The World after COVID-19 (and what it may mean for the legal profession)
Oh, no, our clients say. Send us no more COVID-19 newsletters describing how to avoid bankruptcy in an obscure jurisdiction. Do not join in the debate whether the lock-down measures designed to save lives justify the costs they have inflicted on the global economy. And please, no reflections on social injustice, it has been an issue already before the COVID-19 pandemic swept the world.
This Bulletin is none of the above. It tries to answer one modest question: once COVID-19 is a thing of the past, what will its lasting effects be on how law firms such as ours continue to provide services to domestic and international clients?
Let us start with a few observations on macroeconomic trends and what they mean for professional services, before moving on to past and present client expectations and concluding with a conjecture on how lawyers are likely to be working in the new normal—once the world is indeed back there.
Macroeconomic trends and their impact on the legal profession
As of the writing of this article, it appears that—at least in Western Europe—the worst is over with the first wave of the COVID-19 pandemic. Restrictions are being lifted, employees are starting to end what the French call télétravail and are ever so slowly returning back to the office.
However, not all countries around the world see declines in new COVID-19 cases. Also, no-one knows whether there will be second and third waves of the virus, and there are doubts whether people who have gone through the disease are actually immune. Finally, it is anybody’s guess whether and when a vaccine will be available.
Even assuming that the first wave of COVID-19 was the final or the worst one, it is unclear how quickly the global economy will recover. A V-shaped recovery seems unlikely: subsequent waves of the virus would cause a W-shaped curve, while a prolonged trough followed by slow growth would make macroeconomic growth look like a «Nike Swoosh». Either way, the longest M&A cycle of recent times, which lasted more than ten years and led to an unprecedented level of cross-border investment flows, is over.
What have we observed in the past few months, and what does it mean to legal services in a post-COVID world? A few thoughts follow.
Responses to COVID-19 were universally national.
Lock-downs of the local economy were ordered by national and sometimes even state governments. Borders closed in places where they had been open since the end of World War II. Little international coordination was visible even in regions that pride themselves on their cross-border institutions. In the EU, rescue packages are now being designed by heads of state in member countries rather than in Brussels. And by and large, not much could be learned from international organizations such as the World Health Organization (WHO) in terms of stalling the pandemic. All in all, the global economy has become national again.
This is not the end of supra-national organizations, nor is it the end of global comity. But the COVID-19 pandemic has demonstrated the importance of national governments over international alliances.
What does this mean for the legal profession?
This observation corroborates the importance of having strong roots in the local economy and body politic: connections to government, networks in industry associations, client relationships with key local companies, including the multinational ones. If so, «national champion» law firms are more prone to withstand the storm, while law firms with no local footprint may struggle. Law firms with a globalized service offering will not necessarily lose out, though: as long as they can add value in local markets, they can continue to play the game successfully.
Big government is back. Someone has to pay for it.
The public has got used to executive orders affecting their lives—no gatherings of more than five people in public and in private; bars, parks and swimming pools closed; open-air concerts and sports events cancelled. Whether this implies a return to big government, with more regulation and less market economy, depends on whether citizens and corporations are willing to resist governmental interference now that the initial shock is over.
For now, the economic effects of business closures have partly been mitigated by government hand-outs of unprecedented proportions. The funds spent on mitigating the effects of COVID-19 will be lacking elsewhere: for social security reform, for improving health care systems in countries where they have proven to be woefully inadequate, for combating climate change.
In addition, this large pile of public debt will eventually have to be paid back. The burden on the next generation is enormous. Political actors with an agenda of redistribution will try to solve the problem by «taxing the rich». If this happens, economic recovery will be stifled even more.
What does this mean for the legal profession?
Once again, the pandemic has shown the need for good relations with governments and the bureaucracy. And government relations work, also known as lobbying and largely non-chargeable, will become more important than ever.
Companies are in firefighting mode—and are only just starting to think ahead.
For now, most of our clients are focusing on keeping afloat in the crisis—providing for the health of their employees and associates, maintaining liquidity, ensuring continued functioning of supply chains. The focus on medium-term strategic planning is only just beginning.
What does this mean for the legal profession?
Newsletters that only summarize the regulatory situation are unhelpful. Clients now more than ever need tailor-made service and actionable advice. Life-or-death questions need to be answered on the spot. This is not the time for lengthy memoranda or Ciceronian speeches.
Also, if they can, lawyers should seize every opportunity to spend time «off the clock» with their clients to better understand what the future of their clients’ businesses looks like. Understanding the future helps maintaining a long-term relationship.
Even if recovery takes longer than expected, it will eventually come. Until then, many companies will turn to law firms with a need for advice on financing, restructuring & insolvency, and distressed M&A transactions. But thereafter, assuming that the after-effects of COVID-19 are the same as the last crises we have seen—the Dotcom bust in 2000, the global financial crisis of 2007/08—, one may expect a trough in domestic and cross-border investment, and hence less transactional work, for the two or three years after the pandemic has abated. (Again, when COVID-19 will end is in the stars.)
