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Wage inflation puts squeeze on legal profit margins

The Irish legal industry continues to show strong growth, with 69% of firms reporting an increase in revenue and 60% showing an increase in profits.

These figures are tempered by increased pressure on operating margins, especially as a result of pay rises. In addition, 79% of respondent firms reported escalation in pay levels, with 41% seeing increases in excess of six% this year.

And the Irish legal industry is not fully prepared for Brexit’s impact, according to the latest Smith & Williamson Irish law firm survey, carried out in September and October 2018.

Paul Wyse of Smith & Williamson says: “Around 80% of the top 20 law firms in Ireland highlighted talent recruitment and retention as a major issue facing their business. 

‘Much of this war for talent is as a result of UK legal firms establishing greenfield operations in Dublin as a result of a possible Brexit.”

Talent and recruitment bottlenecks are a major issue for some 80% of the top 20 law firms, the Amárach Research survey of 123 large, mid-tier and small law firms shows.

But Law Society director general Ken Murphy says that the true impact of Brexit, if any, remains uncertain and will unfold slowly for most individual solicitors firms in Ireland.

He believes that, given the prevailing uncertainty, having no plan may be the most sensible option as present.

"As Brexit's impact is so questionable, then the content or value of an Irish law firm's 'Brexit plan' must also be uncertain.

"Having no such plan, like a reported 80% of firms, may well be the most sensible option at present," Ken Murphy believes.

"After all, given that the UK has no plan for Brexit, why should Irish solicitors!" he quipped.

Confusion

And confusion reigns over the final shape of Brexit, with one quarter of respondent firms unsure of how it will threaten their business. One third are unable to identify any Brexit-related opportunities.

A full 79% have no Brexit strategy in place, despite six out of ten of the country's top law firms receiving merger approaches by a British law firm in the last year.

And over half of all law firms have increasing concerns about the potentially severe and lasting impact that Brexit will have on their business, compared with 12 months ago.

Paul Wyse says this unpreparedness highlights the increasing number of firms uncertain about what form Brexit will eventually take.

"Our hope is that Irish legal firms will take the time to revisit their Brexit plans,” he says.

Leading international law firms, including Pinsent Masons, Simmons & Simmons and DLA Piper, have recently opened offices in Dublin, which has increased demand for top talent and driven up wage inflation, the report claims. 

Cyber security remains a live issue for the legal sector, with 36% of all firms stating they had been subject to a cyber-attack in the last year. In the same period, almost 70% of top-tier firms recorded a cyber-attack.

Smith & Williamson’s Annual Survey of Irish Law Firms, now in its seventh year, is an annual study of the Irish legal sector and has been running since 2011.