The Covid dividend

Two years ago, on 23 March 2020, prime minister Boris Johnson announced the UK’s first national lockdown. People were only allowed to leave their homes for strictly limited reasons, and everyone who could had to shift to remote working. After a short respite in the summer, restrictions were reintroduced in September, followed by a second national lockdown in November. This time, the rules were not fully relaxed until 12 April 2021, with some restrictions remaining in place until 21 June. UK offices, including law firms, were effectively closed for 15 months, which was sufficient time for changes to working practices and culture to become embedded. Now, two years on, with most firms engaged in a phased return to offices, there is general agreement that hybrid working, and communication, and at least partial digitalisation of law firm operations is here to stay.

Boost to legal business

Corporate and commercial law saw an uptick of business during the pandemic, especially in transactional and advisory work. But it was not business as usual. Perhaps surprisingly, Covid-19 turned out to be profitable for most law firms. UK-based international firms reported record earnings in their first full year of trading during the pandemic, and by the end of 2021, Crowe’s Law Firm Benchmarking survey found that 91% of City firms and 75% of regional firms reported increased profits. Average profit per equity partner increased by 17% for City firms and 28% for regional firms.

Back in April 2020, firms clearly did not anticipate this. Most took advantage of the government’s job-retention scheme, with a reported 77% of firms considering furloughing staff. Partner distributions were deferred or suspended and pay reviews were postponed. Listed firms raised additional finance to ride out the crisis. Planned office moves were delayed and people were resigned to working remotely for the foreseeable future.

But the legal sector recovered faster than most. By June 2020 there was already quiet optimism. There was a sharp focus on standardisation and efficiency measures, financial and risk management, and even online learning. By August, furloughed staff were returning to (remote and hybrid) work and legal was looking profitable again. Norton Rose Fulbright, Herbert Smith Freehills and Osborne Clarke were the first to start voluntarily paying back furlough funds in October 2020 and by December only a few City firms were receiving government support. By early 2021, firms were restoring salaries and partner payouts and some even reinstated bonuses.

Online law firm

Commercial firms generally coped well with the unexpected transition to working from home. The first few weeks were about ensuring everyone had the equipment and software set up to work remotely and, most importantly, adequate connectivity. Many firms already had core systems in the cloud, while others quickly switched to systems that enabled remote working. The pandemic accelerated a move to cloud-based systems and applications, but this was already a strong trend before Covid.

Magic circle and other large firms had already invested significantly in practice management and communication systems that linked lawyers and teams in different offices and locations. Many also introduced additional self-service online resources for clients whose businesses were affected by the pandemic. Firms that handle volume work use case management systems with automated workflows and client relationship management tools that support online service delivery, although some scrambled to help large numbers of office-based staff shift to remote working.

Many commercial firms were also already set up for remote work, and some, such as Carbon Law Partners and gunnercooke were designed as virtual firms. ‘Covid didn’t actually affect the operational part of the business,’ observes gunnercooke co-founder Sarah Goulbourne. She says that client demand remained high throughout the pandemic, particularly in certain practice areas such as restructuring and insolvency, employment, and real estate.

'At the outset we were frantically reacting to events, principally a shift to 100% home working when it had probably been at around 10% previously'

Jonathan Grigg, Boyes Turner

Firms that had previously followed a more traditional office-based model needed to shift lawyers and processes online pretty much overnight – and the legal sector belied its reputation for resisting change.  Immediate operational challenges included developing systems for supervising and managing a remote workforce and ensuring that processes that are subject to regulation could be conducted securely and effectively online. Online tools such as automated workflows ensured that processes like client onboarding were conducted in a consistent way with all necessary checks in place.

Jonathan Grigg took over as managing partner of Reading firm Boyes Turner during lockdown. ‘At the outset we were frantically reacting to events, principally a shift to 100% home working when it had probably been at around 10% previously,’ he recalls. ‘Management felt hand-to-mouth, short-term and reactive amid huge uncertainty in terms of people’s health and financial security. We did not have to borrow. We successfully managed our cashflow and quite quickly financial confidence returned with transactional work picking up strongly. So much so that at the end of the year the pressures were around recruitment and resourcing the work rather than having too much resource.  Now we are back into longer-term planning with work levels steady and strong. But pressures around strategic IT planning, retention and recruitment of people and the effect of the cost-of-living crisis are turbocharging an already hot recruitment market.’

While the pandemic may have slowed down tech innovation somewhat, as it can be challenging to roll out new systems across a remote workforce, lawyers’ overnight conversion to technology has facilitated technology adoption. This has enabled firms to leverage existing tech investments.

