Staffing Law Firms: Is it Due for an Overhaul?
Making the numbers work and managing the risks
When PwC released its annual survey of the top 100 UK law firms earlier this year, the results pertaining to staffing stood out. Specifically, staff cost ratios were the highest they have been in the three plus decades that PwC has been producing the survey. Although fee income growth had been strong for the surveyed firms, staff costs were high in relation to it. Firms continue to face profit pressures – and staff costs are adding to them.1
Concerns around staff wellbeing and retention may be contributing to profit pressures. According to the Leadership and Management Section Financial Benchmarking Survey 2024 by Hazlewoods, the ratio of fee earners to equity partners in law firms slipped from 7.7:1 in 2022 to 6.8:1 in 2023. This ratio tends to increase in improving economic conditions as firms grow, then decrease in times of recession. A summary of the survey findings said staffing conditions are likely to have affected these results, considering “the challenges firms face attracting and retaining high-quality staff and the resulting impacts on workload and wellbeing.”2
Of course, considering the economic landscape law firms are navigating at the moment, it’s no surprise that staffing concerns are bubbling to the surface. The economic stresses of the past several years, combined with developments in how law firms are managing work for clients, are requiring firms to make decisions about how they can operate more profitably and competitively. In this context, it can be a challenge for firms to determine how to make the best staffing decisions, as well as operate in ways that effectively contain the stresses of legal work on staff. Indeed, in the 2023 ALM and Law.com Compass mental health survey of the legal profession, lawyers reported experiencing an increase in stress, anxiety and depression – even though a majority of law firms have mental health initiatives in place to reduce these concerns.3 4
“Law firms are trying to ensure they retain talent and maximise their utilisation of staff at every level in order to get the best results from their people,” said Sharon Glynn, Managing Director, Large Law Firm, Underwriting at Travelers Europe. “This requires effectively managing headcount, employee wellbeing, and investment in areas that helps them deliver legal services efficiently and effectively – and doing so in a way that sets them up for success. Careful risk management plays an important role in helping firms contain the exposures that arise in the process.”
Analysing how legal work is done
Managing risks around staffing calls for law firms and insurers to understand how legal work is changing, and what changes are necessary to support a law firm through this changing landscape.
Law firms that are tackling this challenge effectively are taking a close look at how they can elevate the strengths of both their people and their technology. For instance, they are trying to balance their headcount with investment in legal services that are fit for the intended purpose and provide the specific support that allows firms to serve clients most efficiently. They are focusing on cloud modernisation as a key IT strategic priority in the near term, particularly because of the cloud’s ability to help them use technology such as GenAI to their greatest advantage.5 They are assessing the risks and rewards of their client relationship management systems, people management systems and overall data strategy.
At the same time, these firms are looking to develop their people and assess how they can best use them to support the long-term health of the organisation. This includes upskilling their boards and partners, as well as strengthening the business support teams who can help them weather challenges better. Finally, these firms are trying to retain staff in difficult economic times – not let them go in order to manage financial strains in the short term, only to have to scramble to rehire them when conditions improve and workloads increase.
“The challenges of the past several years have not made it easy for law firms to manage staff costs,” said Glynn. “Firms are having to consider how to best retain talent at a time when employees’ priorities and working preferences may have shifted. Firms may be tempted to reduce headcount or dabble in counter cyclical areas as they await an economic recovery. These risks are moving targets, so as an insurer of law firms, we continuously study what’s happening in the market to ensure our clients have the protection and risk awareness they need to compete and thrive.”
The information provided is intended for use as a guideline and is not intended as, nor does it constitute, legal or professional advice.
Sources
1 https://www.pwc.co.uk/industries/legal-professional-business-support-services/law-firms-survey/lfs-2023.html
2 https://communities.lawsociety.org.uk/law-management-news/the-results-are-in-financial-benchmarking-survey-2024/6002905.article
3 https://www.law.com/americanlawyer/2023/05/18/mental-health-by-the-numbers-an-infographic-mapping-the-legal-industrys-wellbeing/
4 https://www.ibanet.org/document?id=IBA-report-Mental-Wellbeing-in-the-Legal-Profession-A-Global-Study
5 https://www.pwc.co.uk/industries/legal-professional-business-support-services/tentative-approach-cloud-leaving-law-firms-behind.html#:~:text=As%20market%20challenges%20continue%20across,the%20next%201%2D2%20years.
