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Talent War: Law firms, accounting firms face increasingly tight labor market

ARTICLE | June 21, 2022

Authored by RSM US LLP

In a two-part Q&A interview, we speak to RSM’s Michael Gerlach, a professional services leader who specializes in advising law firms and legal organizations, about the tight labor situation roiling the professional services industry

Labor shortages are occurring nationwide across a wide swath of industries. In particular, the tight labor situation in the professional services industry has been quite a topic of discussion since this summer.

In a two-part blog series, the Thomson Reuters Institute (TRI) speaks to Michael Gerlach, Partner and Business & Professional Services Senior Analyst at the tax, audit, and consulting firm RSM. We ask him to offer his insight on the overheated labor market for law firms, corporate law departments, and accounting firms, and what those organizations can do to win this war over talent.

Thomson Reuters Institute: How do you feel that the professional services industry’s reaction has been to its labor situation? Is it similar to the broader economy’s hot labor market, or are there some differences?

Michael Gerlach: The easy answer off the top is that professional service firms are doing what you would expect them to do — they are challenging compensation. On the legal side, the large firms have bumped up starting salaries, and middle-market firms are trying to figure out what in the world they’re going to do with that because they can’t compete with a $205,000 starting salary.

These firms will try to bump up compensation somewhat, but then also will try to offer what they can in terms of a better work/life balance, flexible remote work, new technologies, and more rewarding work. I think you’re seeing the same situation play out in other professional services industries, whether it be accounting firms, consulting firms, or others.

Where I think professional service firms are going to be challenged is when you get out of the normal solution sets like compensation and remote work and start to think about what the students coming out of law schools today will want. What are they interested in? Compensation isn’t necessarily the top prize anymore — they want to align the start of their careers with what they’re interested in and give back to society. They’re focused more on determining a firm’s ESG [environmental, social, and corporate governance] position or what the firm is doing from a DEI [diversity, equity & inclusion] perspective.

So, I think there’s a lot of headbutting that’s going to take place because professional service firms traditionally haven’t made a lot of movement in these areas.

Thomson Reuters Institute: Clearly, part of the shortage also is due to employees leaving their current situation, representing an almost a pent-up demand for workers to find greener pastures after little movement during 2020. What would be your top advice for professional service leaders to try to mitigate that turnover?

Michael Gerlach: There are several different directions in which firms could go. I think one is better at understanding the skillsets of their less-experienced talent. There is a certain skillset within the Gen Z and Millennial workers that I think many professional service firms haven’t figured out how to tap into. And that’s crucially important because I think we’re already seeing a shift in the traditional ways of providing these services — whether it’s law, consulting, or accounting — those older professionals who may not utilize much in the way of technology are not understanding. Firms need to engage their young professionals to help identify ways that the industry can advance how services are delivered.

Thomson Reuters Institute: What other levers — especially around culture, flexibility, and technology — do professional service firms have at their disposal to attract new talent aside from compensation?

Michael Gerlach: I think firms must figure out how to collaborate with those younger staff on developing these skills and demonstrate how these new hires can help the firm with the implementation of technology that can help benefit the firm as well as their clients. As part of this, professional service firms need to figure out strategically which direction they want to be going. Are they going to continue to provide services in the legacy manner, or are they going to try to change the way they’ve done things with the utilization of alternative legal service providers or even just new technologies?

A lot is coming down the pipe, and firms first must figure out how much they’re going to invest.

Thomson Reuters Institute: Obviously, the goal for many professional service firms is higher productivity among their staff and increased profits. But as we’re learning now, a sole focus on that directly contradicts everything we’re hearing about employee wellness and employee mental health. Where can professional service firms find that balance?

Michael Gerlach: Well, the balance isn’t happening right now. Productivity levels are still lower than they’ve ever been. With the challenges that the pandemic brought about, and the socio-economic challenges that have been put in front of these individuals — I mean, anybody with 20 years or less experience has never had to deal with anything like this in their life, and they’re still trying to figure it out. I think productivity levels are going to be low until we can figure out what it is employees need, and that’s not going to be a quick solution.

The professional service-minded individual is struggling with questions such as, Why am I doing this? Is my firm aligned with me from a values perspective? And if not, what do I do about that? And that’s where you get a lot of this drop in productivity.

Firms are doing what they can — they’re offering additional compensation and bonuses, working from home, trying to identify better work-life balance, and offering mental health opportunities like counseling. However, there’s not much of an immediate-response nature that can be done.

I think firms need to articulate to their younger employees what management sees as the longer-term vision of the firm — that’s what needs to be on the table right now for the executive teams. What will it look like to come and work for our firm in 10 years? What does the model of audit, tax, or law look like in 10 years? It can’t look like it does right now because otherwise, these issues will never go away.

So, that’s the conversation I’m starting to have with firms: What are you doing as a firm to challenge the way you’ve always done business? Are you bringing in different ideas from a strategy and growth perspective? Or are you bringing in different technology investments or different technology solutions? Are you having conversations out in the marketplace with your peers? Are you having conversations with your clients?

Professional service firms need to be having all of those conversations right now to try and identify what they’re going to look like 10 years from now; because I think, in the short run, these issues aren’t going away even though the industry is desperately trying to throw band-aids on it.

The model needs to change, and the structure of the work needs to change.

This interview was originally published by Thomson Reuters.

Read Part 2 – Talent War: How professional service firms can recruit & retain top talent in today’s labor market

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This article was written by Michael Gerlach and originally appeared on 2022-06-21.
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