PwC has released research into the effect investment in talent is having on law firm profits (news, 16 October). Evidently, an upward trend in salary costs over the last three years has caused a significant reduction in profits per partner. In the largest firms, the dent is put at £200,000.
But the real story here is a positive one. I am impressed to see partnerships prepared to take a longer view, strategically, by investing in the retention of good people. This represents nothing more than a resetting of the bar – the establishment of a new ‘normal’ in terms of profit expectations. Firms in the top flight now generate net margins of 35%-40% instead of 40%-plus; firms in the second tier (and even some in the middle-tier) produce margins of 25%-30% rather than 30%-plus. Many firms outside these groups are happy to achieve a net profit margin of 20%.
To sustain the long-term success of their businesses, firms have to invest adequately in their talent – and accepting a lower return is a price worth paying. Putting intellectual capital before personal gain is the only rational response to an environment in which the competition for people becomes stiffer by the day.
After all, these are still respectable levels of return on which to sustain a good business.
Simon Slater, CEO, Pemberton Greenish, London SW3