“Demand for legal services is elevated, and firms are finding it considerably easier than last year to keep staff fully utilised and win new business. While the favourable business conditions are expected to continue over the coming two years, profit growth is expected to moderate as cost pressures re-emerge,” CBA wrote.

“This partly reflects the need for firms to spend more on their people and reconnect in person with clients. Firms are under no illusion that the favourable operating environment will last forever.”

Firms forecasting favourable conditions

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According to the findings, 85 per cent (i.e. net percentage of firms that responded positively versus negatively) of Australian law firms have a positive perception of business conditions at this stage of the global pandemic.

This marks a rebounding from last year’s net figure of -13 per cent and sees a return to FY18-level confidence.

In addition, 82 per cent of firms think the operating landscape will remain favourable for the next 12 months, and 76 per cent think it will hold for the next two years.

Interestingly, BigLaw firms are “more optimistic” on the two-year forecast than smaller counterparts, CBA noted.

Elsewhere, firms’ profit forecasts turned out to be conservative, the bank continued, with the 12.1 per cent growth in reported profit more than doubling the anticipated 5.5 per cent rise.

“Growth is expected to ease back to 6 per cent in the coming financial year, partly due to the reversal of last year’s trend of slowing expenses. Firms expect expenses to rise across the board, with the exception of business travel,” the bank wrote.

“Another contributing factor to the more modest profit outlook is that firms are signalling greater investment to position themselves for growth. As firms compete for a bigger slice of a growing pie, many plan to spend considerably more on client and corporate hospitality and marketing and business development activities.”

Meeting key metrics

In response to law firms reaping the benefits of high demand for legal services in the age of coronavirus, CBA measured firms on five criteria: profit, cash flow, staff utilisation, digital agility, and ability to compete.

Across Australia, 85 per cent saw stable or increasing profits. Eighty per cent found maintaining cash flow either easy or manageable on top of maintaining their profits, and 78 per cent said they were able to keep staff utilised comfortably in addition to the previous two metrics.

Two-thirds (64 per cent) were able to meet the aforementioned three metrics and also easily manage remote working and digital service delivery, and just over half (55 per cent) of firms also ticked a fifth box: competing against other firms.

The volume of firms able to meet all five metrics was substantially up from last year’s figure of 38 per cent.

“Firms are finding it easier to fully utilise staff amid elevated levels of work. The ability to work remotely as a firm and deliver services virtually to clients has become the key differentiator between leaders and followers,” the bank wrote.

Summation

Reflecting on the findings, CBA wrote that law firms across Australia “have not missed a beat, despite the disruption caused by the coronavirus pandemic”.

“They have embraced technology that enabled them to work remotely and deliver services to clients virtually to capitalise on the elevated demand for their services. This backdrop, together with an ability to quickly adapt to the new working environment, has resulted in firms finding many elements of their business operations and conditions more manageable than a year ago,” the bank wrote.

“In this environment, firms recorded mean profit growth of 12.1 per cent in the last financial year. However, profit growth is expected to moderate in the current financial year as expenses rise and firms continue to invest in people and technology to position themselves for growth.”

Firms are positioning themselves, CBA continued, to deliver the best client experience and value-add solutions in the most efficient way.

“To keep pace with client expectations, firms are looking for a broader range of skills and capabilities in their people,” the bank outlined.

“The ability to collaborate and think creatively, project management, leadership and management expertise, communication and soft skills, and business operations and process improvement capabilities will continue to be in growing demand.”

CBA executive manager of professional services Julienne Price added: “Legal services firms’ rebound and profit growth is a testament to adaptability and resilience during such a disruptive period. Firms are preparing for the return of many expenses curtailed by the pandemic and for the current rate of profit growth to settle, which is prompting many to rethink their investment focus.

“Firms remain focused on keeping up with current demand and attracting and retaining talent. Most are increasing workplace flexibility, focusing on staff wellbeing, and luring in their competitor’s top performers.”