INTRODUCTION
The LexisNexis Gross Legal ProductFootnote 1 (hereafter, GLP) report started life as an internal project. As a business, LexisNexis wanted to better understand the growth of the UK legal market to inform our business priorities and product development roadmap. There is a wealth of qualitative commentary from expert observers and analysts describing and explaining the trends that affect the market. There is far less quantitative information. Those data sources that do exist provide either a high-level macro view (such as from the ONSFootnote 2 or the Law SocietyFootnote 3) or focus on surveys of smaller sub-sections of the legal market (such as reports from The LawyerFootnote 4 or PwCFootnote 5). Such sources tend to be backwards-looking and lagging present events (typically by 6–12mths).
We decided to take a different approach. By combining and weighting hundreds of different metrics from a wide range of sources we could create a view that combined reliability, responsiveness and depth of insight. Once we started reviewing the data for internal use – at the start of 2020 and at the same time as the COVID-19 crisis started to unfold – we quickly came to the view that this resource could be useful for firms and other legal professionals.
Just as GDP (Gross Domestic Product) is a measure of the level of demand in an economy, tracked using a representative basket of goods and services, our GLP index works in exactly the same way – it measures a set of influencing factors and activities to estimate demand in the legal market. The results provide a historical benchmark of growth against which the impact of the COVID-19 crisis on legal activity can be measured. Being built as a bottom-up macro model, it can provide insight at a practice area level and has explanatory power – not only putting a number on growth, but describing the trends and drivers of performance in the UK legal market.
METHODOLOGY
Sources and selection criteria
Selecting sources that will closely reflect demand drivers of legal activity is crucial for the model's accuracy. These inputs are far more important than the calculational logic used. The reality of data availability (and hence the complexity of this project) is that perfect metrics do not exist. At times we needed a more creative and indirect approach to source selection.
As such, the GLP model uses two categories of input:
1. Direct metrics - datapoints that either are legal activities or which directly correlate with legal activity
Example: the number of residential property transactions completed (each of which requires a measure of legal input)
2. Indirect metrics - underlying data that represents factors which drive demand for legal services, or proxies for legal activities
Example: the number of new housing starts (which do not necessarily directly drive legal work, but are a good proxy for the volume of legal activity required in the sector)
Figure 1 GLP model methodology.
Our research team considered hundreds of different potential datapoints to reach a final set of 250 inputs. This meant that each of the practice areas comprised of a representative basket of 10–20 metrics which are accurate proxies for legal services demand.
We chose to build up from a practice area level as it gave us latitude to overcome the challenge of data availability. When direct measures of legal activity are hard to find, it is easier to find accurate proxies for individual practice areas than for the overall market. It also gives the model much more explanatory power. If the output numbers are built bottom-up (rather than with top-down assumptions), it is possible to show the data and trends that constitute the overall results at a practice area level.
Metrics were selected according to their performance against the following factors:
a) Salience – how representative they are of legal activity
b) Accuracy / reliability – how reliable the source is
c) Frequency of update – quarterly updates allow the model to be more responsive, but aren't always available
All model inputs came from publicly available sources, allowing us to freely share the input metrics when discussing model dynamics. This (in theory at least!) means our results are replicable and could be created by anyone. The majority (c.70%) of inputs came from governmental sources, which tended to be the most detailed and reliable. The most common sources were ONS, MOJ, HMCTS, Home Office and Bank of England. Where government data had insufficient coverage we only used publicly available datasets from reputable sources.
MODEL METHODOLOGY
The metrics within each practice area basket were weighted – High/Medium/Low (or Null) – for each of the end-market segments we were modelling (Top 100 firms; GP & Consumer firms; Small firms & Solo practitioners; and Corporate in-house counsel). This was completed using recommendations from LexisNexis’ own legal experts in each practice area, who understand the nature of legal work in that field. Combined, this creates a weighted average growth rate for each practice area within each market segment.
To create a total market view, the different practice areas were averaged in proportion to their significance within each end-market segment. This weighting was based on real data:
• The number of practitioners in each practice area (Small & Solo and GP & Consumer)
• The number of partners in each practice area (Top 100)
• LexisNexis relative product usage levels for area of practice (Corporate)
This created an overall estimate for legal services demand each end-market segment. We indexed the data to the start of 2017 to show total growth over the past two years and provide a baseline to track COVID-19 impact in 2020.
Figure 2 GLP Q2 2020 model findings.
FINDINGS
The GLP model found that the legal market has further contracted in Q2 2020, with year to date growth in demand for legal services of -6.9%.
Previously ‘Accelerating’ areas continue to perform well but have seen growth slow. The end of the furlough scheme will reduce Employment from double-digit to (still impressive) single-digit expansion. Risk & Compliance has been promoted to the ‘Accelerating’ bucket – the model metrics show clear signs of strong growth, driven by the ongoing shift of our personal and working lives to online.. We continue to wait for the expected Restructuring & Insolvency boom, but the model metrics still suggest that businesses have been stabilised by government support and fewer are failing than in 2019.
