Legal Review 2023: Leaning into winds of change

Economic uncertainty has remained a theme over the last year as world events affect Scotland, and the wider UK, and inflation remains high. This backdrop has created challenges for the legal sector, as has the competition for talent which can make it difficult to attract and retain skilled people. However, Scottish law firms have capitalised on opportunities, including domestic and overseas investment, and the growth of the renewables sector.

Sailing on: wind farm above Ardrossan in North Ayrshire. Image: AdobeStock

Nick Scott, managing partner of Edinburgh law firm Brodies, says: “Like all businesses, we are navigating a constantly changing backdrop where clients and colleagues alike have been responding to events such as the war in Ukraine, historically high inflation, uncertain financial markets, and an economy that has been, on some measures, more severely impacted than many of our European neighbours.

“But the job remains to make progress, regardless, and to spot where opportunities exist. Demand for our services continues to increase.”

He says Brodies has continued to achieve success across its main areas of practice – banking and finance, corporate and commercial, litigation, personal and family and real estate – with each reporting record income. It is investing in its people and premises, and launched Brodies Middle East LLP.

ESG, or environmental, social and governance, is at the top of the agenda and a major driver of growth for law firms. Picture: AdobeStock

Despite headwinds, Claire Armstrong, managing partner at Dentons Scotland, believes the past year has presented significant opportunities in the Scottish legal sector, including continued investment flow, an environmental, social and governance (ESG) focus, and artificial intelligence (AI) integration.

She says: “Scottish investment has continued. We have started to see this slow down more recently, but for much of the year institutional investors, such as Scottish National Investment Bank, British Business Bank, and Scottish VC Funds, were very active.

“ESG considerations have remained a priority in the Scottish legal sector as global awareness of sustainability and ethical practices rises. Clients seek legal counsel to navigate ESG-related regulations and compliance, providing law firms with opportunities to specialise in this area and cater to clients committed to responsible business practices.”

She adds that the integration of AI has transformed the sector, enhancing efficiency by streamlining operations, reducing manual tasks, and improving decision-making processes.

Katie Russell, Edinburgh-based employment partner at Burges Salmon, says that as part of her firm’s commitment to supporting the ESG agenda, and helping clients meet their ESG goals and derive real value from them, it has developed a number of products including an ESG Risk Review, an ESG Corporate Disclosure Tool, a Modern Slavery Statement compliance check and an ESG Pensions Tool.

She says: “Aligned with our ambition to develop and grow our talent, we’ve also rolled out a training programme to support lawyers with having impactful ESG conversations with clients.”

The transition from fossil fuels to renewables is ongoing, and in many areas Scotland is able to lead the way by leveraging its experience in the oil and gas world.

Andrew Blain, managing partner at Shepherd and Wedderburn, says: “Scotland continues to have a skilled workforce across many sectors, especially in areas such as energy, including renewables, and technology. We are very active in both sectors, especially clean energy, and this is an area of focus and growth for us.”

Andrew Chalmers, managing partner at Davidson Chalmers Stewart, says: “The renewable energy sector, particularly in Scotland, presents a huge opportunity. It’s been the hottest sector of the market, creating plenty of work for renewables, real estate, and corporate legal specialists.”

And Martin Darroch, chief executive of Harper Macleod, says: “In the wider economic and political contexts, we’ve seen a spotlight placed on investment opportunities in Scotland, such as the creation of two new Green Freeports, two new investment zones, and major energy and infrastructure investment, such as the ScotWind project. Foreign direct investment into Scotland is also out-performing the rest of the UK, which will create opportunities for many businesses.”

The competition for talent remains an issue across the legal sector. But firms are adapting their ways of working to address this.

Blain says: “In the legal sector, in line with many other sectors, retaining and attracting talent has been challenging since the end of the pandemic. We differentiate ourselves through our culture, learning and development opportunities and clients.”

He adds that his firm provides a supportive and well-structured training programme for all colleagues. And it has increased its lawyer numbers, including the recruitment of four partners from other firms.

Denton’s Armstrong observes: “Employee movement within the sector has been a common issue for many firms, although we have seen this trend slowing down.