This crisis will produce winners and losers.
Every crisis does. The obvious winners are technology companies and other firms whose delivery model does not depend on bricks and mortar: the Amazons of this world for now have trumped local bookstores and fashion shops, the Netflixes have bested multiplex cinemas. Other industries flag and fail: hospitality companies in every shape and size, airlines, event managers, sports clubs and theme parks.
There are less obvious winners, such as food & beverage companies with local distribution capabilities, providers of packaging materials for the mail-order business (and, by the way, old-fashioned postal services), manufacturers who cater to the current pressing needs of the medical devices industry. Some companies will win in medical what they lose in automotive. Even the dip in automobile sales may be short-lived in view of a trend away from public back to individual transport.
What does this mean for the legal profession?
Nothing new, really. Changes in industry trends have always happened. COVID-19 in our view only accelerates these trends.
COVID-19 has put into question global supply chains.
Before the pandemic, lean manufacturing and Kai-zen were the buzzwords of most industrial companies around the world. Many manufacturers relied on single-source supply chains and just-in-time product delivery. Recent events have shown the vulnerability of these models. Some industries will redesign their supply chains, increase investments in inventories, or even move back to manufacturing locally.
What does this mean for the legal profession?
Less Kaizen implies higher inventories (and hence more working capital). A move away from single-supply chains implies higher costs of procurement. Both will put pressure on corporate profits. And if costs need to be saved, law firms may well be on the receiving end of the pressure.
What clients want
For now, the type of work lawyers do has adjusted to the firefighting mode of their clients. Even so, client expectations are essentially unchanged; and practicing lawyers are well advised to meet these expectations.
Understand our business.
It cannot be said often enough: lawyers should speak less and listen more. Lawyers need to spend as much time as they can to understand the business concerns of their clients. These concerns will eventually translate into projects with a legal angle: financings, redesigns of the supply chain, relocation of headquarter services to local markets. Only lawyers willing to listen can help here.
Be on top of the law, but tell us only what it means to our business.
In any crisis that unfolds as quickly as COVID-19 has, there is no time to get up to speed on what the law says. Lawyers need to have all the relevant information at their fingertips.
More importantly, telling clients only what the law says is insufficient. Clients need advice as to how the law impacts their business. This changes the way we deliver our advice. Lawyers who only analyze what the law says do not fit the bill. Short memos are relevant, lengthy exposés are not. In conference calls and VCs, lawyers should give clear recommendations on what needs to be done rather than laying out the available options and letting their clients decide.
Be available. Be responsive.
This is nothing new, but it is more relevant now than it has ever been.
How will law firms work in the future?
COVID-19 has changed the way how lawyers interact with each other and with their clients. How much of this is likely to stay? Let us try and address the most recent trends one by one.
Will VCs replace physical meetings?
First, video conferencing. (Only the seasoned reader will remember that the «VC» once had an entirely different meaning.) For now, VCs are the flavor of the month, replacing physical meetings and conference calls. And after some initial enthusiasm, VCs have been decried as impersonal and tiring. We beg to differ.
- In the professional and in the social sphere, lawyers are now more likely to interact by video conference than by simple telephone call. No matter how bad the connection, this allows for eye contact with one’s interlocutor— clearly an improvement to listening only.
- Meetings (even partners’ meetings) can be conducted with more discipline if held by VC. No interruptions, no lengthy speeches.
- Continuing education works over the screen. Lectures by VC can be effective if interaction is encouraged. As it happens, some students even prefer chat functions over raising their hand in class—there is less of a barrier to doing so.
This is not to belittle the drawbacks of videoconfer-encing. The human factor is important as ever in professional relationships, and while VCs are better in keeping up the human touch than telephone conferences, they are still far inferior to in-person meetings. Only when I walk into an office can I sense the buzz—or lack thereof—and therefore the state of wellbeing of the firm I am visiting.
Also, interacting over a screen does not provide all emotions surrounding a personal interaction: the subtle raised eyebrow, the flick of a wrist indicating nervousness in a negotiation, the smell. Moreover, when connections are bad, it is difficult to understand what people are saying. (Those of us who have negotiated in a foreign language know this feeling already, and have learned to live with it.)
But we must assume that social distancing rules will stay the norm for a long time, and that air transportation will never pick up to pre-crisis levels. This will cause adjustments in the new normal:
- In-person meetings will become more special. That said, they will need to be better prepared and be more efficiently led to achieve what they are designed to achieve.
- Client seminars and client events will partly be replaced by webinars. To be effective, they need to be shorter to accommodate the reduced attention span of viewers. As online classes, they should allow for genuine interaction, so as not to lose the audience: by questions be submitted in advance, straw polls, a live chat that allows for immediate comments. Viewers need to stay engaged; otherwise they will get lost. The same applies to client relationships at large.
Is work from home here to stay?
