In a newly published report, we see into the mindset of US law firm business leaders and what they perceive as the major threats to the continuing profitability of their firms
Viewing the past few years, in which the legal industry enjoyed strong results despite the global pandemic, it would be easy to get complacent about the worst of times being over. Yet, as the legal industry moved through the middle part of this year, cracks began to appear in this genial façade.
Not insignificantly, many law firms became entangled in an ongoing competition for top legal talent, adding to their overall costs; at the same time, many also began seeing early hints that legal demand was slowing in some practice areas.
Taking stock of all this, the newly published Law Firm Business Leaders Report attempts to gauge the mindset of US law firm business leaders — managing partners as well as those allied professionals who are responsible for running their firm’s business operations and may be the proverbial canaries in the coalmine in regard to future challenges to firms’ bottom lines. This annual report is published by the Thomson Reuters Institute, in partnership with the Center on Ethics and the Legal Profession at the Georgetown University Law Center and the True Value Partnering Institute.
The report shows that law firm business leaders see general economic worries — inflation, potential recession, ongoing war, supply line disruptions, and a charged political environment — as major threats to the continuing profitability of their firms.
Concerns over general economic pressures were cited as a high risk to law firm profitability by almost one-third of those surveyed, twice the level of those who thought this in last year’s report
Indeed, concerns over general economic pressures were cited as a high risk to their law firm’s profitability by almost one-third of those surveyed, twice the level of those who thought this in last year’s report. In fact, these worries moved to 2nd place in the list of most-cited risk concerns in the survey, up from 9th place last year.
It’s as if there’s been an outward shift in law firm business leaders’ gaze toward the uncertain world outside the office. Underscoring that, law firm business leaders identified fears of outside cyber-attacks by illicit actors as their number one most concerning threat, with 42% of those surveyed citing it as a high risk to firm profitability. These fears about security breaches, hacks, ransomware demands, and data loss, marked its first appearance as a survey option choice in this year’s survey.
Of course, the report reflect only dismal thinking. In a move toward the positive, most business leaders who were surveyed said they expect at least a medium level of growth across many of their firms’ practice areas, and even a high level of growth in practice areas such as intellectual property and mergers & acquisitions. And more than half (52%) said they expect one key financial metric, profits per lawyer, to grow moderately over the next three years.
Yet, even as law firm business leaders begin to map out their business strategy for the next few years by taking steps to improve their firms’ financial performance — raising rates, improving technology, supporting more remote work, and increasing cross-selling throughout the firm — many are keeping at least one wary eye outward, on the horizon, and wondering if those darkening clouds signify a more worrisome future.