Effect of covid-19 on firms ‘not as bad as feared’

Covid-19 has dwarfed Brexit as the key challenge to law firms but its overall impact has not been as bad as feared, a report has concluded

29 Jul 2020

The pandemic has dwarfed Brexit as the key challenge to law firms but its overall impact has not been as bad as feared, a key report has concluded.

Although confidence among small firms was “surprisingly high”, the survival of many depends on their clients’ viability.

The 2020 Bellwether report on covid-19 and the legal industry found that the industry “has remained remarkably robust”; but there is a divergence of opinion as to the pandemic’s long-term impact.

The report focuses on the sector’s operational response, the commercial implications and the human impact of the pandemic on the legal market – and how firms plan to survive.

The report culminated from 15 independently conducted interviews and online surveys completed by more than 150 solicitors across small firms (and small offices of larger firms in England and Wales).

It found that while the vast majority (91 per cent) of last year’s respondents were confident about their firms’ future, this year the number dropped to 78 per cent – a relatively small decrease which, the report warned, could be misplaced confidence in light of the increasing decline in firm numbers.

Firms reported stable rather than declining revenues – more than might be expected, noted the report, given the global nature of the pandemic.

But 85 per cent of firms consider covid-19 to be the key challenge now, compared to 48 per cent who view Brexit as the main challenge.

A primary concern is cash flow with 44 per cent worried about an insufficient cash flow to meet current costs.

Yet the report found a sector “bullish” about the future with more than two thirds of firms planning for growth over the next five years.

Further, nearly half of those surveyed believe the impacts of covid-19 can be mitigated with an appropriate and effective response.

Fewer firms than feared were distressed, a finding which appeared at odds with Law Society research conducted over a slightly earlier period.

On 1 May, the Society said 71 per cent of high street firms believed they may have to close their doors in the next six months as result of covid-19.

However, the report observes that this could reflect the impact of the government’s rescue plan for businesses.

Of those surveyed, for instance, 57 per cent of firms had furloughed support staff and 42 per cent took out small business loan.

Just 4 per cent had made redundancies, a number that could increase significantly when the furlough scheme ends in October (17 per cent of firms said it may become necessary to consider redundancies).

The viability of firms may also depend on their clients’ own viability.

The report found that firms, 48 per cent of which view covid-19 as a critical threat for their clients, lack confidence in clients’ ability to bounce back.

As the authors commented: “There can be no path to recovery without a buoyant consumer and commercial market.”

But despite the challenges presented by covid-19, 71 per cent of firms also see it as an opportunity for innovation, though not all are using the time to plan for their firm’s longer-term strategy.

But working from home this year was significantly less stressful for respondents, with 64 per cent reporting that stress and mental wellbeing has been a problem compared to 90 per cent last year.

But despite the challenges presented by covid-19, 71 per cent of firms also see it as an opportunity The report confirmed that the crisis has changed the way the legal industry needs to operate.

It says some firms have “quickly innovated — improving staff morale, adopting new tech and seizing commercial opportunities”, while others risk complacency or inertia.

Chris O’Connor, small law lead at LexisNexis, said there are “positive signs in the darkness”. 

He added that firms “have a lot to look forward to… But, with commercial and consumer market-places stuttering – much rides on a sharp recovery.” 

The report can be downloaded from lexisnexis.co.uk/Bellwether2020