“Another significant challenge stems from the competition posed by US and ‘Magic Circle’ firms, driven by higher salary offerings, making it harder for Scottish firms to retain top talent. Additionally, the emergence of the ‘Big Four’ accounting firms in the legal space created competition for talent and mandates, prompting Scottish law firms to diversify their services and stand out in a crowded marketplace.”

She says that while overcoming these challenges requires adaptability, they also offer opportunities for innovation and growth for firms willing to change to evolving client needs.

According to Armstrong, movement of people allows firms to refresh their talent pool, fostering innovation and enhancing capabilities. “At Dentons, we have had some very successful recruitment in the past 12 months, with a number of senior and experienced lawyers joining us as they want to focus on global work from Scotland whilst still working in local markets.”

Chalmers also points to a lot of movement in the sector over the past year, but he expects the pace to slow if the market remains subdued: “Candidates are still looking for flexibility including an element of home working. While it’s possible this trend could change within a tightening job market, I believe that firms which don’t provide flexible working opportunities will ultimately lose out.”

Scott says Brodies has grown more than 50 per cent in the last five years: “If you can create the belief within an organisation that it can get things done, and make progress, that allows you to attract people. We have recruited 264 people in the last two years.”

At Harper Macleod, colleague turnover is below industry average, according to Darroch. He adds: “It’s also part of the real world that good people are attracted to a business, and good people move on to other places.

“What we have seen, which is perhaps a lingering effect of the pandemic, is people either moving back to Scotland who have been away, or people attracted to Scotland for the quality of life.

Harper Macleod has increased its headcount this year – across both its client advisory and business services elements of its business – backed up by growth in a challenging economy.

And it has seen its largest ever trainee intake. Darroch says: “We’ve always placed great emphasis on ‘growing our own’, in part to make us more resilient to some of the recruitment challenges, but also to create our leaders of tomorrow.”

Peter Lawson, chairman of Burness Paull, says law firms sell the skills and expertise of their lawyers, supported by those in business services roles, so the attraction, development and retention of talent is and always will be key.

“We seek to attract and retain the very best talent and we are confident that our regular salary reviews and remuneration levels support this aim,” he adds.

Stuart McMillan, Edinburgh-based banking and finance partner at Burges Salmon, says that since the firm launched its office in the Capital in 2019, it has seen significant growth and now has more than 70 people in the city.

He says: “We also made a number of high-profile lateral hires to strengthen our capabilities across the planning, banking, employment and restructuring and insolvency practices, with our Edinburgh team advising on many projects with a national significance.”

Looking at other trends and developments over the past year, various sectors have been keeping law firms busy as they overcome bumps in the market.

Armstrong says that in the real estate sector, Dentons has been engaged in both development and investment work, reflecting the growth of the Scottish property market. Meanwhile, its competition practice has been addressing merger control and contentious competition matters, helping clients navigate evolving regulatory landscapes.

Chalmers notes that some parts of the real estate market, notably hotels, serviced apartments and purpose-built student accommodation, are very active at present, particularly in Edinburgh – as is the care home sector.

But he adds “The current state of the market, where we continue to face uncertainty over inflation and interest rates, has had a detrimental impact on the overall commercial real estate sector. Buyers want a bargain but there’s not much evidence yet of forced sales. Developers are also being cautious due to uncertainty around labour and materials costs.

“On a more positive note, house building has held up pretty strongly, but is now beginning to show signs that the interest rate rises are taking effect. This is beginning to create a slowdown in new-build sales with some housebuilders pulling out of land deals to preserve cash.”

Lawson describes the transactional market as relatively subdued due to inflation, rising interest rates and general market uncertainty, but he adds that Burness Paull has remained busy. He says strengths in corporate finance, real estate, banking and funds, dispute resolution, and employment continued to underpin the firm’s revenue in its 2022-23 financial year.

Lawson adds: “However, we’re also seeing considerable benefits from our diversification strategy, which has seen us enter or strengthen key growth areas – such as technology, financial services regulation, restructuring and insolvency, cyber and data security, family law, private client, and immigration – all of which saw double-digit percentage increases in fee income during our most recent financial year.”