Fears increase over potential war for talent

The risk of key staff being poached by rivals now poses a significant threat to the profitability of City law firms, new research has revealed.

Thomson Reuters' 8th annual research survey of finance directors (FDs) of the UK's top 100 law firms found that a third now see poaching as a high risk to their firm's profitability. This figure is up from just 4 per cent who saw it as a key cause for concern over the last two years.

Commenting on the findings, Samantha Steer, the head of the large law segment for Thomson Reuters' UK Legal business, said: 'As the legal market recovers and business picks up, the spectre of star lawyers or whole teams defecting to rivals - and a substantial portion of their client base going with them - is starting to stalk City firms once again. Team defections can also tend to lead to faster pay inflation for lawyers across the firms concerned.'

Steer says that this has not been much of an issue for most big law firms in recent years but, as the economic recovery improves, FDs are keen to preserve and further improve their firms' profitability. However, firms wanting to retain key staff will have to carefully consider how to balance incentives against a cautious growth outlook and subdued fee levels.

'If key staff who have just sat tight and ridden out the rounds of redundancies and pay freezes as firms cut costs now decide the time is right to move on, taking their teams and their clients with them, it could seriously damage firms' profits and reputation,' she added.

A separate study of law firm leaders - managing partners, FDs, CEOs, and heads of IT from 20 firms including LMS, Tayntons, O’Neill Patient, and JMW - said that workplace agility was key in attracting and retaining talent, as well as supporting an increasing demand for better work-life balance.

Cloud computing specialists Converge Technology Specialists (ConvergeTS) found that an agile workforce, where staff do not require office space and instead are powered by IT, enables imaginative use of skilled people and results in more time dedicated to generating revenue than spent travelling.

Nigel Wright, managing director of ConvergeTS, said: 'The reality is that there is a growing expectation amongst potential recruits that firms will automatically be agile; those that aren't will lose out on attracting new talent and retaining existing talent.'

In-house risk

The latest study from Thomson Reuters also found that almost nine in ten of the FDs polled see downward pressure on fees from clients as the biggest threat to profitability.

In addition, the prospect of work being taken in-house emerged as a critical concern, with a third of FDs recognising this as a high risk to profitability.

'Firms are still seeing clients looking for ways to rein in their legal spending, and are expecting them to continue to negotiate hard on fee levels and even to look at doing more of their legal work internally,' said Steer.

'Overall, the mood among [FDs] appears to be one of continuing caution. FDs are well aware that the nascent recovery remains fragile and that improving sentiment still carries risks, such as poaching, that must be negotiated carefully if firms are to reap the benefits,' she continued.

Growth areas

While many FDs predict public sector legal work to contract over the coming year, 42 per cent of those who responded to the poll expected to see rapid growth in commercial property work.

Over a third of respondents predicted an increased growth in corporate finance and M&A deals, with a similar proportion expecting growth in the energy sector.

'Commercial property and corporate finance work were key areas before the recession but really suffered as deals dried up,' explained Steer. 'Many FDs believe that recovery in these two critical areas will hold the key to delivering rapid growth.'