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Each year LexisNexis carry out in-depth market research and produce their annual LexisNexis Bellwether reports which provide insights into the legal market, the key issues facing law firms and a look forward the direction of travel for the legal industry. Here LexRex founder and managing director Victoria reviews the latest LexisNexis Bellwether Report and unpacks the key findings and trends for you.
The LexisNexis Bellwether Report always makes for interesting reading, and this year’s is no different. For those interested in my thoughts on previous editions, you can read about 2022 here and here. I definitely read 2023’s but for some reason I don’t seem to have written about it. Not sure why.
Anyway, the 2024 edition is all about law firm growth – for somebody who runs a PR agency with the strapline ‘we help law firms to grow’, then it’s obviously a no-brainer that I’d write about the report this time around.
This year’s report has three main focus areas, Technology, Working Smarter Not Harder and Your People Aren’t Pining For The Big Pond. So far, so interesting.
Before we get into the detail of the report, a note on the respondents. 265 practitioners were surveyed, of which only 18% were owners, co-founders or heads of department. That’s just under 50 individuals including founders. 57% of respondents were solicitors, trainee solicitors or paralegals. My point? The report is interesting BUT it is not powered 100% by law firm owners or founders. Note the stats, but as ever, treat them with care.
With regards to Technology, the focus is on technology investment and deployment. According to the report, 32% of respondents were planning to invest in additional technology due to AI and 29% were expecting their firms to be more profitable as a direct result of using it. Further, in terms of priorities for small firms with regards to technology, there were three key areas of practice identified which were drafting legal documents (90%), researching legal matters (88%) and writing emails or other forms of communication (78%). It will be interesting to see how many firms do actually buy the technology that can help them with these three types of tasks.
Also included within the technology section was a report on law firm growth. 63% of respondents are planning to achieve organic growth, a sharp rise from 40% in 2023 and perhaps a sign that confidence is increasing now that the UK is no longer in recession.
In terms of how firms are generating new work, 69% say it is from word of mouth, with a big drop to the next work source, cross-selling from colleagues, at just 35%. Cold calling provided success for just 3% of those surveyed.
On this note, and if referrals generate the majority of your own new instructions – just stop to think for a moment about how important it is to understand your key referrers, how to ensure that the stream of referrals continues, how to create and nurture new referrers and how to spend your PR and marketing budget effectively so that it supports or increases the activities that are tried and tested in terms of generating new business (or improves your reputation or does whatever else you want it to do).
Interestingly enough, 47% or nearly half, are increasing their marketing spend. This certainly chimes with my experience, which is that law firms are incredibly quick to reduce marketing spend as soon as dark clouds appear on the economic horizon. Whilst I understand the logic, it rarely if ever, makes sense to stop promoting yourself at a time of reduced confidence in the market. If anything, doing more at these times helps you to steal a march on your competitors by being present, front of mind and ideally sharing your knowledge and expertise when everyone else goes quiet. Incidentally, 43% of firms are also increasing investment in business development. Remember also that many buyers are awaiting the results of the election before making buying decisions with regards to legal services. If your pipeline is full but you are failing to convert at the moment, it may just be a case of ‘not yet’ rather than ‘no’. So do continue to maintain relationships with those key potential clients and don’t write anybody off too soon.
M&A activity is on the wane apparently (but again remember that the number of founders responding was just 18% so this may actually or also show a lack of strategic knowledge by respondents). 33% of firms looking to grow via M&A had between 11 – 20 fee earners, and 27% were sole practitioners. This latter figure can contain no surprises, as the challenges for solo practitioners revolving around retirement, PII run-off and a lack of potential future partners has been written about extensively by other market commentators.
One key quote that caught my eye was by Jon Walters, a founding partner at law firm, Northridge. He said “We are seeing a continued growth of interest in the legal sector from funds and investment companies who may have ‘dry powder’ to invest.” Certainly, external entrants into the market are something the sector has seen more of recently, and it’s an interesting potential trend. External interest in the sector has been growing over recent years (in my opinion) so it will be fascinating to see whether that continues and to understand what external funders look for in order to get a return on any investments they undertake in the sector. I am writing about this exact topic right now for The Law Society Management Section’s magazine, Managing for Success – so do keep an eye out for that article in autumn if you’re interested. And if you know anybody who can talk about PE investment in the market (either law firm side or investor side, do please get in touch).
Continuing on the M&A theme, the reasons cited for pursuing deals were cited as growing the client base at 49% and for 36%, increasing overall profitability. The downsides or risks associated were outlined as finding the right partner (54%), financial risk (53%) and loss of autonomy at 41%.
This section incorporated regulatory and practical concerns and responsibilities including compliance, cyber security, changes in the industry and – of course – maintaining sales.
Keeping up with changes in the legal industry and law and meeting compliance were the biggest headaches at 70% and 69% respectively. Risk-wise, 66% of respondents were concerned about cybersecurity – with those concerns split across data breaches 78%, phishing 55%, ransom and malware attacks 62% and lastly reputational damage 48%.
Given the well-publicised challenges around recruitment and retention post-Covid, extreme trainee salaries in London and the changing norms around flexible and part-time working, a section on people was bound to contain some interesting statistics.
Respondents to this particular survey are broadly happy working in smaller firms. Only 10% of them were planning to move larger firms within the next five years, and 62% were planning to stay where they were for the same period. 32% were hoping for a promotion during that time and 80% were intending to remain at a small-sized firm.
Whilst 90% were feeling ‘average or above average’ about their work (no further definitions provided), a worrying half said that burnout is a significant challenge over the next 12 months. Hopefully its not too obvious to point out that staff days lost due to illness including stress or burnout can be a heavier burden both financially and delivery-wise for the smaller firms. Leaders should take note of this statistic and consider how to support those lawyers at risk of burnout, stress and related medical conditions.
In terms of how lawyers decide how to stay or go, incentives to move versus incentives to stay were split between better life balance 73% : 32%, higher salary 67% : 60% and career development 31% : 28%.
As ever, this year’s Bellwether Report contained some interesting statistics and headline figures. Challenges for law firm leaders range from the expected – sales, keeping staff happy, regulation and succession planning – to the topical – the shake-up to the market, high salaries and staff retention post-Covid, and the future – emerging technologies and cyber-threats.
For those running or working in small law firms, and for those who sell to these firms, the Bellwether report is always a great set of insights into the challenges and issues faced by this section of the legal sector in England and Wales. It is an interesting report and should form essential reading for anyone with an interest in what goes on in law firms, and for a fly on the wall perspective on what gets discussed at monthly management meetings each week and month.
If you’d like to read the 2024 LexisNexis Bellwether report on small law firms in England and Wales, you can access it here and to speak to Victoria you can get in touch with us here.
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