Electronic signatures are a case in point. During the pandemic the UK government officially accepted the Law Commission’s opinion that electronic signatures are legally valid. ‘Organisations have spent years trying to roll out electronic signatures, but over the last 18 months people have been asking for these solutions,’ observed Mark Collins, senior legal technologist at Eversheds Sutherland, towards the end of the last lockdown.

Kathryn Pearson, head of knowledge and client service solutions at Bird & Bird, noticed how lawyer behaviours around tech changed during the pandemic. She recalls a conversation with a corporate partner who used the firm’s online closing tool for the first time during lockdown. ‘There was no new functionality,’ she explains. ‘It was simply the discipline of being locked down and having to ensure that all the documents and task lists were kept up to date and visible to the client.’

Lawyers in demand

Another driver for technology that saves time and boosts productivity was increased demand for legal services. Legal issues raised by the pandemic put extra pressure on corporate legal departments, driving up demand for external advisers and boosting law firm revenues.

In August 2021, Thomson Reuters Peer Monitor Economic Index (PMI) of law firm market performance (which uses real-time data from major US law firms and key international markets, including the UK) reached an all-time high, and the level of demand for legal services continued through Q4. Magic circle and international firms reported record results due to record levels of global merger and acquisition (M&A) activity. Allen & Overy saw a 19% increase in pre-tax profit and a 5% rise in revenue, while Clifford Chance saw an 8% increase in profit and a 1% increase in revenue with equity partners receiving a 9% increase in profit shares on the previous year.

According to PwC’s Annual Law Firms Survey 2021, 76% of top-100 UK law firms reported an increase in profits, with firms operating in the banking and corporate sector performing better than those handling volume and private client work.

The uptick in work led to lawyers putting in even more hours when working from home. The combination of reduced office and travel costs, and efficiencies around the use of technology – including Zoom and Teams for meetings, self-service client portals, and e-signatures which are broadly accepted as legally binding – together with higher billing figures, boosted profit margins still further.

The downside of combining sustained pressure of work with remote working, not forgetting the personal pressures of the pandemic, was the toll on mental health. In 2020, legal sector health and wellbeing charity LawCare experienced a 50% increase in website traffic and a 9% increase in calls, emails and web chats, with 38% of those contacting the charity struggling with stress and anxiety. Two years on, lessons have been learned in terms of more flexible working practices and greater attention on wellbeing, in particular maintaining mental health. This might have been a factor in what has been termed ‘the great resignation’, in which more lawyers are leaving the profession.

This may have been reflected in the latest Thomson Reuters Peer Monitor Economic Index, which shows law firm overheads starting to rise again as firms are paying more for talented recruits, as well as maintain their investments in technology.

Cultural changes

While the pandemic necessitated extra investment in tech, and switching to new ways of working, for the most part it did not produce the massive acceleration towards wholescale digital transformation that some had anticipated. But some changes are here to stay. All respondents to the PwC survey intend to retain a degree of virtual working, and 48% of top-100 firms expect to reduce their office footprint in the short- to medium-term. The figure is highest among larger firms with multiple offices, as consolidating offices reduces overheads and boosts margins.  

'It may be that for most people who have switched to remote and hybrid working, doing more tech is not the most attractive thing to do'

Anthony Vigneron, Clifford Chance

Online meetings have become easier and more efficient. ‘It used to be difficult to get the right people in the room,’ Anthony Vigneron, director of legal technology at Clifford Chance tells the Gazette. ‘People have got comfortable with e-signatures and video calls – the conference call is dead. And cloud enables real-time collaboration and massive efficiencies.’ While Clifford Chance has spread its tech investment between foundational systems for compliance, privacy and security, and practice-specific investments, Vigneron is cautious about investing in too many point solutions that complicate the firm’s delivery model. ‘We want to work smarter, not harder,’ he adds.

Although the pandemic has provided opportunities to leverage existing technology investments, Vigneron has not seen significant changes in adoption rates. ‘It may be that for most people who have switched to remote and hybrid working, doing more tech is not the most attractive thing to do.’

Grigg highlights ‘increased use and reliance on technology to support flexibility and client demands, but also increased flexibility and trust in terms of the relationship with our people. The focus is now on outcomes rather than a one-size-fits-all, top-down approach’. Grigg is equally focused on the people side of the business. ‘The physical disconnect has also paradoxically meant we obtained a greater understanding of individuals, which in turn drove an understanding of the importance to the business of our people achieving a genuine and sustainable home/work-life balance that I don’t believe truly happened previously. Flexible working and a focus on what work is done, rather than where work is done, is here to stay.’   

 

Joanna Goodman is a freelance journalist and author