Australian law firms remain profitable, despite Covid-19
22 December 2020
Commonwealth Bank of Australia’s recent CommBank Legal Market Pulse reports suggests that law firms in Australia have shown resilience through the coronavirus pandemic, with law firms collectively showing a 7% mean profit growth for financial year 2020, with another 5.5% mean profit growth forecast for fiscal year 2021.
“During 2021, the industry’s agility was on full display,” writes Belinda Hegarty, national head of professional services at Commonwealth Bank in her preface to the report. “Central to this was years of investment in technology that enabled staff to work remotely and to deliver services to clients digitally.”
Hegarty noted that law firms also showed “care and compassion … as team members were forced to work for a prolonged period without face-to-face contact with their colleagues and managers” and that law firms introduced more well-being initiatives and “regularly check in with their staff about how they were personally managing the dramatic changes.”
Other key findings in the report include:
- Most firms agreed that clients are more focused on fees; 64% of firm expect downward pressure on fees to accelerate due to the pandemic.
- While many firms have experienced revenue declines in specific practice areas, half of all firms have not experienced significant decreases in any practice area.
- While staff utilization has been challenging, most law firms are leaving their staffing mix unchanged when comparing pre-coronavirus and future intentions.
The report focuses on what the bank calls “resilient firms,” which, it notes, continue to invest more in technology and in people.
“More resilient and less resilient firms share a number of similar experiences. Both groups of firms are just as likely to have experienced downturns in revenue in at least one practice area in the last financial year, and both find it problematic to plan and forecast with any certainty,” the report says. “Yet more resilient firms perceive overall current business conditions to be positive. That is in contrast with the negative view that less resilient firms have of their business environment.”
The expectations for profit growth at more resilient firms are higher than at less resilient firms. More resilient firms forecast a 7.8% increase in the next 12 months compared with an expected 4.1% growth among less resilient firms. This is also reflected in their view that business conditions will have improved in 12 months. In contrast, the report notes, less resilient firms are predicting a “more gradual short-term improvement, followed by a sharper rebound in two years’ time.”
The report also suggests that remote working is here to stay in Australia. Many law firms were already in the process of this in their digital transformations; the process has been hurried along at many firms by Covid-19.
“Pre-coronavirus, we were equipped to have an agile workforce, capable of working from anywhere. Some parts of us didn’t quite trust our people to do that. Coronavirus has proven that we can,” one firm CEO/managing partner told the bank.
A managing partner at a mid-tier firm said: “The need to have large spaces in premium towers and a lot of paper have seen their day.”
The complete report can be downloaded from Commonwealth Bank.
Gregory Glass
