It strikes me as I write this that this recession which we are in, which won’t be confirmed for another quarter, could well have the biggest impact of any recession on the legal services industry. I cannot see how any law firm will come out of this the same way that it went in. I cannot believe that technology will not now be fully embraced nor that more flexible working conditions will not become the norm.
This article is written to try and give law firm owners some idea of what might happen over the course of the next few years to embrace the changes rather than be fearful of them.
It is based on my own experiences of working first inside the legal profession from 1991 to 2003, then from that year running my own law firm marketing consultancy working with law firm owners.
Maybe 1991 is a good place to start, so let’s start there!
The 1990/1991 Recession And Impact On Legal Services
I started my career as a trainee legal executive in 1991. Almost immediately, as the UK was in the midst of a recession, I was thrown into court agency work. With no legal training at that point, I was sent off to court nearly every day with one or two (sometimes as many as six) repossession hearing files.
Interest rates on mortgages had risen to 15% and people were unable to pay their monthly mortgage bills. Mortgage companies were keen to foreclose to recover their losses. This isn’t a moral piece but I can remember feeling very uncomfortable about the entire thing, but I was being paid to do a job so I had to do it.
Debt was my biggest memory of those times and the impact of it on the legal services industry. It seemed to me that if you were in debt recovery or insolvency, there was a lot of profit to be made.
Will it be the same during the 2020 recession?
Impact On Legal Sectors By The 2020 Recession
Let me take a look at a few of the legal services that I believe will see a growth in demand during and after the recession.
1. Debt Recovery And Insolvency Services During And After 2020 Recession
Clearly there will be a lot of employees furloughed at 80% of their usual income levels, so will this cause great debt problems as it did in 1991?
Two things are vastly different:
- Interest rates are nowhere near the extortionat 15% rates we saw in 1991; and
- There is already, and in my opinion will continue to be, a lot more flexibility from the mortgage companies.
Three month mortgage holidays have been freely provided already to millions of home owners, and as I write this at the end of March 2020 we are really only just past a week into lockdown.
If this lockdown continues into May or June as may be the case, it will still be some time after that before the wheels of the economy begin to turn again, and even when they do it remains to be seen when or if they reach their pre-covid levels.
Therefore, it is likely that more time will be needed for many to start paying their mortgages. I believe that the Government encouraged mortgage flexibility will continue beyond the current three month period.
Whilst there will clearly be job losses, with the flexibility that exists now with the recession being caused by a virus rather than the greed induced 1991 recession, I do not see mortgage repossessions reaching the same heights.
However, I believe there will be more cases of business insolvency and business mortgage defaults, as those businesses that were operating week to week and month to month will fold without any income or a substantially reduced one.
Clearly the retail sector which was struggling significantly before Covid took a grip is going to continue to do so, leading to a lot of empty retail space, forfeited leases and mortgage payments, so any law firms dealing with insolvency will be busy, but I am not sure that there will be the money available that was there in 1991.
Simply from a practical viewpoint, shareholders will want to keep money spent on legal services to a bear minimum when they are already chasing very little pennies to the pound in any event. Surely there is an opportunity here for one of the new, more digitaliised legal service providers to provide a streamlined insolvency service for a fraction of the cost of the more traditional ones?
Debt recovery between solvent companies will rise and do so quickly as businesses look to recover any income they are able to in order to remain solvent.
My feelings are that whilst there will clearly be an increase in the volume of work in this legal services sector, there will not be the same appetite for spending on it as there was in 1991.
Also, it has not been as easy to borrow for your business before or during this pandemic as it was leading up to 1990/1991, so there is not so much business debt in the market.
As a side note I keep referring to the 1991 recession rather than the 2008 one as I believe there will be more similarities between 1991 and 2020. Unemployment levels are likely to rise to similar levels, and the decline in company earnings, which reached 25% in 1991 are likely to reach and quite possibly exceed those levels.
2. Family Legal Services
Clearly with families being locked together for weeks or months on end the family legal sector is likely to see a rise in various areas, from divorce to the sad but inevitable rise in care issues too.
Many more may qualify for legal aid as income levels decline.
However, those who remain above legal aid levels may struggle to divorce if they do not have the finances to do so. Might it be the time that mediation finally becomes the norm in this area of law?
3. Litigation
No win no fee litigation should see a rise as people look to recover compensation who otherwise would not normally do so. That was certainly the case after the 2008 recession and I see it being the same again, certainly with personal injury claims.
Medical negligence is likely to rise too with such a strain on the NHS, but part of me wonders if the public will be so keen to pursue claims against the NHS when we are all seeing what a tremendous job they are doing in such a unique and terribly difficult time. Ultimately, however, if the negligence leads to severe injury and financial loss the victims will have little choice but to claim.
