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In the many reviews of the economic fallout from COVID-19, professional services generally come out well as a sector that has managed to cope with the changes. Legal work is well suited to remote operations, and activity can carry on even when the offices are closed. Courts have reduced activity, and many are operating on a virtual basis—and some clients have bunkered down, closing offices and furloughing staff. Property transactions slowed down, and the flow of some business have experienced on-going disruption, leading to a slump in Q2 and Q3 earnings. Cash flow was—and still is—a challenge for many firms. However, by and large, law firms seem to be weathering the storm.
The much greater concern is the well-being of their clients—the sources of their fees. Speculation over recovery dates vary according to expert and sector. Predictions range from late 2021 at the earliest for the least hard-hit sectors (pharma, professional services, technology, construction), but up to 2024 or even 2025 for the hardest hit sectors (travel, hospitality, arts, and entertainment). Much depends on the ability to work remotely as opposed to the need for close personal proximity. There is much debate over the demise of the office and some professional services firms have announced that their staff can work from home permanently—but this is not a universal view and a hybrid model is more likely.
Recovery from past recessions has generally seen a return to business as it was, at least in the short term. This is less likely today. COVID-19 is accelerating other, existing, trends that are set to change the business environment in the longer term, including digital transformation (DX) and de-carbonisation. There may be a trend towards de-globalisation as companies shrink their supply chains. With the massive state intervention in all major markets, companies can expect an increase in regulatory scrutiny and even government control as politicians try to ensure value for taxpayers’ money. Research by McKinsey, published in their article ‘Risk, resilience, and rebalancing in global value chains’, suggests that companies see new regulation as one of the top sources of business and supply chain disruption in the coming years.
Supporting your clients
For many clients, the primary worry is simply surviving through the pandemic crisis, and most major law firms have set up virtual ‘COVID Hubs’ to consolidate their ideas and services to support clients with specific advice. Clients are keen to understand how different sectors and different jurisdictions are dealing with COVID-19 and the associated key legal issues. And then there is Brexit and its implications for clients across Europe who trade with the United Kingdom. Cost management, already a major concern, is a top priority as companies conserve cash. While they will have their own cash flow concerns, law firms can help their General Counsel (GC) clients improve their efficiency with a realistic and positive approach to fees and services—if only to agree longer payment terms.
Due to consequences of COIVID-19, many lawyers expect to see an increase in litigation. However, the climate in Europe is now more favourable towards class action claims. Third party funding for litigation is now widely available, adding to the threat of class actions fuelled by social pressures on climate change and human rights. There will be contractual disputes as companies struggle to fulfil orders and employment claims as job losses rise. Does COVID-19 trigger Force Majeure or Material Adverse Change clauses in contracts? Clients will need advice on these issues, but as noted in Thomson Reuters podcast, The Hearing, in episode 51 ‘COVID-19: the economic implications for lawyers and law firms’, invoking such clauses should be the last resort. Lawyers should help their clients find mutually satisfactory solutions, looking at relationships and reputations and long-term business sustainability, not just the stark letter of the law.
A lawyer’s willingness to support and advise on long-term issues, beyond legal detail, is important to clients. Clients face increased complexity and uncertainty, and value pragmatic advice that reflects the situation. Moreover, complexity brings with it more pressure on multi-disciplinary professional work—and lawyers need be ready to collaborate with other advisers.
Review your sector strategy
Firms will be reviewing their sector strategies, identifying the likely growth sectors in consideration of COVID-19. This is not to suggest they should abandon the poor performing sectors—far from it. It is an opportunity to get close to clients, to provide them with support in a time of need. The effect of the pandemic varies across sectors, and this will feed through to legal spend—but the impact might not be as expected
In a recent webinar held by Acritas, part of Thomson Reuters, ‘Paradigm Shift: Leveraging a Sector-Based Approach to Client Success’, panellists highlighted the importance of taking a strategic approach to sectors—putting them on a par with practice groups, not simply creating marketing labels around a wide range of industries where they have a client. This means selecting which areas to focus on, appointing sector heads with real influence and accountability, and sharing knowledge and contacts across the firm. It calls for investment in research and business development resources. Our research among GCs indicates the importance they attach to commerciality and industry understanding. This is best driven by a strong sector strategy that looks at problems from an industry perspective rather than a legal practice perspective.
Digital transformation
As law firms set out to help their clients, technology is a key area of interest. There are two aspects to this endeavour. The first is helping their clients implement their DX strategies across their organisation. As they embed digitalisation in every decision, process, service, and product, they will need advice not only on the supplier contracts—but also on the implications for rules on, for example, data privacy, intellectual property, and employment. There may be new regulatory or contractual risks around new processes. Food manufacturers are talking of using of blockchain in their supplier contracts (so-called ‘smart contracts’), enabling them track every ingredient. Engineering and infrastructure clients are creating ‘digital twins’ of their projects to enable real time maintenance without shutting down operations, with implications for service contracts and safety issues. Lawyers can help their clients be more effective business leaders by contributing to their clients’ DX strategy.
The second aspect is more internal to the legal department. In their drive for greater efficiency, in-house legal teams can make much greater use of the legal technology available to them. Utilising extensive experience in using technology, law firms can support their clients in implementing and using legal technology—whether it be litigation analytics, data management, workflow planning, collaboration tools, or use of the cloud. Advice can be a recommendation of which applications to use and negotiation of contracts with the tech suppliers. Or from the beginning, advise on the development and implementation of a proper IT strategy, working with the client’s IT team.
Clients need support more than ever now, but the more that technology takes care of the legal process, the more lawyers will need to apply other business skills, if they are not to find themselves squeezed out by technology on one side and more commercial-minded advisers on the other.
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