularly for rent, mortgages or services you haven’t been able to use because of lockdown). Have you considered moving to digital services – these are often better value and more flexible than the traditional offline alternatives? Aneliya Vazharova Senior Financial Manager, LexisNexis aneliya.vazharova @lexisnexis.co.uk • Incoming – although your customers may also be struggling, stay on top of your receivables. Invoice timely and accurately and don’t be shy to chase late payments. Proactively negotiate payment plans to ensure some steady cash flow and partial recovery in case of bankruptcy. Review your credit facilities and draw down any cash reserves you may need. • Forecast your cash flow regularly – you need to understand the impact and be proactive in addressing any upcoming threats to your business. A regular cash flow forecast will help you make quick decisions and test scenarios as more information becomes available. • Make use of temporarily ebb in volume of work to invest time in the core functions of your business to put your practice on a firmer footing for the future. More than half of firms are reviewing their long-term strategy or researching better business systems or research tools • Systems – Are you using the MS Office suite effectively? Do you have a CRM and matter management tools? Are you using them well? Are there any tech vendors you haven’t had time to assess or meet with? Improve your Marketing strategy • It is easy for your customer to find out who you are and what you do? Is your website clearly written and engaging? Matthew Leopold Head of Brand, LexisNexis matthew.leopold @lexisnexis.co.uk • Do you know who your target customers are – their job GLP titles and companies? LexisNexis Index Does your marketing collateral speak to these people and resonate with their problems? LexisNexis GLP Index • Have you considered how to use digital marketing to acquire new customers? Search Engine Optimisation or Search Engine Marketing is a good way to be found. Don’t forget the power of building a network on social media. 2.2 Executive Summary - Segments 2.2 Executive Summary - Segments Embrace remote working Understand your customers and your value proposition • Are you working efficiently during lockdown? Our Bellwether survey of smaller firms suggests productivity has dropped by 29% on average. Make use of video conferencing software and collaborationCOVID-19 tools (Teams or Slack) Practice Area exposure • Consider what elements of your legal workflow can be digitised. Legal research, billing and contracts can be easily managed with digital innovations 8 % • Have regular, scheduled contact with your team – if you don’t put it in the diary each day or week, it likely won’t Insulated happen. Keep a mix of work-related meetings and more casual catch ups, virtual coffees or team remote drinks • Lockdown will be affecting your staff in different ways – think about their working set up at home, childcare pressures and whether they feel isolated Follow LexisNexis UK Kingsley Daniels 49% Counter-cyclical 43% • Analyse your own business to help inform your plan – what are your best lead sources, who or where are they generated from, how profitable is this, is it scalable? COVID-19 • Tailor your approach to your business, culture and resources. Then bring your entire organisation into a cultural shift impact that puts BD at the heart of your staff’s interactions • If your existing business lines aren’t sufficient, diversify • Get the simple things right. Do you have a pipeline of prospect customers? Have you identified the most promising industries or areas for your firm? How do you manage inbound leads and take prospects through a sales funnel? LexisNexis 38 33 % Counter-cyclical Join the discussion @LexisNexisUK COVID-19 has hit high street lawyers hard and fast. However, after solid recent growth in demand for their services (+4.5% since 2017), they should be on a firmer footing to weather the crisis today, than if it had hit several years ago. The segment has benefitted from more of their firms working in fast-growing or otherwise resilient Practice Areas. With traditional consumer work such as Private Client, Crime and Family making up almost 40% of high street firms’ workload, demand at these firms should have been stable in the last 3 years. Augmenting this core have been pockets of high growth. Despite Brexit uncertainty, the residential property market has performed well - driven by the Help to Buy initiative and recovering transaction volumes. Specialists in smaller niches such as Immigration, Competition GLP Indexin demand for their services. or Risk have likely seen anLexisNexis even faster growth 34% The Future of Law. Since 1818. LexisNexis GLP Index Insulated Unfortunately, some of these top performing areas are now seeing the greatest • 80% of firms are improving their technology and working