No country, industry or company has been spared the tornado that is COVID-19. National lockdowns and social distancing are no longer theoretical concepts limited to academic textbooks, but realities that organisations everywhere are trying to deal with to the best of their collective abilities. And like leaders in many industries, law firm leaders also need to prepare for the implications of the crisis in the near and far future.
A study of previous crises can yield some useful information about these implications, and even lessons. Such an analysis can also suggest priority areas for these leaders to focus on to ensure business continuity now, and business success in future.
Here are 5 such lessons for law firms.
Good news: Law firms tend to be ahead of the curve in weathering economic crises
In general, during economic crises, the legal industry is able to weather downturns better than other industries. Nonetheless, the COVID-19 crisis is unprecedented in many ways, so leaders should not assume that because they did well in the past, they will continue to do so in future as well. They should be prepared for a wide range of scenarios that may affect them negatively and make plans to mitigate them.
Demand patterns may change across legal practice areas
During downturns, certain legal practices tend to contract, others remain steady while still others contract. So it is natural to expect that during the COVID-19 crisis, litigation and restructuring practice areas will do well while transactional practices will suffer. However, this crisis is so unprecedented that the reality may not match these expectations, especially over the medium- and long-term, so leaders need to be prepared either way.
In the current downturn, law firms that are less tied to global financial markets may feel less of an impact because their business is less exposed to cross-border activity and therefore less affected by a decline in it.
Furthermore, densely populated cities or transit hubs are finding it more difficult to mitigate the effects of the virus, which is causing greater disruptions in economic and business activity. Law firms that are not situated in these locales may likely not suffer the same effects or to the same extent.
Long-term secular trends are likely to accelerate
Law firms must expect continued pressure on pricing and be prepared to shift to alternative delivery models to mitigate this pressure. If they fail in either area, they will likely lose both clients and income, probably forever.
In addition to clients demanding greater cost certainty, legal firms will face increased competition from alternative legal-service providers. This is likely to put downward pressure on high-cost real estate, staffing and other elements of their traditional service-delivery models.
More good news: Some law firms tend to weather economic crises better than others
McKinsey’s analysis of 100 law firms based on where they were at the start of the 2008 financial crisis compared to where they were when they exited in 2012 shows that an economic downturn can reshuffle the competitive legal landscape. Some law firms successfully navigated the crisis and actually increased their profits in 2012.
What were the reasons for their success over others? Here are 5 that remain valid to this day – lessons that law firm would do well to keep in mind as they try to navigate the new normal created by the COVID-19 crisis.
- They never lost focus on their clients: During a crisis, it’s ridiculously easy for firms to become inward-looking, and focus only on their short-term challenges and survival issues. However, legal firms who continue to be there for their clients and strengthen their client service agenda tend to weather such storms better than those who don’t.
- They never forgot their capabilities: Clients are flooded with information, but what they usually need from their law firm is sound analyses and impartial advice based on that information. Firms that have a good handle on their own distinctive capabilities and are able to serve their clients well in these areas tend to survive and even thrive, crisis or no crisis.
- They didn’t forget their people: More than business, economics or finances, every crisis is about people. Firms that deal with the humanitarian elements of any crisis with empathy, understanding and people-focused agility will be able to build new capabilities and continue to stay relevant in the face of any kind of crisis.
- They maintained pricing discipline: Again, McKinsey’s research shows that in past downturns, law firms continued to increase their standard rates but offset those increases with discounts, strategic investments and even write-offs. Leaders that achieved a mix of creativity and balance in providing such relief (pricing and/or volume) were able to meet their clients’ needs, reinforce the firm’s value proposition and position the firm well for a post-crisis world.
- They kept an eye on the long term but also managed the short term: For law firms, near-term issues of cash management for liquidity and solvency are absolutely critical to ensuring long-term survival. Firms that survived crises in the past identified and implemented best practices, prioritised and tracked initiatives, reworked the order of operations and identified various financial levers (compensation, non-compensation, bonuses, salaries, etc) to build near-term resilience. At the same time, they also sharpened their granular understanding of their focused practice areas, geographies or sectors, established or accelerated certain strategic initiatives, built capabilities in new areas, and also accelerated digital and technology innovations – all focus areas for the long term.
In the past, law firms that did all the above successfully came through economic crises with flying colours. Firms that learn these lessons will come through the current COVID-19 crisis as well.
The question is: will this be YOUR firm?
Prime Infotech provides a number of solutions to help law firms conduct their business, keep their operations going and achieve their goals even in the midst of a crisis like COVID-19. For more information about these products, contact Prime Infotech at:
Lion Amir Virani