Why commercial law teams should consider diversifying their services

Why commercial law teams should consider diversifying their services

At a glance:

  • Commercial is a particularly resilient, counter-cyclical practice area of the law. The challenges faced by companies during COVID-19 have generated a great deal of work for those companies’ lawyers
  • Profit warnings from UK registered companies soared +86% in 2020, higher even than 2008
  • In the longer-term, the economy and general business activity will bounce back in 2021, generating even more work in this practice area.

While other practice areas of law struggled, there has been strong growth in demand for Commercial work in the past year as a direct result of the pandemic - that's according to the Gross Legal Product (GLP) Index, which used anonymised and aggregated data from the Bar Council to showcase which areas are growing and declining during COVID-19.

Although it started to show some signs of slowing in H2 2020, commercial law still seems likely to continue growing in demand for the foreseeable future.

What's driving the growth in commercial law demand?

A range of macroeconomic metrics show that general economic and business health fell (but perhaps not by as much as you’d expect) in 2020. GDP is down (-10%), but we expect a sharp recovery in 2021 as the economy re-opens. Likewise, the FTSE 100 index (down 19% in 2020) is likely to rebound significantly.

In the meantime, company profits have remained resilient – UK registered companies may have issued a record number of profit warnings in 2020 (+86% on 2019, and a higher volume than even 2008), but this was driven by an exceptional increase in H1 at the outset of the crisis.

By Q3 and Q4 these recovered (-25% and -24% respectively) and are now back to sub-2019 levels. Rising CFO uncertainty (+202%), which showed no sign of abating in Q4 2020, is likely an indicator that businesses are more likely to seek legal advice.

While the creation and dissolution of companies declined in 2020, the volume of work that is needed from commercial legal teams has been relatively insulated. Companies still need to submit their Companies House annual returns and carry out other types of regular activity.

As expected, the number of companies failing to deliver their annual returns remains flat throughout COVID-19. The COVID-19 pandemic has generated a huge volume of work for companies, particularly managing the unprecedented furlough scheme for employees. This meant the in-house legal function of businesses have been incredibly busy, which has in turn generated demand for advisory work for the commercial teams at law firms.

Companies are hungry for legal advice and insight in order to interpret the fast-changing picture throughout the crisis and beyond.

Economic recovery in 2021 will usher in more work

The effort that has gone into advisory work and deepening business relationships in 2020 could pay dividends in 2021, once we see a return to growth for volume-based commercial legal activity. We also expect to see a huge economic recovery in 2021, once the economy is able to re-open in Q2 2021. The return of business confidence, and the need to work through the longer-term impact of the previous year, should generate plenty more work for commercial teams.

Commercial teams should consider diversifying their services

As market conditions improve, it is time to double down. Organic growth is possible if you deepen and diversify your range of services – often a cheaper and more sustainable means of growth than through acquisitions or lateral hires. Can you retrain and retool staff to give advice in adjacent areas? What support and knowledge materials will they need to help them?

Download the GLP Index for in-depth analysis into commercial law and other practice areas. 

Related Articles:
Latest Articles:
About the author:
Dylan is the Content Lead at LexisNexis UK. Prior to writing about law, he covered topics including business, technology, retail, talent management and advertising.