The latest report on the state of the Australian legal market shows an industry that's rallying amid a myriad of challenges
The Australian legal market in the 2023 financial year starting with the troubles of FY 2022 continuing to hold many law firms back for much of the year. While FY 2023 saw the first contraction of profit per equity partner since 2016, successes in the second half of the year prove that firms have managed to put the worst behind them.
Despite a historic decline in demand during the first half of FY 2023, Australian law firms rallied on the back of a remarkable surge in demand in the year’s latter half. Bolstering this uptick were both transactional practices, typically advantaged by economic uplifts, and counter-cyclical practices, which often benefit from downturns.
At the same time, another year of historic rate growth helped many Australian law firms tread water early in the year and burst forward in the second half. While firms of different sizes faced varying challenges compared to others, the industry generally saw its profitability recover to near parity, with significant momentum going into FY 2024
To delve deeper into this, the Thomson Reuters Institute, Edge International, and ESPconnect have published 2023 Australia: State of the Legal Market Report, which chronicles the last financial year and looks ahead at how Australian law firms and best take advantage of their opportunities and rise to the challenges they face.
Amid this current prosperity, however, shadows of hurdles continue to lurk. Law firms were increasingly stretched, grappling with unprecedented cost pressures from both their rapid rate of expansion and their overall operations becoming more expensive. This expansion also brought about its own inefficiencies, with more lawyer capacity than there was work to go around. The challenges didn’t end there. Australian lawyers, according to a global survey, seemed to be uniquely dissatisfied when compared to their global peers, being less impressed with their firm’s reputation and notably less positive in their net promoter scores.
Indeed, the flight risk posed by standout lawyers in Australia was markedly higher than elsewhere. This poses a looming threat to the talent retention strategies of Australian law firms going forward.
Adding to the mix of challenges is the disruptive potential of generative artificial intelligence (AI). Once a niche topic, generative AI — especially on public-facing platforms like ChatGPT — is now a global phenomenon, potentially revolutionizing how law firms operate. While the exact implications remain to be fully realized, the very potential of such a technological revolution casts a looming shadow over the industry. It’s almost Damoclean in its nature — a constant reminder to law firm leaders to stay vigilant, adapt, and prepare.
To thrive in an AI-infused future, the report recommends immediate actions. Firms should seek a deep understanding of generative AI and its uniqueness, invest in appropriate technology, experiment with generative AI models, prioritize data organization, and proactively train lawyers for this new wave. Firms should also proactively consider the development of AI-centric practice areas.
The 2023 Australia: State of the Legal Market Report is more than just a summary of the past year. Firm leaders would be wise to look at it as a compass, pointing towards the future and providing law firm leaders, lawyers, and clients alike with a comprehensive outlook on the legal market. The challenges, the opportunities, and the evolving landscape make it imperative for legal professionals to be informed and prepared.
As the age-old saying goes, To be forewarned is to be forearmed. And readers of this report should take the advice to arm themselves and their firms against the shadows looming overhead even as they ready themselves for a potentially prosperous future.
You can download a full copy of 2023 Australia: State of the Legal Market Report here.