Ireland’s law firms have a reputation for being conservative, cautious and closed. With some notable exceptions, they don’t seem particularly keen to challenge that stereotype. Indeed, many give the impression that they regard all publicity as bad publicity, a hazard to be avoided at all costs.
The refusal of so many firms to reveal any meaningful information about their financial performance compounds the problem, leaving observers to rely on rumour and lateral indicators, such as recruitment patterns, to glean any insight into the state of the sector.
Some recent research projects offer useful glimpses, however. Earlier this month, a report prepared by economic consultancy firm Fitzpatrick Associates for the Law Society highlighted the contrasting fortunes of big and small law firms, a divergence that appears to have grown more apparent during the recession. Drawing on published statistics from the past eight years, it found that the 15 largest law firms in the Republic employ more than twice as many solicitors as they did in 2007, but that small practices were facing considerable pressures and that the number of solicitors receiving unemployment benefit or assistance rose sharply in the downturn.
A survey published today by accountancy firm Smith & Williamson, based on a poll of 104 firms, offers a valuable snapshot of current sentiment in the sector. The third such survey on Irish law firms, it was done through phone interviews in September and October by Amárach Research. Of the 104 firms that took part, 12 belonged to the ‘top 20’ biggest firms, 18 were in the mid-sized tier and 74 were small firms.
Overall, the tone is strikingly positive. Some 84 per cent of respondents – and 100 per cent of the big firms – believe the business outlook for the legal sector improved in the last 12 months – a sharp rise on the 57 per cent who said as much in last year’s poll. Not a single firm expects business to get worse in the coming year. Firms are reporting growth across a variety of areas, with property, corporate and litigation standing out. The biggest firms have seen business increase in employment law, regulatory/financial and banking, but the property, construction and conveyancing headings are out in front – a trend the report’s authors attribute to increased capital availability, pent-up demand and the arrival of a significant number of overseas funds and investors.
The brightening trading conditions have translated into greater revenues and profits. Some 64 per cent of respondent firms – and 83 per cent in the ‘top 20’ category – have recorded an increase in revenue in the past year. Profits have risen at 55 per cent of firms – 58 per cent of the top 20 – up from 45 per cent the previous year, while only 10 per cent say their profits have fallen. Notably, two-thirds of firms report a profit rise in excess of 10 per cent, while 37 per cent say they have seen an increase in billable hours – nine times the rate of the previous two years.
The survey bears out anecdotal evidence that recruitment is very much in recovery mode. A huge 83 per cent of the biggest firms – and 41 per cent of firms overall – say their staff numbers are on the increase. And of those that expect to hire more people in the next 12 months, the average anticipated increase on current numbers is 10 per cent.
There has also been a significant improvement in job opportunities for trainee solicitors. More than one in four firms increased the number of trainees taken on over the past 12 months and one-third of firms expect to hire more trainees next year.
Asked about issues facing the sector, pressure on fees was mentioned by 51 per cent of participants (67 per cent among top 20 firms). A majority (59 per cent) said greater competition had pushed fees down and in response 70 per cent of firms say they have agreed to more fixed fees for assignments in the last 12 months.
After declining fees, pressure on cash flow (identified by 51 per cent of firms) was the second biggest issue of concern. It particularly affected small and mid-tier firms. Increased operating costs (29 per cent), availability of finance (25 per cent) and attracting/retaining talented professionals (18 per cent) were the other main issues.
Rising profits and a positive outlook are having an effect on some employees’ pay packets. According to the poll, there has been a notable rise in the number of firms paying salary increases of more than 5 per cent in the last 12 months. This has jumped from one in eight firms during 2013 to one in four this year. In the top 20, 41 per cent of those surveyed made pay increases of more than 5 per cent this year. Again, however, the gap between the biggest and smallest is clear. Some 56 per cent of firmssanctioned no pay increases.
Two-thirds of firms believe the Legal Services Regulation Bill, which is expected to be enacted next year, will lead to more mergers in the sector. Over the last two years, 27 per cent of firms have made an approach to another firm with a view to a merger or acquisition, although few such proposals appear to have been seen through.
The Bill is partly designed to reduce legal costs, but 78 per cent of firms surveyed believe this will not happen. The proposed so-called one-stop shops, or multidisciplinary practices, are opposed by two-thirds of respondent firms. Most are concerned about how these new structures would affect service quality, the pressure they would place on smaller firms and the potential for lack of access to barristers.
For all their on-message pronouncements on new opportunities and innovation, the survey does manage to confirm at least a few stereotypes, particularly when it comes to technology. Just 28 per cent of firms polled are capable of dealing with e-disclosure of documents, while almost half (46 per cent) admit that they don’t use any form of social media.