With the legal sector as busy as it has ever been and salaries rising fast, what are the implications for law firm culture?

April 22, 2022

Chris Lipscomb BA, MSc(Hons), FCIPD, COO Blue Pencil

We know from our own work across the legal sector globally that the demand for lawyers is high which is in turn being reflected by rising salaries at all levels. No more so is this being evidenced than at NQ level where some of the leading firms are now paying up to 160K for new entrants. This level of remuneration cannot be quickly recouped and is therefore an investment in the future and a very clear sign of confidence in the market.

For those looking to take up a career in law or for those looking to advance their legal careers further, the news seems to be very positive. However, we must also keep in mind that law firms and levels of profitability go hand in hand.  Partners like to receive reasonable drawings and whilst rising salaries may help address resourcing needs in the short-term, higher salaries also mean higher operating costs. There is anecdotal evidence that the Covid linked move to more of a work life balance has already been supplanted by a return to long hours culture.

Rising operating costs need to be countered in some way. Clearly, the main options for doing so relate to fee adjustments which are already happening. However, with clients facing recessionary cost of living clouds affecting their own profitability, legal fees need to be carefully justified and high charge out rates for what seem like more administrative tasks will increasingly be questioned or disputed.  Although it is too early to know how this will unfold, this type of environment can lead to increasing fee write downs or write offs which need to be carefully managed. The disciplines around this will be felt most by junior lawyers who are more the doers than checkers or relationship managers.

In the past, when I worked for a major global consulting firm, I recall only too well the words of the Senior Partner at the time: “we have no issue paying anyone high salaries - we only ask that you bring in three times more revenue than you take out”.  This inescapable reality is as applicable to law firms as consulting firms. High salaries and benefits are part of a quid pro quo that people too often overlook. By necessity, it can lead to a driven culture with an emphasis on continuing performance.

In the last two years, our focus has understandably been on building empathetic workplaces that recognise the struggles individuals have been having with Covid related issues either personally or within their families. It was a time when it felt almost churlish to emphasize issues around profitability when many were grieving or unwell themselves and just leading a normal life was a challenge. However, business is now back on with a vengeance and whilst talent shortages may have temporarily shifted the power balance to employees, law firms are now focussed on maximising what they have:

“Firms in 2022 will emphasize the importance of productivity metrics, such as utilisation, realisation and collection rates”. (The Real Economy Blog 17 Feb,2022)

Whilst the talk has hitherto been of work/life balance, it is likely that law firms will use the flexibility of working from home combined with some office face time to secure more working hours from their lawyers rather than less. In fact, it is a truism that the ability to work from home actually leads to more hours spent on work related matters and not less. Some of course may prefer this to the “dead time” spent commuting but others may recognise that the lines between home and work are actually becoming even more blurred.

Along with the greater focus on productivity, the legal media is also quoting a corresponding surge in investment in new technology to ensure that lawyers are spending their time more efficiently. New systems or upgrades to existing systems are certainly a sensible way to plan for the future. However, in the short term, these technological advances can actually be a source of stress for lawyers who will already be concerned about maintaining and developing their existing revenue levels.  

Just when lawyers had begun to see the softer side of their employers during the pandemic, lawyers may now find that the higher salaries etc will lead inevitably to a more cost-conscious environment where the humanity shown in the last two years is discreetly replaced by a more analytical approach to performance monitoring. Law firms will still need to exercise restraint not least because there is a continuing dearth of talent in the legal market. Research has consistently shown that the majority of people are actually willing to earn less money if they can do more meaningful work. If technology can genuinely remove repetition and some of the more routine aspects of a lawyer’s work, then the short-term pain of transitioning to new systems will be worthwhile.

For now, law firms continue to face the very real challenge of attracting and retaining lawyers by being competitive in terms of remuneration whilst knowing that remuneration alone will not stop attrition. Equally and indisputably, higher salaries and related costs can undermine a law firms profitability unless other measures are taken to increase performance and generate revenue. Balancing off these issues without undermining some of the positive cultural advances that have already been made in law firms will be difficult.

More so than ever before, senior lawyers will need to be highly effective managers if they are to maintain an engaging culture for their lawyers. The pandemic has certainly helped flatten structures and create less rigid work patterns and practices. Managing Partners and Partners now need to make sure that the drive to sustain profitability when faced with spiralling salary inflation, does not prove to be counterproductive by turning law firm managers into “bean counters” and lawyers into delivery units.

As Elizabeth Rimmer, CEO of LawCare, rightly observed in her article in the Law Society Gazette (11 May 2021):

“The legal industry is brimming with guidance on tools to increase your firm’s productivity but take a closer look and you won’t see any tips in many of these about creating a culture that makes an organisation a great place to work”.

Law firms must now adapt to the new post covid environment and find a way to create a performing culture that does not revert to some of the less savoury management ways of the past.