Annual Report & Accounts 2026
FACTORS IMPACTING ON THE MID-MARKET LAW FIRM
• Technology’s impact in commoditisation of services – The development and use of technology in everyday life is now such that there is a general expectation that many services can be delivered quickly and cheaply through the use of technology. The evolution of AI is yet another example of this: impacting on the general public’s expectations of what is possible. This puts ongoing pressure on businesses to invest in innovation, seeking to differentiate their product or compete on price. Such investment creates funding pressures within firms which directly affect the partners of those businesses and how much income they can draw out.
• Longer-term macroeconomic factors – Mid-
market law firms have, for a prolonged period of time, experienced a squeeze on their profits, with downward pricing pressure for clients and inflationary cost pressures. Recent years have seen high legal demand reduce top line pressures, but high levels of wage inflation and related employment costs have driven fixed costs up further. Given the high proportion of fixed costs these businesses have it will only take a small softening in demand to create significant challenges to profitability for some businesses. • Increased billing targets – In order to justify the higher salaries demanded in recent years (and previously), the most common response has been to match increases in salaries with significant increases in billing targets, both in terms of hourly rates and the number of billable hours needed to meet these. This demand for greater effort from those in senior associate and junior partner roles to deliver more revenue per head as well as drive business development, whilst still retaining a high level of managerial responsibility, creates an unhealthy and unhappy working environment even when demand remains strong, whilst these same pressures make it unbearable for many as demand tightens. • Changes in working patterns demanded by the workforce – The general recognition by employees that remote working does not adversely affect the ability to deliver high-
calibre legal services and does provide a significant upside to quality of life has led to an ongoing demand from employees to enjoy more flexible working arrangements. This is at odds with some in traditional law firm management, creating tensions between those two groups. We believe that, over time, this will continue to be an area of conflict between traditional law firm management and their employees with traditional attitudes of presenteeism and control remaining across certain sectors of management in the mid-market law firms. • Reduction in appeal of equity partnership – According to a 2023 survey by LexisNexis, today’s generation of legal associates aspire to an enviable salary and a good work-life balance. It is reported that, whilst 75% of associates want to remain in private practice, only 25% want to make partner in the next five years. For 71% of associates, a good work-life balance is the most important factor determining their next career move. It appears that there has been a generational shift in the aspirations of young professionals progressing their career. Aside from the change in work–life balance aspirations, the financial risk associated with partnership has also contributed to the decline in interest as the cost of buying into partnerships is high and reduced profits in conventional mid-
market law firms mean that the return on equity is less attractive. Furthermore, with several high-profile law firm insolvencies in recent years and the associated equity losses and personal liabilities for the equity partners involved, partnership of a mid-market law firm is no longer necessarily regarded as a secure investment.
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STRATEGIC REPORT
• Technology’s impact in commoditisation of services – The development and use of technology in everyday life is now such that there is a general expectation that many services can be delivered quickly and cheaply through the use of technology. The evolution of AI is yet another example of this: impacting on the general public’s expectations of what is possible. This puts ongoing pressure on businesses to invest in innovation, seeking to differentiate their product or compete on price. Such investment creates funding pressures within firms which directly affect the partners of those businesses and how much income they can draw out.
• Longer-term macroeconomic factors – Mid-
market law firms have, for a prolonged period of time, experienced a squeeze on their profits, with downward pricing pressure for clients and inflationary cost pressures. Recent years have seen high legal demand reduce top line pressures, but high levels of wage inflation and related employment costs have driven fixed costs up further. Given the high proportion of fixed costs these businesses have it will only take a small softening in demand to create significant challenges to profitability for some businesses. • Increased billing targets – In order to justify the higher salaries demanded in recent years (and previously), the most common response has been to match increases in salaries with significant increases in billing targets, both in terms of hourly rates and the number of billable hours needed to meet these. This demand for greater effort from those in senior associate and junior partner roles to deliver more revenue per head as well as drive business development, whilst still retaining a high level of managerial responsibility, creates an unhealthy and unhappy working environment even when demand remains strong, whilst these same pressures make it unbearable for many as demand tightens. • Changes in working patterns demanded by the workforce – The general recognition by employees that remote working does not adversely affect the ability to deliver high-
calibre legal services and does provide a significant upside to quality of life has led to an ongoing demand from employees to enjoy more flexible working arrangements. This is at odds with some in traditional law firm management, creating tensions between those two groups. We believe that, over time, this will continue to be an area of conflict between traditional law firm management and their employees with traditional attitudes of presenteeism and control remaining across certain sectors of management in the mid-market law firms. • Reduction in appeal of equity partnership – According to a 2023 survey by LexisNexis, today’s generation of legal associates aspire to an enviable salary and a good work-life balance. It is reported that, whilst 75% of associates want to remain in private practice, only 25% want to make partner in the next five years. For 71% of associates, a good work-life balance is the most important factor determining their next career move. It appears that there has been a generational shift in the aspirations of young professionals progressing their career. Aside from the change in work–life balance aspirations, the financial risk associated with partnership has also contributed to the decline in interest as the cost of buying into partnerships is high and reduced profits in conventional mid-
market law firms mean that the return on equity is less attractive. Furthermore, with several high-profile law firm insolvencies in recent years and the associated equity losses and personal liabilities for the equity partners involved, partnership of a mid-market law firm is no longer necessarily regarded as a secure investment.
05
STRATEGIC REPORT