2021 Highlights: Can Law Firms Retain Talent in a Cooling Legal Market?
With the year winding down, Legal Current is looking back at the milestones and key accomplishments from the Legal Professionals business of Thomson Reuters. Today we highlight a recent episode of Law.com’s Legal Speak podcast that featured ALM Business of Law Reporter Andrew Maloney talking with Bill Josten, manager of enterprise content for Thomson Reuters.
Their conversation focused on the implications of the findings of the 2021 Law Firm Business Leaders Report, which explored, among other issues, how law firms are handling the rising competition for talent. Specifically, as Zack Needles, podcast host and ALM’s global managing editor of Regional Brands, explained: “We’re digging into what might happen when currently surging legal demand eventually falls back down to earth.”
Maloney and Josten noted the report identified talent acquisition as the top threat to law firm profitability, and discussed how firms should begin preparing now for shifting market factors in the next year or two – especially if demand and rate growth slow. Maloney asked about the potential drawbacks of the current rapid increases in salaries and bonuses that law firms are offering, and Josten said this strategy isn’t sustainable.
“Retention hasn’t been improved; attrition hasn’t been mitigated,” Josten noted, emphasizing that firms are spending a “tremendous amount of money on associates that aren’t going to stick around.”
He said that the legal market’s current strong demand could shift, creating an environment where demand shrinks and headcount outstrips demand. He said it’s a concern law firms should be aware of as it would have a negative impact on productivity.
Maloney also referenced trends identified in the Q3 2021 Peer Monitor Economic Index, including the higher cost and demand for talent along with unprecedented turnover. Josten said if these trends persist, firms could face an imbalance. He said this potential concern was reflected in a finding from the report that law firm leaders worry about both a lack of capacity to handle certain practice areas as well as underperforming lawyers being threats to profitability.
Finally, Maloney noted the 2021 Law Firm Business Leaders Report showed firm leaders are optimistic despite facing numerous uncertainties and challenges. Josten said their optimism is likely a reflection of macro-level indicators in the market: “There’s actually a lot of volatility in the market, and volatility tends to be a good thing for lawyers.”
He added that their optimism is also due to continued growth in key drivers of law firm profitability – including rates and demand – along with an improvement in realization rates.
Josten predicted 2022 will be “the year of talent” for law firms as they work to minimize attrition and focus on the sustainability of rates. He encouraged firms to find better, more efficient ways of working so that their lawyers won’t have to work as hard to be productive.
Tune into Law.com’s Legal Speak podcast to hear their full conversation.