May 15, 2023
24% of UK legal buyers forecast increase in spend for employment advice - but 28% expect drop in demand for M&A legal advice due to slowdown in dealmaking
- Thomson Reuters report finds that despite economic uncertainty, legal spend optimism rose in last quarter of 2022
- 45% of corporates have shifted work to different law firms in past year
LONDON, May 15, 2023 – Thomson Reuters (NYSE/TSX: TRI), a global content and technology company, today shared new research which shows that 24% of UK corporate buyers of legal services expect an increase in demand for advice on employment law as businesses have been forced to make redundancies and the cost-of-living crisis has led to high levels of industrial action. However, the economic slowdown and reduction in dealmaking means 28% of corporates expect a drop in demand for legal advice on M&A deals.
The UK State of the Legal Market report from Thomson Reuters shows that despite economic uncertainty, spending optimism amongst corporate law departments bounced back from the lows of Q3 (when Gilts and sterling tumbled) and grew in the last quarter of 2022. In Q3 2022 a net 2% said they planned on decreasing their legal spend. In Q4 2022, 35% of corporates said they expect an increase in legal spend, while only 26% expect a decrease. In comparison, in Q3 2022, more corporates expected lower spend going forward (34%) than higher spend (32%).
“As is typical with an economic slowdown, we are seeing demand peel away from practice areas such as finance and M&A that typically outperform when the economy is doing well.” said Lucinda Case, head of Legal Professionals Europe at Thomson Reuters.
“Corporates still require legal advice regardless of how the economy is performing. It’s the nature of the advice that changes. As rising inflation and interest rates force corporates to reduce headcount, employment lawyers are seeing an uptick in demand for navigating redundancy programmes. A constant remains the need for regulatory advice with regulatory work — whether Brexit-related or sustainability driven — being the main driver of budget increases.”
45% of corporates have changed their roster of law firms in the last year
The report shows that corporates are currently very active in shifting work between law firms, with nearly half (45%) saying that they have adjusted their law firm rosters in the last twelve months to either work with a new firm or use another firm substantially more.
Lucinda Case says: “These changes present both opportunities and risks to law firms. The winners will be the firms able to show clear differentiation from the competition and the report contains some insights on how firms can position themselves best including the importance of feedback programmes.“
Regulatory complexity is number one risk on the horizon
The report shows that corporate in-house law teams view increasing regulatory complexity as the number one risk on the horizon. 22% of in-house teams view compliance/regulation as a current priority. However, an even higher percentage (30%) view it as a future risk, making it the top risk on the horizon. This focus on regulatory work is reflected in spending intentions, with 31% of corporates anticipating growth in budgets allocated to regulatory work.
Cost control is the second-highest strategic priority currently keeping UK general counsel awake at night, cited by 24% of in-house legal teams, second only to commercial effectiveness (27%) as the focus shifts to supporting their business amid economic uncertainties.
Lucinda Case says: “The frequency with which regulations are changing and the complexity of these changes are driving demand for legal counsel to help corporates navigate these changes. Combined with workload pressures, technology can also play an important role in helping corporate law departments focus on the most high-value work, such as by leveraging legal content and workflow tools which automate basic tasks and streamline legal processes.”
Thomson Reuters (NYSE / TSX: TRI) (“TR”) informs the way forward by bringing together the trusted content and technology that people and organizations need to make the right decisions. The company serves professionals across legal, tax, accounting, compliance, government, and media. Its products combine highly specialized software and insights to empower professionals with the data, intelligence, and solutions needed to make informed decisions, and to help institutions in their pursuit of justice, truth, and transparency. Reuters, part of Thomson Reuters, is the world’s leading provider of trusted journalism and news. For more information, visit tr.com.
Thomson Reuters Market Insights is an interactive source of competitive intelligence, providing law firms with the right data to gain a true edge in the market. Our data analysis ensures law firms better understand how the legal market is changing — from their clients’ perspective. Firms use this data to make informed decisions about growth strategies, client relationship development, strategic investments, and performance management. Every year, Thomson Reuters Market Insights interviews more than 2,100 senior legal decision-makers around the world across 22 industries and eight geographic regions. To add further depth to this report, other data sources were analysed, including Thomson Reuters Financial Insights, a subscription service in which law firms contribute data regarding their business performance. The data is anonymised and aggregated to form peer group comparisons, allowing participating firms to engage in competitive intelligence and benchmarking exercises.