What does the future hold?

Ben Whiting, Director of Ab Initio Recruitment explores future trends and their likely effect on the legal recruitment market.

The recession and its effect on the legal profession:
The credit crunch of 2008 followed by the recession has had a severe effect on the legal profession and recruitment market acting as a catalyst for change and influencing future trends particularly in commercial law firms.

Firms with large property departments suffered as real estate deals dried up. M&A and finance related transactions also slowed down considerably with many firms focussing on their insolvency practices in a bid to secure the plentiful restructuring work. The high profile collapse of major institutions such as Lehman Brothers automatically resulted in a large quantity of legal work, and the top British and American firms have profited on big restructuring and insolvency proceedings. Meanwhile, those firms that have always focussed less on transactional work and more on litigation have held up well and expect continued growth in 2011.

In general, commercial lawyers lucky enough to be employed have had less work to do. The unlucky ones make up an estimated figure of 4,263 lawyers made redundant at the UK top 200 firms between autumn 2007 and spring 2010 according to The Lawyer magazine. It is still too early to predict when significant recruitment of transactional lawyers will occur. Many managing partners don’t envisage this happening for next 1-2 years at the earliest.

The world of private law has also been affected but not as badly, although firms working in this area have their own problems to face. They must now confront ‘Tesco Law” and/or major reforms being made to how the UK’s Legal Aid system works.

Future trends:
The intention of the coalition government seems to be a re-engineering of the UK economy from one that is heavily state managed to one that is more private sector led. We have already witnessed major cuts to public spending with many local authorities going through wide scale redundancy processes. While the transition itself may gift some law firms new business, it may also take from others, unless those firms themselves re-engineer their service lines. A concern for many of re-engineering during a fragile economy is that it could push the country into a ‘double-dip’ recession. Only time will tell.

Despite the cuts to the public sector many in the recruitment industry expect to see pockets of growth in regulatory organisations and core areas of service delivery such as childcare, which continues to experience shortages. With increased clarity over budgets hiring managers will become better able to present a business case for recruitment. The challenge to retain and attract new talent will still exist however many organisations are expected to rely on interim support to meet their service levels.

In private practice the recruitment of lateral hires continues combined with the demand for a guaranteed following. Lawyers will need to show prospective employers that they offer more than being good at law. They have to be good at project management, collaboration, commercial thinking and be more client facing. The focus on getting the right recruit who can immediately add value is more prevalent now than ever.

Managing partners face an even more immediate concern: clients have seen the light on the level of fees law firms have been charging. With tighter budgets, clients are now demanding greater value for money. Law firms are being forced into a re-examination of their business models and many are discovering there are more efficient ways of providing their services.

Legal process outsourcing, cutting edge IT systems, changes around billing (charging one fixed fee rather than by the hour), value and collaboration with rival firms are all options being implemented. For example, Allen & Overy (A&O) has recently announced the ‘near shoring’ of its support staff to Belfast creating 300 jobs. Addleshaw Goddard (AG) has piloted a transactional services centre in Manchester consisting of five paralegals since November 2010 and has plans to expand to at least 60. In an attempt to pass cost savings on to clients AG is one of the first practices to link disaggregation of legal work to the training and development of its lawyers. The move will free up associates to do more relationship-building with clients and build a better understanding of their business.

The effect on recruitment of AG’s model will create opportunities at a junior level whilst potentially benefitting the firm in the long run by having a working pool of suitable applicants for training contracts to select from.

The Legal Services Act (LSA):
This Act has created much controversy but no one can deny that it is likely to have a radical influence on the legal profession. Legal or Multi Disciplinary Partnerships mark a liberalisation of the partnership model and has concentrated the minds among law firm leaders. As a result an increasing number of firms are looking at introducing corporate vehicles into their partnerships as a way of transforming a proportion of income into capital to gain a tax arbitrage. Many feel it could also pave the way for third parties to invest in firms thus providing investment to fund lateral hires, additional branches and potential mergers.

Alternative Business Structures (ABS) are likely to split the legal services market wide open. Lawyers will be able to team up with other professionals to offer a range of services to clients. ABSs also open the door to the possibility of law firms floating on the stock market. Probably best suited to firms whose legal service are commoditised and standardised through investment in technology and processes such as Australian PI, family and probate specialist Slater & Gordon who was the first to float in 2007. Since floating its profits have soared and its enhanced war chest has enabled it to acquire smaller firms across Australia. Floating can also be used as a recruitment incentive for new equity partners, who would benefit alongside existing partners if outside capital were introduced.

Opponents of the move say that ‘Tesco Law’ will result in large, branded commercial entities cherry-picking the most profitable work, leaving only the more difficult cases for smaller practices. With 85% of the approximately 10,000 law firms in the UK being small firms (4 partners or less), this change will no doubt be far-reaching and severe. As a result many anticipate an increase in mergers between firms whilst less profitable firms could face administration.

So what does this all mean for the recruitment industry?

1 More than ever, firms are looking to recruitment experts who understand their business and will find them exceptional candidates who will compliment that business, its strategy and, crucially, will make a positive difference to the bottom line, quickly. In such a competitive market, firms can afford to be choosy but can’t afford to make the wrong decision. It is vital that recruitment experts recognise this and change with the times.

2 The recruitment sector is not exempt from pricing pressures. Margins are being squeezed as clients look to all their suppliers to provide greater value for money. In the legal sector the hourly rate will soon become the exception rather than the norm, and recruitment firms need to recognise this themselves, developing more innovative pricing which is more aligned to those of their target clients. Having revamped our own pricing structure, and introduced fixed and capped fees for interim and permanent assignments, we have found firms are very receptive to our different approach to pricing and strongly believe that this is a trend which is set to continue.