In looking at the global trends we've seen in the legal industry throughout 2021, we determine that law firms have a chance to take advantage of new growth opportunities, but it won't be an easy road
As the global pandemic slogs onward, with fresh worries over potential new virus variants and lockdowns, the world’s legal industry continues to battle back, trying to restore something close to normal — in both their working operations and in client services — for the coming year.
Indeed, our research has identified potentially huge opportunities for law firm revenue growth in 2022; however, achieving this will require law firms to carefully target their clients’ needs and align themselves with clients’ strategic priorities by working in close collaboration with general counsel and in-house teams.
Despite how dismal the legal market may have looked in the early darkest days of the global pandemic, the industry has shown remarkable resilience. In the third quarter of 2021, legal demand hit record year-over-year levels, allowing firms to solidly increase their rates; and productivity levels hit the highest third-quarter numbers seen in three years. Of course, these growth levels mainly are due to the low baselines 2020 created, but demand is up solidly against pre-pandemic 2019, while productivity is only down less than 1% compared to 2019. Still, by nearly all major measures, the third quarter of 2021 was reminiscent of previous high times for the legal industry — not bad for an industry that is just 18 months removed from the depths of the crisis.
As became the norm during much of 2021, corporate clients increasingly sought external expertise to help them navigate these choppy waters, so that now corporate law departments’ typical spend on outside counsel in 2021 is as high as it has ever been — in fact, 35% higher than the typical spend in 2016.
Despite how dismal the legal market may have looked in the early darkest days of the global pandemic, the industry has shown remarkable resilience.
Looking forward, market optimism in legal spending is currently at its strongest point in the last decade. Globally, four in 10 corporate clients are anticipating an increase in legal spending in the coming year; only half as many (20%) are expecting a decrease. This represents the highest proportion predicting an increase and lowest expecting a decrease in the last 10 years.
What does that mean for law firms? Many firms experienced growth across most — although not all — practice areas, with corporate work, especially work involving the red-hot M&A sector, leading the pack. Indeed, even when compared to the last “normal” year of 2019, rather than the low baselines of 2020, corporate work still hit a healthy 11% demand growth among the largest law firms, year to date.
Going forward, many legal market prognosticators say that helping corporate clients manage regulatory uncertainty will be a key growth area as more local and national governments around the world begin to adjust their regulatory requirements to better deal with the lingering problems of the pandemic and some of the compliance issues — such as those involving government fraud and illicit financial schemes — that became all too apparent during the pandemic. A rise in regulation related to environmental, social, and corporate governance (ESG) issues is also expected. The predicted rise in regulatory issues is evidenced in legal spending predictions being made by corporate clients, with the regulatory practice area predicted to be the strongest growth area in 2022.
What clients want
As corporate clients move out of the worst of the crisis and into what they may see as a new normal in 2022, they will be looking for their external law firms to provide innovative and collaborative solutions to their strategic priorities — as well as help them anticipate challenges and reduce their overall risk. While each corporate law department has its own unique set of challenges, proactive risk mitigation and cost control are the most common themes.
Corporate law departments are developing mechanisms to control, monitor, and assess their legal spend and the efficiency of legal service delivery.
In fact, if you boil down the collective desires that corporate clients have for their external law firms, according to our research, it comes down to three major attributes that law firms should be demonstrating: strategic advising, innovative solutions, and collaborative relationships. And while we have seen some fascinating examples of law firms providing innovative solutions to client challenges, on the whole firms are not landing coordinated, innovative solutions. Thus, going forward, this still represents a massive opportunity for those external law firms that want to differentiate themselves from the competition — if they can get it right.
Further, clients don’t seem to be willing to sit tight and wait for their law firms to figure this all out for themselves. Increasingly, corporate law departments are developing mechanisms to control, monitor, and assess their legal spend and the efficiency of legal service delivery. To this end, expect that 2022 will see corporations putting ever more pressure on their outside law firms to demonstrate higher levels of efficiency and offer more innovative processes around pricing and delivery.
Throughout this past year, corporate clients have seen their legal needs increase, and as a result overall legal spending is expected to remain healthy into 2022; however, that increased share of wallet will only be awarded to those law firms that can demonstrate efficient use of their budgets in helping corporate law departments solve the challenges that they and their organizations face in the coming year.