about banner

Law firms face an uncertain future, says PwC

I was reminded while reading PwC's latest Annual Law firm Survey of Richard Susskind's nice phrase that managing a law firm is a bit like trying to change the wheel of a car while it is still moving. Its conclusion that there has been a major shift in the sector this year, change is constant and survival not guaranteed will surprise nobody, but it is a thoughtful piece of work.

Top of its trend list (and my own work clearly reflects this) is an increase in the pace of change, with mergers, new entrants, restructuring and hiring programmes being announced continuously. (As I write this, the Slater and Gordon/Pannone deal is hot off the press).

Market segmentation is more pronounced. According to PwC, the Top 10 firms have reinforced their dominance of the UK market, with average net profit margins now over 14% higher than the next 15 firms. In contrast, there was only a 1.5 point difference between the top 11-25, top 26-50 and top 51-100 firms. In addition, almost a third of firms outside the Top 10 recorded net profits margins of less than 20%, with a number now close to single digits As Warren Buffett observed, when the tide goes out, you can see who has shorts on and who hasn't.

PWC think this year has seen a turning point, with the gap between the best and worst performing firms widening further – and clear blue water between the Top 10 firms and the rest. As It says, "The legal sector has come under increased scrutiny from banks and the sector’s regulator following a number of well-publicised law firm insolvencies during the year. Worryingly, with almost a third of law firms outside the Top 10 recording disappointing net profit margins, our view is that unless these firms can radically restructure their business, their short to medium term survival must be in doubt.”

They also comment that many firms have a pressing need to reinvest in infrastructure projects, especially IT. This is undoubtedly true, not just in relation to internal management, but in particular IT is at the core of innovative service delivery at prices and in ways that compete head on with ABSs.

Risk management has moved up the agenda, but more still needs to be done. PwC warns that “it may take a high-profile IT security breach at a law firm to push the pace of change in one of the most important business issues so far in the 21st century."

Firms are also beginning to make use of more flexible working arrangements, with some moving “towards the concept of the ‘virtual firm’.” This is in it's infancy, but a trend worth watching.

Their comment that, “Looking ahead, despite encouraging signs of a pick-up in activity, firms remain concerned about continued economic uncertainty and the changing needs and behaviours of clients,” is certainly true. The incessant demand of more for less is not going anywhere. Their other comment that. “Clear winners and losers will emerge over the next few years as all firms strive to take market share from their rivals" rather leads one to ask "so what's new", but it is fair to say the stakes are higher now than they have ever been.

They do not say, but perhaps should, that at an Individual firm level, with clear strategy, effective management, and a willingness to make tough decisions, none of these problems is insuperable. Extinction is indeed a necessary part of evolution, but there is nothing inevitable about it. As Matthew Ridley puts it in The Rational Optimist, one can be pessimistic globally, but optimistic locally. The year to come will be one to watch.

If you think I might be able to help you, and would like to talk in confidence, without obligation, do call me on 0044 7968 484232, or email me at This email address is being protected from spambots. You need JavaScript enabled to view it..
Continue reading

Chase new clients, neglect the old, end up with neither: 10th instalment published


I have recently published the 10th instalment of my 'How not to win business' series in The Journal of The Law Society of Scotland.You can read the post, entitled 'Pursue the new, neglect the old', in full here and you can find links to all of my publications here.
Continue reading

Latest in my "How not to win business" series: "Freeze at the thought of cold calling"

I have recently published the latest instalment of my 'How not to win business' series in The Journal of The Law Society of Scotland.

You can read the post, entitled 'Freeze at the thought of cold calling', in full here and you can find links to all of my publications here.
Continue reading

New publication in The Journal: The future of the high street solicitors' firm


I have recently published a new Opinion Column in The Journal of The Law Society of Scotland...

You can read the post, discussing the future of the high street solicitors' firm in full here and you can find links to all of my publications here.
Continue reading

New publication in The Journal: Focus on the law

I have recently published the latest instalment of my 'How not to win business' series in The Journal of The Law Society of Scotland.

You can read the post, entitled 'Focus on the law', in full here and you can find links to all of my publications here.
Continue reading