Staffing law firms – is this due for an overhaul?

When PwC released its annual survey of the top 100 UK law firms earlier this year, the results for staffing stood out. Despite the strong fee income growth of those surveyed, related staff costs were high – so much so, that staff cost ratios were the highest they have been in the three-plus decades that PwC has been producing the survey.

Firms continue to face profit pressures – and staff costs are adding to them.

Wellbeing and retention concerns

Concerns around staff wellbeing and retention may be contributing to profit pressures.

According to the Financial Benchmarking Survey 2024, the ratio of fee earners to equity partners in law firms slipped from 7.7:1 in 2022 to 6.8:1 in 2023. This ratio tends to increase in improving economic conditions, as firms grow, then decrease in times of recession.

A summary of the survey findings stated that staffing conditions are likely to have affected these results, considering “the challenges firms face attracting and retaining high-quality staff and the resulting impacts on workload and wellbeing”.

Of course, with the economic environment firms are currently navigating, it’s no surprise these concerns are bubbling to the surface. The stresses of the past few years, combined with developments in how firms manage client work, require them to make tough decisions about how they can operate more competitively.

In this context, it can be difficult for firms to determine what the best staffing decisions are, while containing the pressures of legal work on employees. Indeed, in the 2023 ALM and Law.com Compass mental health survey of the legal profession, lawyers reported experiencing an increase in stress, anxiety and depression – even though the majority of firms have mental health initiatives in place to reduce these concerns.

“Law firms are trying to ensure they retain talent and maximise their use of staff at every level to get the best results from their people,” said Sharon Glynn, managing director of underwriting at Travelers Europe.

“This requires managing headcount, employee wellbeing and investment in areas that help them deliver legal services efficiently and effectively – and doing so in a way that sets them up for success. Careful risk management plays an important role in helping firms contain the exposures that arise in the process.”

Analysing how legal work is done

Managing risks around staffing calls for firms and insurers to understand how legal work is changing, and what changes are necessary to support a firm through this evolving landscape.

Firms that are tackling this challenge effectively are taking a close look at how they can elevate the strengths of both their people and their technology. For example:

• They are trying to balance their headcount with investment in the legal services that can best support their clients.
• They are focusing on cloud modernisation as a key IT strategic priority in the short-term, particularly because of the cloud’s ability to help them use technology such as GenAI to their advantage.
• They are assessing the risks and rewards of their client relationship management systems, people management systems and overall data strategy.

At the same time, these firms are looking to develop people in a way that supports the long-term health of the organisation. This includes upskilling their board members and partners, as well as strengthening the business support teams who can help them weather challenges better.

Further, these firms are trying to retain staff in difficult economic times, meaning that they won’t have to scramble to rehire them when conditions improve and workloads increase.

“The challenges of the past few years have not made it easy for law firms to manage staff costs,” said Glynn. “Firms are having to consider how to best retain talent at a time when employees’ priorities and working preferences may have shifted.”

“They may be tempted to reduce headcount or dabble in counter cyclical areas as they await an economic recovery. These risks are moving targets, so as an insurer of law firms, we continuously study what’s happening in the market to ensure our clients have the protection and risk awareness they need to compete and thrive.”