Australian firms are a “beacon of innovation” fueled by technology, necessity and crisis
Australian law firms saw demand and profitability grow in fiscal year (FY) 2021 as they successfully navigated the turbulence of the past year. A new report issued by the Thomson Reuters Institute, 2021 Australia: State of the Legal Market, says that despite the remarkable recovery in the Australian market, firms must now make “big strategic decisions” on how to deploy technology to ensure their best opportunities for future growth.
Through a combination of demand growth, slightly higher rates, and reduced expenses, firm profits grew to record highs in FY2021, with average profit as a percent of revenue over the last 12 months rising to 36.8%. The report shows results for FY2021, which ended June 30 – a period that covers both the downturn during the depths of the pandemic in 2020, and the emerging recovery in 2021.
“Australian law firms have proven themselves extremely resilient in managing through the tremendous ups and downs encountered over the past year,” said Jackie Rhodes, managing director of Asia & Emerging Markets, Thomson Reuters. “In particular, the sudden shift to remote working can be considered a success for the Australian legal market, enabling firms to uncover new efficiencies while providing their legal talent the flexibility and balance they had craved.”
Australian law firms saw an average 2.2% increase in legal demand in FY2021. Demand for regulatory, M&A, banking & finance, and general corporate work drove much of the growth. Conversely, demand for real estate, construction, and insolvency & restructuring declined. The overall increase in demand was a major achievement amidst the challenges of the pandemic. The demand growth was lower than the 7.4% in FY2020 ending June 30, 2020, as well as the 4.8% in FY2019, and 7.8% in FY2018.
In addition, the average firm managed a modest 1.6% increase in worked rates, along with a significant 3.5% reduction in expenses. Together with the higher demand, this created a very favourable scenario for firm profitability.
“Law firms responded to market conditions with strategic approaches, and reimagining client experiences,” continued Rhodes. “Firms are taking the opportunity to serve clients better, which is helping to strengthen their relationships. The appetite for digital transformation has never been stronger, creating greater efficiency and flexibility in providing legal guidance.”
Australian firms, on average, performed better than U.S. counterparts in terms of demand growth and growth in lawyers. The 2.2% increase in Australian law firm demand in FY2021 compares against 0.5% demand growth for U.S. law firms over the comparable time period. Similarly, Australian firms saw 3.4% increase in lawyer (qualified fee earner) growth, while U.S. firms contracted their lawyer headcount by 0.5%.
Headwinds and Tailwinds
Further ups and downs may lie ahead for reasons other than the pandemic. The conclusion of the Hayne Royal Commission will signal the end of legal advisory opportunities for which firms had so vigorously competed during the past few years. This will likely produce additional headwinds for firms. On the other hand, a growing penchant for similar commissions and inquiries may conversely drive additional growth opportunities in the future.
“Skill, vision and innovation from law firm leaders all contributed to the positive FY2021 results and the accompanying relief that Australian firms managed to weather the brunt of the storm and emerge in better shape than ever,” said Mike Abbott, vice president, Market Insights and Thought Leadership, Thomson Reuters. “However, with continuing uncertainties ahead, further progress may rely on learning from the lessons of FY2021 and capitalising on the best takeaways.”
To download a copy of the 2021 Australia: State of the Legal Market, go to: https://insight.
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