Legal sector is thriving but wary of dangers of skills shortages, the economy and 'Brexit'
When assessing the health of any economy, it is always wise to look to the legal sector.
Long before cranes jut into the skyline, property markets blossom and business deals bloom, lawyers are working behind the scenes drawing up contracts, negotiating on their clients' behalf and laying the groundwork for economic activity.
The Smith & Williamson Survey of Irish Law Firms 2015/2016 should therefore, overall, make for positive reading. However, it also contains warnings.
The legal profession currently reflects the overall improvement in economic conditions and confidence, in particular in the domestic economy.
Most firms are reporting an increase in revenues, profits, and profits per equity partner. But while the sector in general remains confident heading into 2016, concerns remain about the strength of the economy. This most likely is similar to the fears of many industries as they emerge from the difficulties encountered since the economy nosedived in 2008.
Almost half of respondents to the survey say they have concerns regarding the economy and the fragility of the recovery over the next 12 months. This is no doubt heightened by the fact we are facing an election in 2016 and its outcome remains highly uncertain. Maintaining profitability is therefore a key factor in a sector where increased competition is placing a downward pressure on fees.
There is also a fear that a skills shortage, like that experienced by many sectors of the economy during the Celtic Tiger, will impact on the trading ability of firms.
While almost 50pc of legal firms increased their staff numbers in 2015 (an impressive 100pc of the top 20 practices recruited staff over the same period), concerns are growing with regard to the availability of suitably qualified individuals to fill vacancies. It is interesting to note that one in two of the top 20 firms currently has more than five vacancies.
This could prove to become increasingly problematic if the numbers entering the legal profession do not increase. Even though most firms have increased their intake of trainee solicitors, the numbers entering the profession has remained static. A total of 388 trainee solicitors entered the sector last year, a figure that is well down on the average entering the profession between 2005 and 2008.
The relative shortage of staff appears also to be having an impact on wages. Increasing staff costs and competition for talent are very evident in this year's survey. Two-in-three of the top 20 firms paid salary increases in excess of 5pc to their staff last year, a trend that is likely to continue given the current lack of qualified candidates entering the legal profession.
However, like many other industries, the sector has a lot of work to do when it comes to attracting and retaining talented people. Few firms have formal processes for entry to partner level and many have no defined career paths or development plans for staff. While the larger firms, as expected, are more focused on these issues, many others are severely lacking.
This situation is most likely replicated across many professional sectors and firms in general need to take affirmative action to resolve this or they will suffer if any skills shortage in their sector intensifies as the economy continues to gain momentum.
'Brexit' provides another area of concern for legal firms. Most (59pc, and 87pc of the top 20 firms) believe the legal sector in Ireland would be impacted negatively by the UK leaving the EU, most notably in regulatory/banking/financial services and corporate/commercial services.
So, while overall revenues and profits are up in the legal sector, the lessons of the past are not lost, and with the future littered with many speed bumps, few are taking economic prosperity for granted.
Paul Wyse is Managing Director of Smith & Williamson Ireland