There is no respite for former stars – Property and Immigration. Work for Immigration lawyers improved slightly in Q2 (driven, unexpectedly, by increased Student visa applications) but is still 17% behind 2019 YTD levels. LexisNexis’ conversations with practitioners picked up a huge resurgence in conveyancing matters started. This does not yet show in our Property model -by the end of June housing transactions were still materially behind last year, driving our overall year to date estimate of demand for legal services to -17%.
The shutdown of the courts system started to bite into observed activity levels in Q2 – where data is available for both Civil and Criminal Litigation, it suggests a fall of up to 47% year on year, driving YTD demand to 20–30% lower than 2019 levels.
Results table footnotes – PA methodology changesFootnote 6 and treatment of furloughFootnote 7
For more detailed information, including in-depth data and trend analysis at an individual Practice Area level, please visit the LexisNexis GLP minisite
HOW TO USE THE GLP
Private Practice Firms
As a result of COVID-19, the legal industry is facing possibly its greatest ever challenge. While government support schemes have been widely used (57% of firms have furloughed some staff and 42% have taken up financial assistanceFootnote 8), firms have still faced financial stress and many have seen demand for their services fall. With changes to furlough support at the end of October 2020, firms have difficult decisions to make about resources. Trying to make such important decisions without true visibility of the health of the market could mean mistakes are made.
By relying on real data (rather than anecdote or surveyed opinion), the GLP can offer a corrective to the prevailing pessimism about the legal industry's prospects. The legal market has contracted, but more slowly than the economy as a whole (which declined 20.4% in Q2 2020Footnote 9). Within overall performance there is significant divergence by practice area. Firms with a greater share of their business in Employment than Immigration may have found that demand (and revenue) has grown since the start of the crisis.
To take full advantage of the report, we suggest that law firms and their leadership consider the following:
1. Benchmark your firm's actual performance (by practice area) against the market average growth rate from the GLP:
• Are you growing faster than your peers and competitors?
• In each of your areas of practice, are you taking advantage of a growing underlying market (or offsetting decline in an area that is contracting)?
2. What percentage of your management efforts are going into cost-saving vs revenue generating measures?
• Given your own firm's performance and the growth of the practice areas you work in, is this mix of work appropriate?
• We have found that most firm leaders are focussed on the cost line – even when their end-markets were growing
3. Can you take advantage of market conditions to grow your business or win market share?
• Most firm leaders only considered inorganic growth options (i.e. through a merger or hiring of new partners) and overlooked organic growth.
• Can you retrain staff to handle inbound requests for work in growing practice areas?
• Can your partners cross-sell new work in growing practice areas you haven't previously served to your existing customers (whose needs may have changed)?
4. If you need to make savings, are you focussing on the right areas?
• Can you improve efficiency of delivery in growing practice areas, so you can handle a greater caseload with the same headcount?
• Even if you need to reduce costs across your firm – are staffing or budget cuts in a growing area of the law counter-productive?
• Do you have stranded assets (people, technology) in declining practice areas with a poor growth outlook?
In-House Counsel
The report also has utility for leaders of In-house legal teams – whether in Corporate, Public Sector, Charity or University settings. The legal complexity of COVID-19 and the challenges it has posed in areas that comprise large parts of the work of In-house counsel (such as Employment issues) means that their workload has likely grown since the start of the crisis. This is evidenced by the GLP – Corporate activity has grown materially faster than for Private Practice firms.
Depending on the health of their organisation, these teams may also be facing the prospect of budget cuts at the same time as an influx of work. Here the GLP may be helpful as supporting evidence for an internal business case for investment (or exclusion from budget rounds).
Whatever the context, understanding which areas of the law are growing or contracting can inform planning. Which teams are likely to receive the greatest demands on their time? Are there any slowing areas that can divert resources into those with greatest growth? For which fields of the law will the need for information, automation or outsourcing be greatest?
Finally, the GLP provides a window into how private practice partners may be performing. GCs may need to expand their pool of panel firms in areas of high growth or may find their hand strengthened in negotiations for projects in declining areas.
Knowledge Professionals
Aside from intellectual interest in how the legal market is growing, the GLP may seem of limited practical use for knowledge professionals. However, there are several ways in which the GLP can be used both to help plan resourcing and priorities for knowledge teams and help KMs support their firms’ overall planning:
1. Share the report with firm leadership
2. Plan knowledge resources
• Knowing which practice areas are declining markets (and therefore may also be seeing contraction in firm) can help knowledge managers anticipate where library savings can be made
• Conversely, there may be a greater need for knowledge in areas of growth. Fast-changing practice areas or those which increase their share of firm income may find increased demand for information and support from the knowledge function. At forward-looking or well-performing firms, this may open the door for investment in knowledge tools for growing practice areas
3 Knowledge as a revenue driver / BD
• As explained above, when thinking about growth most firm leaders do not consider lateral, organic expansion into new areas of practice. The most common blocker for taking on new business in practices adjacent to, but outside, a firm's current areas of expertise is a lack of existing knowledge and expertise
• Knowledge functions therefore have a real opportunity to become facilitators of their firm's growth. If knowledge teams can quickly train and upskill practitioners (or support partners business development efforts) to empower them to accept matters in areas outside their existing experience, they can make the move from cost centres to revenue engines