practices. This has been led by a 47% increase short-term COVID-19 impact. The Property market has effectively shut down for % +15.2% -24.8 in use ofmay videoconferencing platforms and in thecertain short term, the next phase of adoption is likely to The immediate impact of COVID-19 not be too dramatic, firmsbut with 2 months and all Immigration has been halted. Firms’ finances have been insulated 2017-19 Q1 2020 include legal research tools and efficiency solutions GROWTH GROWTH larger practices in counter-cyclical Practice Areas will actually be experiencing big by government intervention (with 57% of firms furloughing staff and 42% taking Slowing DiversifyEven or rebalance your practice increases in demand (and revenue). some Practice Areas with weaker longer-term Slowing out a Coronavirus Business Interruption Loan), so should survive the immediate prospects are likely to see an uptick in work over the next few months. fallout. Thereafter, those firms working in the Practice Areas we have identified as • Look at your service lines – how well aligned are they with our counter-cyclical Practice Areas? Are Prices there & Transaction Volumes Property Past Reccessions (Between beingDuring counter-cyclical should see a1987-2020) speedy recovery. This underlying confidence is any faster growing areas you could move into? Is it time to change your approach in struggling areas? 2000 Beyond the immediate fallout, large firms which have a heavy exposure to Practice Areas600 reflected in our upcoming Bellwether survey, which found that 68% of small firms • Make use of tools and research to facilitateand yourInsolvency diversification and fill any gaps in your staff’s knowledge hit by COVID-19 face tougher long-term prospects. Restructuring and expect to grow over the next 5 years despite the impact of COVID-19. • Mixed growth since 2017 – headwinds in both residential and commercial real estate, Employment specialists will •beCan busy years come, but they account foryourselves only 9%aof youfor merge or to partner with another firm to give broader base for future crises? completion partners at the top 100 firms. Property teams will see lower volumes of commercial real 500volumes impacted by Brexit uncertainty Longer-term outlook estate work and even with adoption of remote proceedings, litigation work is•unlikely to Total freeze in market caused by lockdown. Some counter-cyclical demand 1500 COVID-19 quickly return to pre-crisis volumes. (rent negotiations, force majeure, Practice CVAs) Area exposure Practice Area 4.11: Property The Future of Law. Since 1818. General Practice & Consumer 400 Practice Area 4.11: Property 300 Overall growth between 2017-2019 % 39 COVID-19 impact +15.2% -24.8% 2017-19 GROWTH Q1 2020 GROWTH +11.7 While these% dynamics will likely increase demand for legal services in 2020, the longer-term outlook is less hopeful. Share prices of the UK’s biggest landlords have fallen 59% and have not rebounded like the rest of the market. Demand for office space is likely to structurally change as businesses encourage a greater share of their workforce to work from home and reassess their estate needs. These dynamics, combined with likely large-scale insolvencies for high street Growth of In House corporate counsel work has outstripped that real of Private and a shift towards online retail, could create a perfect storm for commercial property Practice. Given its weighting towards high-growth Practice Areas retailers and the trend prospects beyond 2020. towards insourcing, demand has grown by 12% since 2019. Two of the biggest Corporate • Strongly pro-cyclical Practice Area in the long run. Although housing market is reopening, may take years transaction volumes19 to recover. Commercial real estate likely to decline with shift to remote working % +3.7for and online shopping Overall growth between 2017-2019 1000 200 For General Practice or larger Consumer firms, their more varied mix ofRecent work performance 500 (compared to the Top 100) has generated faster recent growth in demand of 5%. areas workmusic for corporate counsel – Employment and Compliance – have been Property has had a mixed performance over the past few years. Theofmood hasn’t been Employment legal work, particularly tribunal volumes, have been buoyed by a question 100 thecyclical fastestand growing the past 3 years. Risk and Compliance inThe particular has residential conveyancers will be asking is – how quickly will the market rebound? favourable. Residential property performance, which is strongly proneover to exogenous backdrop of record-breaking labour market health. Steady demand for Family and To try This and ispredict this, we have plotted transaction volume recovery from the last 2 major takenproperty a greaterwork share ofbeen legal attention since the introduction of GDPR. shocks (of which we aren’t short), has been subdued. Commercial has Private Client work have meant that decline in Dispute Resolution and Crime reflected the increased hired, data recessions. Generally, house prices took either 23 (early 1990s recession) or 25 (2008 credit more mixed - the retail sector has felt severe pressure with the shift to in online shopping,number whilst of Data Protection Officers (DPO) 0 0 hasn’t supressed overall growth between 2017 and 2019. crisis) quarters to return to pre-recession levels (see fig. 4.11.5 below). Transaction volumes, the commercial office building and rents have (until recently) beenbreaches buoyant.recorded and Information Commissioner’s Office (ICO) interventions. 