Never a Dull Day: What We Saw in 2023

And just like that, we’re at the end of another rollercoaster year in the Legal, Governance and Finance fields. Here’s a brief on what we saw from the trenches of professional services and corporate departments. 

In March, the Bar Council of India released a notification about the proposed opening up of the Indian legal sector to international firms. Unsurprisingly, it created a buzz in the market. It also raised more questions than it answered. The analysis we put out at that time remains as valid now, in December. The liberalisation remains only on paper, and has not been operationalised due to lack of clarity on the registration process, reciprocity requirements and tax treatment. 

In May 2023, global law firm Dentons entered into a ‘combination’ with Indian firm Link Legal. This association, part of Dentons ‘polycentric’ model of tying-up with firms in different jurisdictions, was seen by industry watchers to fall outside the framework of the BCI’s rules. We are yet to see other international and Indian firms enter into similar combinations. 

The ongoing UK-India Free trade talks may hold the key to the next move on liberalisation. The 14th round of the talks are scheduled to be held in January 2024. 

International law firms continue to display a high level of interest in the Indian legal market. In 2023, we saw a record number of visits from international law firms. There was also a resurgence in hiring for India-focussed practices run out of global financial capitals. 

The gap in compensation ranges between mid-sized firms and large firms has widened over the past year—from 27% in 2022 to 35% in 2023. 

The difference in compensation between boutique law firms and Tier-1 firms was even more steep. In 2022, Tier 1 firms were paying their lawyers 67% more than boutiques. That figure is 82% in 2023.  

Following post-pandemic attrition, Tier-1 firms appear to have banked on higher compensation to fill the gap in their talent pool of Senior Associates and Principal Associates. . Over the past year, the gap in median compensation between mid-market and emerging law firms has been the highest between the SA1 to PA2 bands. Tier-1 firms are paying approximately 30% to 40% higher compensation than their mid-market peers, and a whopping 84% to 104% higher compensation than boutique law firms.

One fallout of these compensation trends is a greater openness among boutique law firms (comprising 5 to 25 lawyers) to consolidate, with a view to increase profitability and become more attractive to talent.

In 2023, we saw increased super specialisation across practice areas. Within the broader dispute resolution universe, we saw an uptick in specialisation in areas  such as white-collar, regulatory and international arbitration. We also noticed an intensified focus on building out InvIT & REIT practices as part of a larger capital markets offering. 

India’s Digital Personal Data Protection Act and its international counterparts have caused domestic firms to think more deeply about data privacy. T 2024 will be a big year for this practice. We also saw a renewed interest in full service firms building out Intellectual Property-related practices.   

We witnessed a funding winter in 2023, with total investments declining by 72 percent from the previous year. It was also the lowest in five years. The funding winter impacted in-house legal teams more than law firms. The big money General Counsel roles (remuneration above Rs. 3 crore), that we saw a lot of in the last few years, were either downgraded to a Head Legal role in growth companies. The erstwhile big hirers in crypto, gaming and fintech sectors were fighting for survival in 2023, mainly due to regulatory and market-related reasons. They saw hiring freezes and layoffs. 

The top 5 sectors in 2023 for in-house legal roles were: Financial Services, Manufacturing, Technology & IT, FMCG and Infrastructure. Over 90% of these roles were in Mumbai, Bengaluru and NCR (in that order). We also saw more roles being offered in Hyderabad, Chennai and Pune.

There was a surge of roles relating to Compliance and Data Privacy, especially in MNCs. We expect the demand for company secretaries and compliance professionals to be robust in 2024. 

The most significant increase in hiring was in international MNCs setting up extended legal teams in India as part of their Global Capability Centres. The meatiness of the role, and the remuneration that is being offered, is making it an attractive proposition for in-house legal talent. 

There’s been some interesting innovation happening in in-house legal departments. Some examples that stood out in 2023, include dispute resolution at scale through ODR, and the use of technology systems for contract lifecycle management, compliance or legal operations. The ELC workshop on AI for Corporate Legal Departments, which we jointly curated, saw a tremendous response and several follow-up requests. 

We also noticed a rise in new roles like Data Analyst, Legal Operation Specialist and Technology Innovation Group. Through our affiliate Counselect, we noticed an increased interest in flexible engagement models (such as secondments) and fully remote roles. 

1. Hybrid financial leadership: We observed a significant shift towards senior finance professionals who not only possess traditional financial expertise but also have experience in strategy, technology and operations. This hybrid expertise is becoming a new standard in financial leadership roles.
2. Digital proficiency: There has been a marked increase in demand for CFOs fluent in digital tools, AI, data analytics and blockchain. Our engagements have shown that these leaders play a key role in enabling digital transformation initiatives within their organisations.
3. Fundraising as a strategic priority:  Fundraising is no longer an ad-hoc task but a critical and continuous strategic function. CFOs with a strong track record in securing capital through various channels (equity, debt, grants and other instruments) are in high demand, reflecting the need for growth and expansion in the dynamic business environment.
   
4. Internal audit focus: Across different types of companies, there’s been an increased demand for internal audit professionals. This trend underscores the growing importance of governance and compliance in an increasingly complex regulatory landscape.
5. Leadership in contentious tax matters: As the tax environment becomes more contentious, we’ve noticed an increased demand for tax heads skilled in dispute resolution, audit navigation,and handling negotiations with authorities.

In 2023, we saw Indian companies scurrying to refresh their boards, before the terms of their decade-long appointees ran out. Around 450-plus boards are yet to refresh, and we expect a high level of activity before the March 2024 deadline. 

In September 2023, we co-launched a report by IIAS on the Great Indian Board Refresh. The publication has some excellent analysis on the boards of NIFTY 500 companies.

A few excerpts below:

• The top 500 companies have become more independent, with average board independence being 50% in 2023.
• Independent directors are taking on fewer simultaneous roles. Only 1.4% of independent directors hold 5 or more ID roles in aggregate.
• Women accounted for 18.1% of board seats on 31 March 2023. This data point indicated that the participation of women on boards has gone beyond checking a compliance box. Over 70% of women directors were Independent.. Of the total directorships held by women, about 21% were held by promoter family members on 31 March 2023, a third of whom were in executive roles.
• Between FY21 and FY23, 55 women were added to boards, compared to 49 for men in the Nifty500.  Average directorship for women continues to remain higher (1.4x, compared to 1.2x for men), implying a narrower pool from which they are appointed.

This year started with ESG as the big theme that boards were engaging with. Focus on ESG reporting has gained momentum due to investor and regulatory support. The year ended with the themes of AI governance and digital transformation sharing space with ESG on the centre stage. As a result, we are seeing demand for directors with a tech background, in addition to the evergreen demand for retired government officials and CXO corporate leaders. 

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So there you have it. It’s been a busy, fulfilling and action-packed year. We’ve had many wins, made a few mistakes and most importantly, learnt a lot about the direction in which the business world is moving. We’d like to take this opportunity to thank everyone we’ve had a chance to work with in 2023. Wish you a wonderful holiday season and look forward to connecting in the new year!