From the in-house legal market’s comeback to the state of AI and cyber security, we bring you a collation of key updates for September 2023.
Australian Legal Market Makes a “Remarkable Comeback”: Report
As per the 2023 Australia: State of the Legal Market Report by Thomson Reuters, Australian law firms faced a challenging first half of the financial year 2023 (FY 2023) with weak demand growth of 1.3% year-on-year. However, they staged a remarkable comeback in the second half, experiencing a 6% surge in demand, effectively offsetting the earlier sluggish period, down by 3.4%. Clients agreed to pay higher rates, with a 5.3% year-on-year increase, building on previous record growth.
A significant factor in this recovery was the rise of counter-cyclical practices. These practices involved insolvency & restructuring, which thrived in the negative economic climate. This counter-cyclical group accounted for one-third of all hours logged last year. Therefore, playing a vital role in firms’ resurgence in FY 2023. In contrast, transactional practices struggled for most of the year, declining by 0.6% compared to FY 2022. On the contrary, counter-cyclical practices achieved an impressive 8.5% growth.
Unlike their global counterparts, Australian law firms did not implement widespread layoffs. Instead, they continued to hire lawyers, increasing the qualified fee earner (QFE) headcount by 4.7%. However, this growth came at a cost, as direct expenses grew by an average of 11.4% in FY 2023. Direct expenses per lawyer also increased by 6.8% for the average law firm during this period. This indicated maintaining hired talent became more expensive.
Notably, Australian lawyers displayed unique dissatisfaction with key aspects of their firms compared to their global peers. A survey revealed that Australian lawyers were less satisfied with their firm’s reputation. Their net promoter score (NPS) was lower, with Australian lawyers giving their firms an average score of +56%, compared to the global average of +68%.
The state of AI in 2023: Generative AI’s breakout year
The latest McKinsey Global Survey on AI highlights the rapid growth of generative AI (gen AI) tools. About one-third of respondents report regular use of gen AI in at least one business function despite these tools being relatively new. Gen AI has shifted from a tech-focused topic to a concern for company leaders. Nearly a quarter of C-suite executives personally using gen AI tools for work. Furthermore, over a quarter of respondents from AI-using companies have gen AI on their boards’ agendas, and 40 per cent plan to increase AI investments due to gen AI advances.
However, the survey reveals that organisations are still in the early stages of managing gen AI-related risks, with less than half actively mitigating the most relevant risk: inaccuracy. Organisations with existing AI capabilities are at the forefront of exploring gen AI’s potential, and those deriving value from traditional AI are quicker to adopt gen AI tools.
Gen AI is expected to disrupt businesses significantly, leading to workforce changes. Respondents anticipate job reductions in certain areas and significant reskilling efforts to address shifting talent needs.
Alternative legal services providers: The future of legal work?
Amid increasing client demands and economic turbulence, law firms are being pushed to enhance efficiency and innovation. One area that has experienced significant growth in response to these demands is the alternative legal services providers (ALSPs) sector. This sector has now surpassed $20 billion and is expanding rapidly.
ALSPs offer specialised legal services at a lower cost and are being adopted internally and externally by law firms, especially for legal technology consulting. They can operate within law firms or as independent service providers. As ALSPs have gained prominence in legal procurement, they have diversified their services, evolving rapidly in response to advancements in legal technology.
2023 Cyber Security in Law Report for Australian law firms
The ‘2023 State of Cyber Security in Law Report,’ conducted by AUCloud, LexVeritas, and ALPMA, examines the digital and data security challenges faced by Australian and New Zealand law firms. The report emphasises the critical need for strong cyber security practices in the digital age, with 53% of respondents identifying it as their top challenge.
The study also highlights the complex relationship between attracting skilled human resources, allocating financial resources for technology infrastructure, and optimising operational strategies. Approximately 48% of respondents cite securing talent as a major challenge, while 35% highlight the importance of maintaining robust IT frameworks.
A significant portion of the report focuses on firms’ preparedness for cyber incidents, addressing in-house expertise, cyber incident planning, and implementing cyber security planning and response measures.
About Law Image: Law Image is a leading document management company. Founded in 1999 and headquartered in Melbourne, we have offices in Sydney, Brisbane, and Perth. Law Image supports law firms and government departments across Australia with end-to-end legal document management solutions.
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