Changes To The Delivery Of Legal Services
This and the next item, the legal services workforce, are where I see the biggest changes coming into the legal services industry.
With so many people forced to work from home, I cannot see how returning to the previous law firm model of ‘everyone chained to a desk in the office’ can be a sensible decision.
I know that the issue historically has largely been one of trust; if the law firm owner(s) are unable to see their staff working, how do they know if they are?
However, the technology now exists to remove these fears.
A legal team can be compelled to login to software that takes regular photographs of them at their workstation and shares them with the team. Whilst my feelings were that this would feel intrusive, I know many companies that use this software and both the employer and the team are in favour of it as it helps to reduce the feelings of isolation.
With this sort of software and good case management software, there is little need for everyone to traipse into the office every day.
The benefit of a largely home workforce are obviously the dramatic reduction in terms of the costs of commercial premises from rent to rates, utilities and even the tea and coffee bills etc.
The new legal services companies that already make the best use of technology may well steal a larger share of the legal services market. Companies such as Lawbite for business to business services and Which Legal Services for the consumer, offering legal support for a monthly fee are likely to do well.
More traditional law firms should be making changes now to their systems and processes to allow them to reduce their overheads quickly once we come out of the other side of lockdown and the recession.
If you still have a substantial need for post, which must be a reducing need in all legal service areas (save for medical records in negligence cases but even that must soon change, must it not?) then moving to a scanning service would be a necessary first step.
We have all seen how easy it is to have client meetings using Zoom, Gotomeeting or Microsoft Teams, so why return to so many face to face meetings just because that is the way that it has always been done.
If you ask your clients what they would prefer, I can tell you from experience (both as a client to law firms and someone that speaks with many people who engage law firms) that the less time spent in meetings with lawyers the better.
When you can remove the time and cost of travel, waiting time in reception etc and have an online meeting starting on time and finishing sooner than if conducted face to face, because the need for extended pleasantries seems to disappear with online meetings, why wouldn’t you?
When you couple this with legal signing technology and soon to be improved (I am sure) online identity checks the tedious aspects of legal services can be almost dispensed with, meaning that the lawyer gets to do more of what he or she enjoys most; providing the legal part of the service.
Whilst cost per transaction should reduce, so will the time spent on the transaction, meaning that more of them can be handled, so the fees can remain the same, but only if technology is fully embraced.
If I was running a law firm now, digitalising my legal services provision would be where I was spending my time now.
The Legal Services Workforce
Following on from above, I see a big shift in relation to the legal services workforce, in that whilst your fee earners have all been working from home, many will have decided that they would prefer to continue to work in this way.
If your firm does not embrace this, it will now be easier than ever to either work for a firm that does or to take on a consultancy role with one of the growing consultancy model firms in existence.
When things return to normal, you may decide to offer this option to some of your team. Some have suggested that if this happens, payment terms could possibly be renegotiated with a slight deduction in favour of the employer. In my view I would use this as a benefit in lieu of an annual pay increase as I cannot see many employees being able to get past the hurdle of having less of a salary than they did before.
The one area that the consultancy model has failed both the law firm owner and the consultant to date has been in the provision of new clients. Most models fail to provide any decent volume of new clients to the consultant, and the consultant never having undertaken any marketing before, does not know what they should do or how they should do it to generate new client instructions.
Once again, digital has the answer.
Digital marketing, controlled by the law firm owner, can provide all of the clients that consultants want to produce a good level of income for both parties whilst at the same time providing the consultant with the flexibility of working from home.
Of course the fee split will need to change from the current norm of being in favour of the consultant to parity or slightly weighted in favour of the law firm owner, but it will work better for both parties.
I believe that the majority of law firms will embrace the consultancy model to some extent, but I believe that those that fully embrace it will see profits at least equal with their pre-recession levels but possibly even see them rise if they act more quickly than their competitors to embrace this new tehnology led legal service world.
Firms that try to cling on to the traditional ‘physical office space with staff chained to desks’ model may well see their profits per partner steadily drop.
Be Careful How You Treat Your Staff Now
One other thing that I think is worthy of mention. If you need to furlough staff or reduce salaries to survive, do it with as much respect for your team as you possibly can and involve them as much as you can.
I can see that during interviews over the course of the next few years how you treated your staff during this pandemic may very well become a regular interview question for your new candidates.
Conclusion
I believe that the 2020 recession will lead to the biggest changes that the legal services industry has ever experienced.
The firms that embrace them will survive and thrive.
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