Law firms and solicitors must reconsider their risks
Do you see yourself as a risk-taker?
There is a common perception that solicitors are averse to risk. After all, you’re in the business of helping clients anticipate what might go wrong and protecting them against that possibility.
But the real-life workings of a law firm demonstrate a far different response to risks. Law firms are competitive environments – and firms must take risks to compete.
The past few years alone have ushered in more change than the profession has experienced in many decades.
Firms have had to adapt their practices to cyber risk, disaster recovery, environmental, social and governance (ESG) issues, and employee wellbeing.
Technology advancements, including the influence of artificial intelligence, have also required law firms to adapt – and against a backdrop of high inflation, heightened regulation and geopolitical tensions.
It’s not an environment suited to people averse to risk and can generate a lot of late-night worry for leaders of law firms.
To be in the best position to compete, firms must manage the risk.
The good news is that some of the risks you face are within your control and – with the right management – can create opportunities.
Manage the mindset
Let’s start with what keeps you up at night. Solicitors are a driven class of professionals and their work ambitions may generate negative consequences along with positive ones.
“Lawyers enter the profession knowing they are going to work hard,” said Paul Smith, senior risk management consultant at Travelers Europe.
“They are going to deal with stressful situations, and if every hour is an opportunity to make money, there is a tendency to work longer hours.”
LawCare’s Life in the Law report 2020/21 highlighted the personal dangers of high levels of work intensity (high workload and working long hours) with both associated with instances of burnout.
This perspective on work can be problematic. Indeed, the potential for slips or lapses in concentration from fee earners increases with the (often accepted) pressures of the legal profession.
This can, and is, resulting in rising occurrences of retainer management failure within law firms.
“These errors are often very simple – not following instructions, taking the wrong step in a process or making a drafting error, for example,” Smith said.
“But these errors say a lot about the environment in which legal professionals work. When these kinds of claims happen, they are not the result of a failure of advice but rather the result of distraction driven by stress, pressure and fatigue.
“If people are pushed to the limit, they will make mistakes. These claims have been scaling up rather remorselessly over the past five years – not just over COVID.”
Claims trends: rising retainer management issues over the past five years
The pressures creating the conditions for these claims require action not just from solicitors but from firms as well.
In the absence of leaders’ commitment to protecting mental wellbeing, fee earners can feel that emotional health is yet another responsibility they must manage – or risk feeling like a failure if they do not.
According to the 2023 ALM and Law.com Compass Mental Health Survey of the Legal Profession, lawyers report experiencing an increase in stress, anxiety and depression – even though the legal profession has been developing initiatives intended to support mental health.
About 71% of the nearly 3,000 lawyers surveyed said they had anxiety – a 5% increase from 2022, according to the American Lawyer.
But for firms that successfully bridge the disconnect between wellbeing initiatives and employee mental health, there are opportunities.
Research from Deloitte found that for every pound that employers invest in employees’ mental health, they receive an average return of £5.30.
Consider structural shifts
In this risk-heavy business climate, risk taking is required to compete.
But it also requires firms to more carefully balance perceived risks – which can be significant – against potential rewards.
Across your firm, are there pockets of risk-averse thinking, along with other areas that could benefit from more risk-taking and innovation?
If so, lay the foundation for greater diversity of thought.
In the complex business environment firms are operating in today, groupthink is common and can lead to organisations overlooking both risks and opportunities.
Shifting away from working in silos can open up decision-making so people can see an issue from new perspectives and better understand the firm’s risks.
Graeme Miller, CEO of the risk management tech firm Riskoncise, says this approach can:
- help firms avoid wasting time
- help lawyers perform better
- bolster their decisions with instructive patterns, and
- increase profitability through reducing non-billable prep work and repetition
- improve a firm’s culture
- help an organisation become more risk aware, less risk averse and better able to take risks with optimism
- strengthen the partnership between a law firm and their insurer – and, in turn, prepare a firm to seize new opportunities
When an insurer is part of the conversation about how a firm runs its business, how it’s managing its people and what new ventures it’s considering, they can help the firm anticipate potential difficulties that can arise in different parts of the business and ensure they don’t swell into distracting problems.
It’s a symbiotic relationship.
“Insurers are alert to the risks of uncertainty and are always interested when our clients are taking those steps into the unknown,” said Sharon Glynn, director at Travelers Europe.
“But a law firm that closes its eyes to change and risk can be as much of a concern as one that runs full speed towards it.
“If a firm locks the doors and pulls down the blinds in the face of uncertainty, what does that say about its resilience, attitudes about innovation, and ability to change and seize opportunities?
“For everything we know about law firms and their operations, there is always more to learn.”
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