Legal and business news analysis - Global Insight October/November 2021
Covid-19: law firms reap rewards of EU recovery
Polly Botsford
The European Commission’s Summer 2021 Economic Forecast, published in July, shows the difference a year makes. Whereas the EU economy saw negative growth of -6 per cent in 2020, this year it’s heading for a 4.8 per cent increase in gross domestic product. It’s also forecasting 4.5 per cent growth for 2022. Consumer spending is rebounding and economies are, for now, ‘back in motion’.
Law firms in the EU region are feeling the positive effects of this and have been particularly busy in 2021. There are concerns, however, about what’s around the next corner for these economies, and that the longer-term effects of the pandemic may be less reassuring.
In the immediate term, however, countries have been opening up. By the end of the summer, vaccination rates were ranging between 60 per cent and 80 per cent of the adult population across the EU’s major economies. Those economies have also been kickstarted into action by the EU’s €750bn recovery fund.
According to an IBISWorld report, entitled Legal Services in Europe and published in January, legal services in the EU are valued at €130bn and have been buoyed up by the trend towards recovery. This is particularly the case in corporate law, which makes up about 27 per cent of legal services in the region. Biagio Olivieri, an analyst at IBISWorld and the author of the report, tells Global Insight that ‘law firms are the winners in the aftermath of the pandemic, with robust growth in M&A activity, IT, and restructuring.’
The results of a short questionnaire, carried out for Global Insight and involving members of the IBA European Regional Forum, also bear out this optimism, at least as far as the short term is concerned. One respondent commented that they were expanding their office and staff, while others had seen ‘sustained’ or ‘significant’ growth. Teams have grown and there are new practices and ‘niches’.
Law firms are the winners in the aftermath of the pandemic, with robust growth in M&A activity, IT, and restructuring
Biagio Olivieri
Analyst, IBISWorld
The sustained demand for legal services through 2021 may even lead to a shortage of good lawyers to get all of the extra work done. One respondent to the questionnaire explained that ‘at the start of the pandemic we all thought that there would be significantly less work’, and as a result, ‘we suspended actively recruiting new associates. But the period that followed provided more work than ever. So we very much regretted putting on the breaks on recruitment.’
Rolandas Valiunas, Co-Chair of the IBA Law firm Management Committee and a partner at Ellex Valiunas in Lithuania, says that ‘our local legal market here is growing 10%. So the biggest problem will be that we are all competing for lawyers and there may not be enough talent.’
Though greater demand for legal services is clearly a positive for firms, the pandemic has taken its toll on staff through family pressures and anxieties over health and wellbeing, for example. When combined with the considerable pressure generated by the sheer volume of work, the result is concern about burn out among staff.
One respondent to the IBA European Regional Forum questionnaire estimated that most staff at their firm had had to do about 30 per cent more work due to demand – the usual summer lull in M&A deals didn’t happen this year, for instance. Another respondent reported that their firm had trained one of their members to be a mental health first aider. Meanwhile, a third respondent commented that staff engagement had been a challenge for them.
The shift to remote working experienced by many lawyers may have been the one consolation prize of the pandemic, and something many won’t wish to give up. But firms are keen to get everyone back into the office, for a few days at least. Valiunas says that ‘if we lose our spirit of team work we lose everything so perhaps our biggest challenge is encouraging our staff back.’
Respondents to the questionnaire offered a range of experiences as to how to balance time at home and in the office effectively and what policy to adopt on this. One firm had left it up to individual teams in each practice area to consult on possible mandatory days. With demand for legal services continuing, lawyers may have the leverage here, Valiunas argues. ‘You cannot force people to come back into the office or you could lose them immediately,’ he says.
There are reservations about how long the EU recovery will last. The longer-term growth trend over the next five years in the EU’s legal services sector is, says Olivieri, around 2.5 per cent ‘as operating conditions normalise’. This is a significantly more modest rate.
One respondent to the questionnaire commented that their firm was taking a ‘moderate stance with respect to [making] strategic changes’ and they were ‘waiting for better visibility as to the development of the pandemic.’
There is a nervousness around how much the recovery is down to public funds, the EU’s recovery package – the Next Generation fund – and what happens when those funds are spent. For example, Le Conseil National Des Barreaux, France’s bar association, noted in a survey of its members in June that any cautiously optimistic responses were coming at a time when ‘the French economy is largely being sustained by the state.’
The legal services sector in the EU is large, highly fragmented and wide-ranging, with around 670,000 enterprises crossing very different practice areas and sizes, so the picture is not the same across the board. ‘There are going to be many practices with slower growth,’ says Olivieri.
The experience of the pandemic and the recent recovery favour larger firms, compared with sole practitioners and small and medium-sized enterprises, he adds, because size can better ‘exploit developments in tech’.
For the vast majority of firms in the region, the immediate prospects are good – what’s less clear is for how long.
With thanks to IBA European Regional Forum members for participating in the questionnaire.
Image: eamesBot C / Shutterstock.com
