The COVID-19 crisis has created an unprecedented challenge and severe ramifications for the economy in general and for certain aspects of the legal system in particular. Law firms, lawyers, and providers of legal services must prepare for a wide range of existing and future scenarios, some of which we can learn from previous crisis situations and economic downturns.
In general, the legal sector and especially law firms have historically fared more favorably than the overall economy during downturns and recessions. While this has been true of every post-WWII crisis with the exception of the global financial crisis of 2008–09, it is not clear whether this situation will hold for the current COVID-19 slump. The severity of this crisis is turning out to be unprecedented, so law firms and lawyers must prepare for a variety of possible outcomes.
Times of crisis, like the present outbreak, have in most cases resulted in increased demand for legal services across various sectors. It is safe to assume that the litigation and restructuring areas will show resilience and even increase in demand, while other areas like a merger, transactions, and investments will suffer in the short run. Despite the current unprecedented lags in numerous judicial systems across multiple regions, states, and continents, history shows that dispute and investigation practices are much less in sync with other parts of the economy such as transactional practices.
However, economic downturns do not necessarily manifest into a decline for transactional practices. A broad range of factors such as regulatory issues, market conditions, government and municipal stimulus programs, employment trends, and other factors provide potential sources of demand for legal services. While most sectors are facing challenges, some sectors have been devastated by physical-distancing measures (tourism, hospitality, brick & mortar retail, etc.) and are suffering unprecedented declines in volume and activity. Conversely, other sectors (such as medical supply, sanitation, grocery, and in-home entertainment) are experiencing sharp increases in demand. Law firms should adjust their focus and practices accordingly as best they can.
Demand and pricing are changing. In the current crisis, we can expect continued pressure on pricing and on shifts to alternative models. Increases in discounts, write-downs, and write-offs, may leave prices flat or even lower than before. Procurement departments will play a significant role in the business and there will be a greater focus on commercial arrangements that provide clients with greater cost certainty, either through a fixed or capped arrangement or through one that more closely aligns fees to the outcomes achieved.
Considering the above, it is crucial for law firms and legal service providers to be creative, flexible, and move quickly. Over time, law firms can capture growth from three main sources:
- underlying market expansion.
- gaining share from competitors.
Gaining share from competitors is perhaps the most challenging, particularly in mature, highly competitive sectors (such as high-end legal services). Therefore, it is better to focus on the remaining two.
Current decisions will impact the long-term approach and outlook of firms. Therefore, law firms should initiate cost-cutting and cost reduction activities, along with plans to focus on areas and sectors mentioned previously as more resilient to the crisis.
In the current highly uncertain and rapidly evolving environment, no single course of action will be appropriate for all law firms and there is no “one size fits all” approach. But given what is at stake, those that can maintain long-term vision and outlook while moving rapidly and decisively on near-term priorities will be best positioned to prosper in this crisis and even more so when things get back to normal.