How we’ve watched the legal industry change over the last 10 years

16 Sep 2014

As Jepson Holt celebrate our 10th year in business, Chairman Philip Jepson looks back over the last decade in the legal industry and comments on the changes that have shaped it.

For those who were already within the legal industry, 2004 may not have seemed like a watershed year at the time. Looking back though, it is easy now to see it as a significant phase not just in our business, but as a significant moment through which to frame the recent movements of the industry as a whole. For those who had not yet entered the industry, I can imagine some looking back on 2004 with fond memories, given the state of the market now and the changes that were to come just a few years later.

As with the wider economy, 2004 marked for me the beginning of a period where the legal industry found some growth and emerged from the shadow of the terrible events of 9/11. As markets around the world began to recover, the legal industry generally mirrored them and law firms began to show not just recovery, but evidence that it was at the start of another boom-like period.

Individual firms pursued lateral growth through new hires, increased numbers of partners and extensive trainee schemes. There was particular demand for, and growth within, the areas of property and commercial law. The big law firms were getting bigger again, after a few years of fairly neutral performance.recruitIll

The only aim for firms that I remember in this period was to grow turnover to the highest possible level. There was little innovation. Mainly growth was achieved through traditional practices: increased staff numbers and increased workload. There was comparatively little demand for, or interest in, large scale mergers or acquisitions.

The steady growth continued for many throughout 2004 and 2005. By the 2006-2007 period, many of the big law firms seemed untouchable, the market situation after 9/11 seemed a distant memory and a prosperous period seemed to have been reached. All of that was, of course, about to change.

The market crash of late 2008 was particularly felt within the legal industry because it is a market sector which often mirrors the fortunes of the wider economy, and certainly had since the 2001 period. Many firms who were on retainer found that they were now simply not on retainer, or that the clients that had retained them – in property, banks or big business – did not exist any more. Almost overnight, as with many markets, demand and prosperity in the industry seemed to dry up.

This was not just a period of change for individual firms, a momentary blip on the balance sheet, but the start of a sea change in the industry. Several factors began to emerge that would shape law both immediately and from that point right up until the present day.

Firstly, there was a change in thinking amongst the clients of legal firms. Having seen the effects of the recession, and having seen some firms survive without large retained legal departments, clients of big law began to explore other options. For the first time publicly – though this had happened before, hidden from wider public view by big success stories – large legal firms started to struggle and then, in a handful of cases, disappear altogether.

A contributing factor to this, again emerging from the 2008 period, was the Legal Services Act, which had an impact immediately and really began to be felt during the 2009-2010 period. Again, the Act shook up the way many clients looked at the industry and many law firms were slow to react to both the Act and this change in client behaviour.

The third effect of the events of 2008 came from a change within the legal industry and legal firms themselves. Shaken by the events surrounding them, many withdrew from some of the growth activities they had pursued. Trainee contracts noticeably reduced (and are still reducing now), lateral hires also suffered.

Instead, legal firms began to look to mergers and acquisitions in order to grow turnover. This went one of two ways: the merger was either successful because the firms were suitable for merger outside of market conditions, or the merger failed because it had been completed solely because of market conditions: the problem of one firm had simply been passed on to another. For many, some on the outside of this new interest in merger entirely, it was a learning process, still being explored today, with the increased level of merger activity we now see in the marketplace.

In general the 2008-2013 period can be characterised as a period of turmoil for the industry collectively and, for many firms, as a period of the same individually. What now then, in 2014?

mergBusIllHaving taken stock, some firms do now appear to be reacting positively to the changing environment; amending their proposition, pursuing well thought out mergers, or generally figuring out what the new world looks like for their firm. For some, they are emerging to a world after the storm and figuring out how to fix the roof. For others it is the roof and the outside walls. For the lucky or the prepared, there was only minor cosmetic damage. In any case, the 2014-2015 period will, I believe, see firms amend their offering, processes and ideas – figure out their new place in the changed world – or it will see them continue to rather bump along the bottom, just about surviving new changes.

Over the next ten years, legal firms will face the fully developed force of the initial changes the Legal Services Act introduced and market conditions did so much to encourage. Clients are better informed and have more choice. Technology will take a wider role. Legal firms’ competitors will be large and well-fancied firms, not formally active within the market.

If business comes in cycles then it should perhaps be no surprise to find that the 2014 landscape may not be unfamiliar to that which we discovered when Jepson Holt was established in 2004. There is room for growth out there, and a market which looks increasingly favourable, but only those firms appropriately set up for the changes that have just occurred will be able to take advantage of it and only those with a longer term view will see anything more than a short term boom, before the next significant change begins to reshape the market again.