While the Australian legal market remained largely resilient through the worst of the pandemic, its façade may shows signs of cracking amid the latest turmoil
While much of the rest of the legal world dealt with heavy tribulations early 2020 because of the global pandemic, the Australian legal industry remained strongly resilient in the face of these steep challenges, outperformed their global counterparts for most of the past two years.
However, that resilience showed some signs of buckling recently as the legal world has become buffeted about by new uncertainty over inflation, international conflict, and deep shortages of legal talent. This time, as law firms across the world began facing down yet another storm, the Australian legal market has been no exception.
Indeed, according to the just-released 2022 Australia: State of the Legal Market Report, legal demand at Australian law firm fell from 6.5% growth in the first quarter of the July-to-June fiscal year to a 4.4% contraction by the fourth quarter. What had at one time appeared to be a beacon of inspiration to legal professionals around the world was now in danger of becoming a cautionary tale instead — an example of what might befall law firms that fail to heed the warning signs and respond to rising threats.
The report, published by the Thomson Reuters Institute and the Melbourne Law School, along with management consulting firm Barolsky Advisors and ESPconnect, a legal tech firm, used data collected from 16 participating law firms operating in Australia, including some of the largest firms by lawyer-count in the region, as well as interviews with 98 Australia-based stand-out lawyers as nominated by their clients in the Thomson Reuters Stellar Performance report.
Fundamentals still solid
The report shows that despite currently turbulent business conditions, the fundamentals of the Australian legal market are solid, with record rate growth pushing revenue growth to 10.0% for the 2022 financial year, even with slowing demand during the second half of the year.
As law firms across the world began facing down yet another storm, the Australian legal market has been no exception.
Australian law firms also have been successful — thus far — in keeping their lawyers content with their compensation on one hand, while simultaneously holding their compensation expense growth relatively in check.
As other regions saw their hard-fought profit gains fade, Australia — which did see a slowing from last year to be sure — experienced a year over-year pace that remained extremely stable throughout the course of the year, despite a slide in Q4. Combined, these factors indicate that the Australian legal market has good reason to continue to see itself as a beacon, a guide for how modern large law firms can navigate such crises.
Yet, trouble looms
However, a strong foundation — even one that can hold up against past storms — may find itself threatened by other factors, as the report demonstrates. Essential challenges loom for the region, which, if not addressed by law firm leaders, could well become unsolvable in the future.
For example, legal talent turnover in Australia is relatively high, with nearly one-third (31.6%) of associates leaving their firm in the past year, more than their counterparts in the United States. Further, firms are facing additional hardships in developing and implementing technology, an aspect of Australian firm operations that is increasingly critical.
Also, Australian law firm partners are finding themselves bearing a load that is seemingly heavier every year and facing greater pressure than ever to master an evolving role which is increasingly focused on developing and adopting new technologies and establishing leadership in addition to their role as top lawyers within their firms.
For now, Australian law firms are weathering the continuing storm, but they must be careful that other risks — many found outside of their financial foundations and thus, outside their direct control — do not extinguish their beacon.
You can download a copy of the new 2022 Australia: State of the Legal Market Report, here.