An annual survey of Irish law firms has signalled a return of confidence to the legal sector, despite the continuing negative impact of COVID-19 on firms’ turnover and profits.

The report shows, however, that the sector faces a fresh set of challenges – including attracting and retaining staff, remote working, and the risks from cyber-crime.

The survey, from accountancy and professional-services firm Smith & Williamson, finds that almost half (47%) of respondent firms reported an improved outlook for their firms over the last 12 months, with 43% saying that the situation remained the same.

Just over 60% of firms are expecting an improved outlook in the year ahead – a dramatic turnaround from last year’s survey, when more than 70% expected a deterioration in conditions.

Profits recovery not complete

Turnover improved for 39% of firms – and 53% of the top 20 firms. Profits also increased at 37% of all firms, with the figure for the biggest 20 firms again higher at 53%.

The survey shows, however, that, at most firms, COVID-19 is still affecting their turnover and profits. Turnover remains below pre-pandemic levels at two-thirds of firms, and profits are still lagging pre-2020 levels at almost 60% of firms.

And almost half of all firms continued to use the Government’s wage-subsidy schemes during 2021, though this was down from 70% in 2020.

Staff numbers growing

After what Smith & Williamson describes as “a brief hiatus”, attracting and retaining talented staff has re-emerged as a significant challenge, particularly for top 20 and Dublin-based firms.

The survey finds that law firms have started to expand staff numbers again over the past 12 months – 35% of firms, compared with 22% a year ago – and that more of them are offering agile working options to attract and retain high-quality staff.

Just one in three regional and smaller Dublin firms said that they were unlikely to facilitate remote working, and most top 20 firms indicated that they were planning to do so.

The report finds that pay levels have recovered after the previous year, when just over one-third of all firms, and 60% of the top 20 firms, cut salaries.

According to the survey’s findings, only 3% of firms have not reinstated wage cuts implemented in 2020.

Pay increases were awarded in almost half of all firms, while most of the remainder kept pay at the same levels.

Cyber-targets

Smith & Williamson says that new working arrangements have led to “significant concern” among law firms about cyber-security, as they have seen themselves as targets of increased activity.

“There have been reported incidences of attacks on transfers of monies from client accounts in law firms, causing financial loss to firms,” the report says.

Cyber-risk is now seen as one of the biggest challenges facing firms over the next three years, as reported by 27 % of all firms – up from 7% in 2020.

The survey finds that 60% of the top 20 firms reported cyber-attacks on their systems in 2021, but the level is much lower among regional firms and smaller firms in the capital.

Smith & Williamson finds a low level of merger-and-acquisition activity in the legal sector, with only one in five firms saying that they had initiated an approach to other firms.

“Our own sense of the market is that there has been a significant uptick in this activity since mid-2021, as people reassess their priorities post-COVID,” the report says.