Law firms hit by softening demand, rising expenses and unhappy staff
A slump in demand hit profit and partner pay at Australian law firms in the first half of last financial year, but a world-leading recovery ensured the industry finished the year on a high.
That leaves the sector facing multiple challenges, according to Thomson Reuters’ State of the Legal Market report. Spiralling expense growth, staff discontentment and a flat mergers and acquisitions outlook stand as barriers to continuing the “remarkable recovery” booked by firms in the second half of last financial year.
Jackie Rhodes said Australian firms displayed “resilience and adaptability” in 2023.
“The 2023 financial year was a remarkable year for Australian law firms, who managed to overcome a difficult first half and achieve positive growth … demonstrating resilience and adaptability in the face of continued economic recovery, inflation and geopolitical uncertainty,” Jackie Rhodes, Thomson Reuters’ managing director for Asia and emerging markets, said.
The impact of interest rate rises hit big firms hard in the first half of the financial year, prompting a rapid cooling of the deals advice business that had powered a pandemic-era boom.
Local firms experienced a 3.4 per cent decline in year-on-year demand in this period, and were among the hardest hit in the global legal market.
As deals stalled, declining 0.6 per cent from the year before, firms benefited from work brought on by the market downturn. Counter-cyclical practices – which include disputes and litigation, workplace relations and insolvency and restructuring – achieved solid 8.5 per cent growth in the second half of the financial year.
Lea Constantine, Ashurst’s head of region, Australia, said her firm “saw strong demand in work as a result of disputes and
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