While the Australian legal profession has been a star performer this year, questions remain over its capacity to sustain success. Off the back of the 2020 Australia: State of the Legal Market Report and webinar of the same name, two subject matter experts have responded to your queries asking what will come next.
Stay up-to-date with the following responses provided by Joel Barolsky (Barolsky Advisors) and Joe Blackwood (Peer Monitor) in their respective sections.
Joel Barolsky (Barolsky Advisors) assesses current landscape
For the past 30 years Joel Barolsky has helped law, accounting and other business advisory firms plan, innovate and grow. In addition to heading up Barolsky Advisors, Joel is a Senior Fellow of the University of Melbourne and a former Principal of Beaton Research & Consulting. Joel is a monthly op-ed contributor to the Australian Financial Review Legal Affairs section.
Read on for three areas addressed by Joel, from alternative legal services provider predictions, legal market opportunities to his take on the regulatory measures introduced this year.
Q: Joel, do you anticipate a move to alternative legal services providers?
A: The top five tasks done by alternative legal service providers (ALSPs) include litigation and investigation support; legal research; document review; eDiscovery and regulatory risk and compliance.
A study published in February 2019 by Thomson Reuters Legal Executive Institute showed that that the global revenue of ALSPs exceeded $US10.7 Billion in 2018 and was growing in excess of 10% per annum.
I would expect the demand for the five tasks listed above will continue to enjoy double digit growth over the next five years. This will be mainly driven by two factors: [1] an increase in regulatory risk and compliance burden faced by all companies and public agencies, and [2] improvements in legal technology which will lower the costs of service provision and make them more price competitive.
However, I think the independent ALSPs will start to face increased competition from major law firms that have set-up their own in-house or captive ALSPs. The law firms often have the primary relationship with clients and have a compelling law firm plus captive ALSP sales proposition that includes one brand, enhanced security and integration with high-end advisory.
Q: Where do you see the legal market opportunities?
A: The fall-out from COVID-19 should eventually see a significant number of insolvencies and bankruptcies. There is little work in space currently while government funding is supporting failing businesses and regulations prevent creditor insolvency action. When this support ends one would expect a flood of work for those lawyers involved in restructuring, liquidating and selling distressed assets.
It appears that almost all companies and public agencies will face an increased burden of regulatory risk and compliance over the next five years. The lawyers will be competing in this space with risk and compliance specialists, the Big 4 and ALSPs, but the market is there for the firms with the appropriate operating model.
There are over $A100 Billion of major construction projects underway or planned across Australia in the next three years. The demand for project and construction litigation lawyers will be significant.
While not seen as a traditional legal worktype, there is growing demand for legal advice for all organisations embracing the digital economy. This includes:
- Commercialisation of data, data analytics and privacy
- Technology transformation and outsourcing
- AI development and deployment
- Cloud contracting and the internet of things
- Cyber security
- Telecommunications services and technology infrastructure
Many in-house legal teams are making requests of their preferred legal service providers to assist them with technology adoption, process improvement and change management. Some firms have recruited specialist consultants to help with these requests while others have formed alliances with consulting firms. A number of law firms offer “legal products” that combine tech with data and IP.
Over the next few decades, over $3 Trillion of wealth will be transferred from Founders and Baby Boomers to others. While this is a slow burn, there will be an increased demand for private client advisory services that include family office, wills, estates and disputes.
Q: Joel, is Australia’s success connected in any way to the increase in regulation/government measures which require advice?
A: I don’t think there is just one factor that explains why the Australian legal market has outperformed other jurisdictions. Five key demand drivers include:
- A world-breaking sustained period of economic growth (before COVID-19 hit)
- Numerous lawyer-heavy Royal Commissions and other enquiries
- High levels of foreign investment and asset acquisition
- Growth in major projects and infrastructure spend
- Governments at all levels increased use of lawyers to address reputational risks
Related reading on Legal Insight: How to Balance Growth and Regulation Through Uncertainty
Q: Joel, in which industries do you see businesses and statutory authorities failing?
A: At the top of the list once would expect industries connected with international visitation would be hardest hit – airlines, hotels, tour operators, education providers, etc.
An extended delay in the timing of a vaccine roll-out will see industries that involve people aggregating severely impacted. This includes events, sports, entertainment, some retail and transport.
Statutory authorities such as universities which have been highly reliant on international student income will also be under severe pressure.
Joe Blackwood elaborates on Peer Monitor data points
Joe Blackwood is a Senior Analyst focusing on Thought Leadership benchmarking analytics for Thomson Reuters; including Peer Monitor, the legal industry’s benchmarking program. He monitors law firm intelligence to provide insights and trends on the state of the legal industry.
In the answers below, Joe has addressed the story behind a couple of figures from our annual legal market report, prompted by our recent legal market webinar audience.
Q: Joe, how could technology go down [as revealed in the 2020 Australia: State of the Legal Market Report] with such a big focus on tech while working from home?
A: A very clear dichotomy of firms exists with relation to tech spend, particularly early in the pandemic. One group of firms found themselves well equipped to transition to remote work and required no additional investment – in fact this group of firms found themselves able to cut non-essential tech services or defer payments in some cases. The other group required rapid, in some cases one time, capital infusion for work continuity purposes, such as additional VPN licensing or laptop computers, etc. On the average, the cuts at the first group of firms is outweighing the investment at others.
Q: Joe, [in the 2020 Australia: State of the Legal Market Webinar] the picture you painted of rising demand for advice work, fall in utilisation of non-legal staff overhead cuts suggests that firms are de-investing in legal technologists and in-house innovation. Do you think that may happen over the next financial year?
A: Not necessarily. The increased levels of advisory work and initial expenditure cuts were much more prevalent at the onset of the pandemic, when uncertainty was at its highest. More than half a year in, many global markets (Australia included) are beginning to settle into the ‘new normal’. Utilisation figures are trending back towards what we would expect, and many non-lawyer staff members who may have been furloughed are returning to work. Further, many firms utilised payroll forgiveness programs to ensure they need not reduce staffing in legal technologist roles. It’s still a bit too early to say, but it does not appear that the market has completely shifted emphasis away from in-house innovation, instead perhaps only temporarily until the future is more clear.
Peer Monitor has developed a data-rich infographic on the four trends to watch in the industry. You can download your complimentary copy on Legal Insight.