Work from home (WFH) has been thrust on our profession with breakneck speed. Many of its virtues have been extolled: the ability to solve a legal issue whenever and wherever, the time saved by not having to commute in a cramped bus or train.
Many vices are known as well: the lack of personal interaction that gets on to people over time, the risk of making oneself available 24/7, the additional strain WFH puts on families (and, in our day and age, this continues to affect working mothers more than anyone else).
But by and large, professionals have quickly got used to staying at and working from home. By now, it is clear that work can be done without everybody working on the same floor. How ironic: this Firm’s partners have been agonizing over a WFH policy for years now, egged on by associates invoking work-life balance considerations. (In defense of the author and his partners, the clamors for WFH were especially loud on Fridays during the skiing season; this did raise some doubts about the sincerity of the request.)
The dangers of WFH must be carefully managed, though. Teams need to stay connected; mandatory in-office days will ensure in-person interaction. Lawyers who for personal (often family) reasons chose more rather than less WFH should remain part of the group, not left behind in terms of career planning. This requires a conscious effort by law firm leaders.
Also, WFH means that even the most senior lawyer can no longer just walk down the hall and get someone do a mundane task: «ask your PA» has been replaced by «do it yourself». And if you do not know how, learn it—more on this in a moment.
Whether WFH is as productive as having everyone in one building is now the subject of debate. In our experience, it is rather easy to maintain a 90+% productivity level: the work on the table is done without any distractions, and response times have gone down as a result of less travelling and commuting. What goes amiss, though, is investment in the long term: client relationships, business plans, or simply swapping ideas that may or may not turn into a new business proposition.
In summary, while WFH is here to stay, physical interaction will continue to be required to allow ideas to germinate. After all, only fresh ideas can cause the new invention, the game-changing product or the great leap forward that society needs.
Will e-tools change the way we work?
Professionals around the world have gotten used to the increased use of e-tools. Again, this trend existed already before the pandemic: the move from paper to digital was seen in due diligence, in document and email reviews, in contract management. But e-tools will become even more important in the future. What does this imply?
- For law firms, this often means a duplication of IT infrastructure required for all staff, including support staff, as a consequence of WFH. Large law firms will have less of a problem to bear the associated costs than small ones.
- IT savviness will become as important as knowledge of the law. This implies a change of mindset, no small feat for professionals: weekly continuing education meetings of practice groups will soon be supplemented by regular and mandatory IT training sessions.
- Over time, an increased use of IT tools will lead to lower leverage in law firms. Routine tasks previously undertaken by junior lawyers will increasingly be done by computers. This will not necessarily change the focus of senior professionals who sell judgement and experience rather than technical skills or the ability to crunch documents. But the new work model means that law firms will have to find different ways to afford young talent the proverbial «10,000 hours of practice» required to hone the skills of a professional. More training and men-toring will be needed, less grunt work.
- In terms of support staff, it is well possible that dedicated functions will over time move to central services, a trend that has already started.
What will happen to air travel and international congresses?
Finally, reduced air travel is likely to stay. Some of our clients have already announced that even if the economy picks up again, travel and entertainment budgets will be cut by 50% or more. This means lesser congresses and a smaller number of worldwide staff gatherings and industry meetings. The proverbial boondoggle where people meet for fun and for a few scattered education sessions will be difficult to get approval by corporate centers. If this is true, law firms are well advised to ensure that the events they organize and the congresses they attend are on the right side of the 50%.
Even so, travel and personal contact will never go away entirely. Social relationships inevitably deteri-orate—ever so slowly, but the direction is clear— even if they continue by VC. Meeting in person over a glass of wine, a cup of tea or a joint visit to the ball game will continue to be relevant, especially for the young generation of talented lawyers who have yet to build their personal networks.
What the Future Brings
Conventional wisdom and countless motivational speeches suggest that the Mandarin word «crisis» is composed of the two characters signifying «danger» and «opportunity», which then allows the speaker to emphasize the opportunity. Regrettably, this appears to be a misconception based on a faulty translation of the Chinese characters. So this is not the way to end the present piece.
We from Homburger AG would rather dare to say the following: there will be a post-COVID world, and law firms such as ours can continue to play a role in such a world if they think ahead—first for their clients, then for themselves. The mindset required to do so is to stay curious, to listen to clients, and to engage in constructive discontent: incessantly second-guessing whether the firm, and our profession in general, is doing the right thing.
Dieses Homburger Bulletin gibt allgemeine Ansichten der Autoren zum Zeitpunkt dieses Bulletins wieder, ohne dabei konkrete Fakten oder Umstände einer bestimmten Person oder Transaktion zu berücksichtigen. Es stellt keine Rechtsberatung dar. Das Bulletin darf von niemandem als Grundlage verwendet werden, gleichgültig für welchen Zweck. Jede Haftung für die Genauigkeit, Richtigkeit oder Angemessenheit der Inhalte dieses Homburger Bulletins ist ausdrücklich ausgeschlossen.