Shaping Law Firms Direction and Culture for the Long Term

Overview:

?The COVID 19 challenge is unprecedented for both the legal system and the global economy so law firm leaders must prepare for a wide range of scenarios which are of course based on the effectiveness of public health and economic policy interventions. Previous downturns are able to provide subtle direction of how the law firms respond to the near-term challenges and set the right priorities long term. The vast majority of the law firms from the discussions are giving appropriate attention to near term pressures whilst having a long-term vision laying the groundwork for success. Of the last three downturns, it was only the global financial crisis of 2008-2009 which resulted in a decline across global law firm’s annual revenue. This is due to the countercyclical practice areas continuing to advance (e.g. Restructuring).

One of the main topics of conversation is that it is natural to expect litigation and restructuring practices will surge and transactional practices will rapidly decline although this will be characterised as time goes by. While it is evident there is a slow down with the court systems, disputes and investigations are much steadier sectors than transactional practices and the overall economy.

The Law firms less tied to global financial markets may feel less of an impact because of the nature of their business (e.g. less exposure to a decline in cross border activity) To add to this, there is also the virus mitigation to consider which has shown to be more disruptive in high populated cities and transit hubs.

Practice Areas of Focus for both transactional and dispute/investigation related work

With regards to travel, leisure and transportation, there may be an increase within the restructuring sector and a decline will most likely happen across the corporate M&A area and real estate. These partners have also suggested a potential rise in shareholder litigation and supplier disputes.

The energy sector, based on previous trends will see an increase across restructuring as well as the mid-stream and shortage area. Project finance and corporate M&A transactions could also decline. There may be an increase in supplier disputes, as well as shareholder litigation whilst a decrease in international arbitration.

The financial services sector will see an increase in government lending programs, compliance and debt capital markets. Equity capital markets will decrease as well as big ticket M&A deals.

The TMT sector will see an increase in bankruptcy and debt financing whilst a decrease of venture capital, capital financing and IPOs will be apparent. As well as this, it has been discussed that the TMT sector may see an increase in intellectual property and labour litigation, force majeure disputes and government investigation and regulatory.

Private Equity and hedge funds will rise across distressed M&A and debt as well as mid-market roll ups. Big ticket M&A deals and fund formation work may decrease.

Overall, across all transactional sectors there will be an increase in restructuring and distressed M&A. There will be a decrease in equity capital markets and big-ticket M&A deals. Across the litigation and investigation areas the sectors that will most likely increase will be labour and employment as well as corporate tax.

Entering into the new normal

While this is a critical time of public-health crisis with potentially severe adverse economic conditions, it is apparent that most law firms are running a multi-horizon view. Resilience measures can fund priorities not just for the near term but also to help with acceleration out of the crisis. It seems now is the best time to develop or sharpen a granular view on the sectors, clients, practice areas, and geographical locations that require prioritisation.

Law firms have an advantage such as building capabilities in new areas that are likely to be busy in the midterm (such as restructuring) and should consider accelerating partnerships, digital and technology innovation, and inorganic growth plans in light of the changing environment. With this resilient vision, law firms can capture growth from three sources: underlying market expansion, gaining share from competitors, and M&A.

Decisions made now may well shape a firm’s direction and culture for the long term. With that in mind, law firms should complement initiatives with plans to attract talent with well-aligned practices and reforms to firm decision-making and people processes.

Overall, based on these recent conversations, research and current demand outlook, no single course of action will be appropriate for all law firms due to numerous factors. The firms that can maintain a resilient long-term perspective while moving aggressively on near term priorities will be best positioned to prosper as we all move into the next normal.

Do get in touch if you have any questions or would like to discuss further.