33 better measure of conveyancing activity, are even slower to recover. It took 51 quarters to return 8 19 7 88 19 8 19 9 9 19 0 91 19 9 19 2 9 19 3 9 19 4 9 19 5 96 19 97 19 9 19 9 98 20 00 20 01 20 0 20 2 03 20 0 20 4 0 20 5 06 20 0 20 7 08 20 0 20 9 1 20 0 1 20 1 12 20 13 20 1 20 4 1 20 5 16 20 17 20 1 20 8 1 20 9 20 COVID-19 impact Overall growth between 2017-2019 Going into the COVID-19 crisis, while regional firms may be in a weaker financial This trend likely to continue, as In House work is weighted towards areas This has manifested in a 15% growth in demand for% legal services. Whilstis residential house prices to pre-1990 recession levels and volumes have still not returned to pre-2007 levels, 52 quarters position than their City peers, demand for their services should hold up more which will see counter-cyclical growth during the COVID-19 crisis. Moments Average(the Pricebetter All Residential Property Types (Index, = 100) grew 8.4% over the last two years, completions proxy for legal activity) has1987 fallen later. Insulated consistently (with 63% of work steady or increasing). We expect Employment to of helped crisis typically requirelawyers C-Suite leaders to consult with their General Counsels -5.4%. More legally complex Help to Buy transactions will have conveyancing Period of Recession Annual UK Residential Property Transactions (#, Seasonally Adj) remain a star as clients review their staffing levels and Corporate work (growing should keep more closely. We expect that corporate counsel will see material growth in their at c.80%) but complex residential planning applications fell by 19% over the same % Although the COVID-19-induced recession is of a different nature - demand or market sentiment a steady supply of income. Private Client and Family are likely to be resilient and Risk and Insolvency and Tax work as their companies plot their period. Housing starts, a strong forward-looking indicator, areCommercial, positive growing at 16.3% may recover more quickly than in previous instances. However, historical precedent suggests that may even see an increase in work, driven by the challenges of extendedwhich lockdown Counter-cyclical recovery. Furthermore, however bullish your outlook for the jobs market, greater might provide a small amount of good news… it may take years for residential property activity to return to 2019 levels. and the healthcare crisis. Property is likely to be the biggest headwind for growth. churn and increased regulatory or political activity are almost certain. As such, Conveyancing specialists will be interested in our deepdive analysis of the speed of Employment legal activity will likely continue to grow in the medium term, even if market recovery on page 29. we see a deteriorating picture in the broader economy. 48 5 6 -59 % -70 % 4.11.1. Residential property drivers (2017-19) 50 +16.3% Haven't paid rent +8.4% Housing building starts Residential housing transactions 4.11.5 Property Prices & Transaction Volumes During Past Reccessions (1987-2020) Property Prices & Transaction Volumes During Past Reccessions (Between 1987-2020) LexisNexis % 2000 600 20 % 500 Likely not to pay 1500 400 Major domestic planning applications 1000 300 House prices -5.4% 200 500 All trend data and model inputs taken from government or publicly available sources. Where possible, specific sources have been cited. For more information, please contact the report’s author. 100 0 0 -19.0% 19 8 19 7 88 19 8 19 9 9 19 0 91 19 9 19 2 9 19 3 9 19 4 9 19 5 96 19 97 19 9 19 9 98 20 00 20 01 20 0 20 2 03 20 0 20 4 0 20 5 06 20 0 20 7 08 20 0 20 9 1 20 0 1 20 1 12 20 13 20 1 20 4 1 20 5 16 20 17 20 1 20 8 1 20 9 20 Quantifying legal demand growth and the impact of COVID-19 30% 37% +4.5 % Small and Solo 39% 19 Download the LexisNexis GLP Index report June 2020: Continue the conversation, contact: businessoflaw@lexisnexis.co.uk COVID-19 Practice Area exposure Insulated 27% slower volume growth over the last few years (we have not sought to model revenue growth). Financial Services has fallen back slightly following a peak in 2016-17 and Dispute Resolution has been affectedand by atech long-term trajectory of decline in trial and Efficiency adoption appeal volumes. It