The other day I was interviewed by the economist of a large international bank. The economist is writing a report on the economy in 2021 and wanted the hear my thoughts on the legal industry. Based on an analysis that was underpinned by trends in global trade and the development of GDP, their model had projected that employment for lawyers in the legal industry would shrink notably in the coming year, an outcome with which I said I tend to disagree.
After the 2008 financial crisis, law firms were shedding jobs and significantly reduced their headcount. When from 2010 onwards the economy picked up, the legal industry struggled to rehire lawyers with the right level of experience. Firing lawyers in a panic turned out to be a costly mistake. Looking at 2020 it is clear that law firms have learned their lesson back then. So far there has been no sign of mass redundancy of lawyers. On the contrary: law firms are not just keeping their lawyers, but some are even handing out massive bonuses. At the same time some 64.000 legal secretaries, support staff and paralegal jobs quietly disappeared since March 2020 in the US legal market alone. Other jurisdictions are showing a similar picture.
Also partner promotions seem to remain on-track. There is not a single law firm we know of, that has postponed of cancelled partner promotions. This being said, we see two major questions arising:
1. How are the new partners going to build their practice?
The present year 2020 has been very good for law firms. There have been no signs of an overall decline in demand and clients have hardly been asking for discounts. According to our outlook, 2021 will be different. Building your own practice as a young partner is difficult enough as it is in normal times. It could prove to be very hard in 2021.
At many law firms, partner promotions tend to be based on personal relationships and internal politics, more than they are on the argument of a strong business case. Lawyers get promoted partner because they have served their partner loyally for many years and partner promotion is their reward. In law firms that have a merit based compensations system and reward ‘origination credits’, the more senior partners could even have a financial incentive, as they will profit from the origination credits in providing the new partners with work.
Not scrutinizing the business case before making the appointment is ill advised in normal times, it could become a serious issue in times of a massively shrinking economy like we are seeing now. Law firms should double up the effort to help newly appointed partners build their practice in 2021. Even if this could mean that the sitting partners need to handover part of their business and will see their income reduced as a consequence. This is the question you need to ask yourself before voting-in the new partners next month: “am I confident that there is a good business case, and am I prepared to invest some of my own income to make this a success?” If you hesitate or if the answer is no, perhaps don’t do it…
2. Looking forward: will there be partner promotions at the end of 2021?
This year has been in many aspects an extraordinary year. For one, the legal industry has been working remotely for most of the year. Even though Pfizer and others have shared promising data regarding their vaccines currently under development, it remains unlikely that the world will return to normality before the end of 2021. It would be realistic to assume that working from home will remain the norm for the foreseeable future.
Partner promotion decisions are a marathon, not a sprint. Being promoted to partner requires a level of sponsorship and connection to the firm. These are things that will be very hard to create remotely on-line. Not being physically together will become an obstacle when it comes to evaluating and developing the next generation of partners. It is hard to imagine how this could be done without sufficient in-person interaction.
We see the lack of personal interaction as one of the major obstacles as it comes to talent development in the year to come. On top of that we also expect that in 2021 the financial effects of the economic crisis will kick-in and we foresee overall demand for legal services will shrink by 6%. Obviously some legal areas will be more affected than others, but is seems reasonable to expect that 2021 will not be nearly as good as 2020 for most law firms. A decline in revenue and PEP will also not be encouraging for new partner nominations at the end of 2021.
What to do?
As the legal industry is changing and emerging technology is gradually augmenting lawyers to be more efficient, human talent becomes more important than ever. Law firms will have to step-up their efforts to educate and train their young lawyers in a more structural and broader manner. Just putting a trainee behind a screen and let that person make the ‘flying hours’ starting with stupid simple work and gradually becoming more complex over time, will no longer be adequate.
At TGO Consulting we are working with clients to set-up professional structural permanent education and training programs for their lawyers of all categories. These training programs not only prepare for future partnership, but they also create much more points of evaluation and interaction, even when working from home. The young lawyers who have been participating so far, show an increase in sense of belonging and a much better understanding of what their potential career path might look like and what it takes to become a partner at the end.
If you are considering implementing a structural education and training program at your firm, please do not hesitate to get in touch. We would be most happy to share our insights and our experience.