The global legal services sector is worth just over $90bn, we estimate. Having seen strong growth in the aftermath of the pandemic, its biggest issue in the last two years has been the acquisition and retention of talent. The salary inflation that occurred as a result is now combining with other rising costs and pressure on fee rates to create significant operational challenges right across the industry.  

What legal services can rely on, though, is clients. Research we’ve carried out with buyers of legal services in the US and UK suggests that 74% of clients say that trust is one of two most important factors when identifying possible firms to work with, and 65% say that trust is similarly important when it comes to the final decision of which firm to hire (see figure 1.)

Our research also shows the extent to which client organisations are under pressure from an uncertain macroeconomic environment that is rapidly becoming an uncertain microeconomic one—with consequences for legal services firms. Almost a quarter of the clients we surveyed say that their organisations were struggling to cope with the issues they face, and 39% say they need to be better prepared to manage risks. As a result, 42% of legal departments say they’re dealing with more issues that span different parts of their business, making stakeholder management more difficult, and a third say that people are leaving the team but aren’t being replaced. In the long term, productivity improvement and greater automation are seen to be key to the solution; in the short term, three quarters of clients expect to use more external support in the next 10 years.  

But there’s a new challenge on the legal services horizon that could threaten the status quo. 

Thirty-six percent of the clients we surveyed think their organisations will increase their investment in sustainability and ESG-related legal issues in the future, more so than in any other area we asked about. Lacking the skills and experience to do this work internally, 35% of legal services clients say this the area where they’re most likely to bring in external support (see figure 2.)

The problem here for legal services firms is that in an emerging professional services market, such as ESG-related work, it’s not yet clear who the experts are, or will be. The situation is too fluid, and possible regulation remains under much discussion. Buying ESG work on trust, while tempting, could lead to using a firm with even less experience than its peers. This is very much a market of the blind, in which the one-eyed expert can be king. 

“In an emerging professional services market, such as ESG-related work, it’s not yet clear who the experts are, or will be.”

The parallel here is with digital transformation. In 2016, when this concept emerged on the market almost overnight, a few firms—notably Deloitte and Accenture—were very quick to promote and build relevant capabilities, giving them an early advantage that remains pertinent to this day.  

ESG opens up opportunities for legal services firms to impress clients who don’t know them well with their relevant credentials and know-how. This creates a more fundamental opportunity: to shift legal services buyers away from trusting familiar people and brands and towards evaluating firms’ expertise and other characteristics on a more objective basis. 

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