may well •beThe that the largest firms in the country have been able to legal market has just made years of progress in tech adoption in just a few months – navigate these trends and increase their workload of a Try slower macro picture. are you at the vanguardin or spite a laggard? the LexisNexis tech adoption quiz LONGER Alternatively, City firms may have been more successful in monetising demand than the -TERM • There will be greater pressure than ever from clients on fees – are your processes as rest of the market - growing fees more quickly than volume of activity. This latter point is efficient as they need to be? Are there any areas you can automate to free up FE time supported by the fact that FE for numbers (a betterwork? proxy for the amount of work that needs more productive to be done) have grown more slowly - c.2% p.a, closer to our model’s growth rates. AT-A-GLANCE • Are your clients busier or facing new challenges? Does COVID-19 create any opportunities for your firm – focus on the Practice Areas we have identified as counter-cyclical (such as employment). There may be opportunities to deepen your relationship with existing customers • COVID-19 creates an opportunity. Both your existing and future customers will attach enormous value to legal insight that supports their current situation. Help them to consider some of their business challenges through a different lens Director of Business Development, LexisNexis kingsley.daniels @lexisnexis.co.uk +0.6 % • Adopt an experimental mindset – if you were previously slow to change working practices, you should now be open for rapid experimentation. Design Thinking is critical - be prepared to fail andCounterlearn (many times), COVID-19 impact cyclical Our model estimates that underlying demand for legal services has grown by just 1% recognise that you are so experiment cheaply to quickly gain insight. Customers should trying to improve since 2017. This stands in stark contrast data, which (even stripping out your servicesto sorevenue should welcome this (even if it after is disruptive) • Information clarity and consistency - our new normal has many new terms and an abundance of people trying to be heard. Cut through the noise with simple and consistent Information Design across all touch Our numbers are lower because of the heavy exposure to Practice Areas with points withsegment’s your customers • Have you spoken to your top clients since lockdown? Don’t let your internal challenges prevent contact with customers Business Development COVID-19 • Your customers are severely disrupted, it is time to revisit how you think about them. Empathy Mapping Practice Area exposure and Event Storming will help you understand their new normal. These techniques help identify potential areas of unmet need which could provide you with new business opportunities Overall growth between 2017-2019 the impact of large mergers) has increased by more than 10% over the same period. Protect existing customer base NEXT Top 100 Matt Wardle Director of UX, LexisNexis matthew.wardle @lexisnexis.co.uk Average Price All Residential Property Types (Index, 1987 = 100) The Future of Law. Since 1818. Period of Recession 29 The Future of Law. Since 1818. Annual UK Residential Property Transactions (#, Seasonally Adj) -59 % -70 % 31 50% 20 % +16.3% Haven't paid rent Likely not to pay +8.4% Housing building starts Residential housing transactions Major domestic planning applications House prices -5.4% 1. The commercial implications of COVID-19 3. The human impact of COVID-19 2. Firms’ operational response 4. Final thoughts -19.0% 24 The Bellwether Report Series 2020 COVID-19 and the Legal Industry The Future of Law. Since 1818. 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Our understanding of the legal profession has helped us innovate our content to offer you an extensive and in-depth range of solutions that enable you to stay up to date with changes and access underlying law when required. Our solutions are supported by an in-house legal team with extensive experience in practice and dedicated to producing authoritative content for busy practitioners. We have built and continue to develop our content with the assistance of leading experts in the field, ensuring that you can trust our guidance. knowledge and expert tools. Take a 1-week free trial or contact us for a tailored package price. Visit lexisnexis.co.uk/expert or call 0330 161 1234 (Please quote campaign code 101561). WHAT WE DO RESEARCH & GUIDANCE LexisPSL LexisLibrary Tolley DRAFTING LexisDraft Smart Precdents Smart Forms . NEWS & MEDIA TRAINING & DEVELOPMENT BUSINESS MANAGEMENT Nexis Newsdesk Magazines & Journals Webinars & Training CPD Networking &Mentoring InterAction Visualfiles Professional Services 1. The commercial implications of COVID-19 3. The human impact of COVID-19 2. Firms’ operational response 4. Final thoughts 25
