In this article we discuss the current market trends for inhouse legal, looking at the main sectors of commerce and industry and financial services and how these trends have impacted the recruitment market, associated salaries and what the outlook is for 2019 and beyond.
The in-house recruitment market has been extremely active over the last few years and 2019 looks set to be no exception. In-house is a highly attractive option for a significant number of Hong Kong based lawyers, with the perception being that it can offer a better work-life balance and the opportunity to become a key stakeholder and business partner, rather than being at the beck and call of clients.
Whilst in previous years, the trend has been to move in-house at the mid-level, we are now seeing a growing number of junior and more senior level lawyers make the transition in-house. This is as a result of an increasing number of companies expanding their legal teams to replicate the structure of law firms with a spread of lawyers from junior to senior levels. Companies and financial institutions view the expansion of their in-house legal teams as a more cost-effective solution compared with instructing (and paying) external legal counsel. This has created an issue for law firms that are losing increasing numbers of lawyers to in-house legal teams, particularly the UK firms where base salaries are not dissimilar to what in-house positions can now offer. Due to the significantly higher salaries being paid by US firms, the decision to move in-house for their associates becomes more difficult and is more likely to be based on non-monetary factors.
Key drivers here include career prospects, variety of work, flexibility/work life balance, and an interest in being more involved on the business side. It used to be the case that lawyers from Magic Circle firms were highly sought after for inhouse roles, however, as legal teams have increasingly become integral parts of their respective businesses, candidates are now also assessed on their business acumen, cultural fit as well as ability to work with internal stakeholders and not solely on where they trained.
A number of law firm partners have moved in-house into GC positions over the past few years. Many of these individuals have benefitted from years of high income and wanted to take on a new challenge as they entered into the latter stage of their careers. On the flip side, a return to private practice at partner level can be an attractive option for senior in-house counsels, particularly those with a corporate transactional or regulatory background. In our experience, when senior in-house counsels reach a plateau in income potential and see their law firm peers surpass them in this respect, they see a return to private practice as a financially attractive option. Many are prepared to join law firms at Counsel level with a clear track to partnership while they build a practice and a business case. As well as the technical know-how, law firms expect to see strong commercial awareness, team building skills and business development capability when hiring lawyers from in-house legal teams.
In-house recruitment in industry and commerce this year is incredibly buoyant and a significant number of companies across a range of sectors are actively seeking legal and compliance talent at all levels. The stand out sector for recruitment over the past 12 months has been technology/ fintech, followed closely by luxury brands, hospitality and media. While many of the technology/fintech companies are still in their start-up stage, they are seeing the importance of having dual in-house legal and compliance expertise from the outset. Mandarin remains a prerequisite for almost all of our in-house clients, regardless of industry, with the exception of technology lawyers or other specialists with niche skills, where clients are willing to be flexible on language capability to secure relevant talent. Lawyers with significant data privacy experience are also highly sought after, given the implementation of the GDPR, and we see this trend continuing for the foreseeable future.
As we progress through Q2 of 2019, we are seeing a slow-down and perhaps more caution in terms of hiring by the investment banks, with a number of head count freezes for new positions being implemented, together with some senior lawyers being made redundant. On the other hand, asset managers have continued to hire for their legal teams, as increasing regulatory pressure means sufficient legal and compliance resources remains a priority. Headcount within the insurance sector is also relatively stable compared to other financial services institutions. Growth within this sector has been driven by M&A, so hiring demand is usually for lawyers with strong regional transactional experience.
The hire of lawyers on short-term contracts is a continuing trend for banks, as it allows them to expedite the hiring process and work around headcount restrictions. As this flexible working model continues to gain momentum in Hong Kong, some law firms have already entered into this space to offer short term resourcing solutions to their clients and we expect to see more of them to do the same. The increased desire for flexibility and work-life balance amongst the legal and compliance community will continue to drive this trend forward. While the majority of our candidates still prefer to be in a permanent role, there is a growing willingness to take on short-term roles, especially if there is potential for the role to be made permanent if things go well and if the role offers an interesting mix of work. This is certainly a growth area for Lewis Sanders and we are excited to be in a position to offer interim resourcing solutions to our clients across the in-house market.
Compensation and Benefits
In-house base salaries have remained relatively unchanged this year with lawyers achieving the most meaningful increases through promotion or a lateral move. In fact, in-house salaries (and UK law firm salaries) have remained relatively unchanged for the last decade, despite increases in the cost of living during this period. In the last year, base salaries across all sectors have seen modest increases averaging two to five percent. Bonuses at the investment banks and asset managers were either flat or up slightly on the previous year and were more heavily linked to individual performance than in previous years.
Our outlook for in-house recruitment this year is very positive. We expect to see continued demand for technology and data privacy lawyers as organisations respond to increased regulation and strive for innovation. We anticipate the flow of financial services in-house legal roles to remain steady this year, with a healthy amount of hiring across governance, risk and compliance, as these in-house legal teams continue to expand.
Article appeared in Hong Kong Lawyer’s June 2019 edition