Security Concerns, Economic Pressures Are Biggest Threats to Law Firm Profitability
Security concerns and economic pressures have displaced competition for talent as the biggest threats to law firm profitability, according to the 2022 Law Firm Business Leaders Report from Thomson Reuters and the Georgetown Law Center on Ethics and the Legal Profession, and True Value Partnering Institute. The report explored the top risks to law firm profitability and how firm leaders are addressing them.
Legal Current has key takeaways from the report, which surveyed business leaders at U.S. law firms, including chief operating officers, chief financial officers, managing partners, and other leaders.
- Security concerns are top of mind. Security breaches, data loss, hacking, and ransomware were rated as high risks by 42% of law firm business leaders. General economic pressures were cited by 32%, tied for the second-highest risk with associate salaries. Last year, by comparison, general economic pressures tied for ninth among risks, cited by only 16%. The top three risks last year were lawyer recruitment and retention, poaching of staff by competitors, and associate salaries.
- Growth is expected over the next year and next three years. A majority of law firm business leaders expect moderate-to-high growth over the next 12 months in demand for legal services and revenues-per-lawyer. Slightly less than a majority of law firm business leaders expect growth in profits-per-equity-partner and profits-per-lawyer. Expectations for growth are higher looking ahead three years, with an overwhelming 84% expecting higher revenues-per-lawyer. However, more than two-thirds of law firm business leaders expect higher direct and overhead expenses over the same time periods.
- Predictions for practice areas vary. Among practice areas, a majority of law firm business leaders expect health care, bankruptcy, and intellectual property to see high-to-moderate growth. Mergers and acquisitions, real estate, and personal injury are viewed as most likely to see contraction.
- Increasing billing rates and cross-selling are keys to growth. These are two most common steps law firm business leaders plan to take to improve firm performance, with more than 90% of firms planning to do so. Also, remote working is viewed by most firms as a means of improving performance, with 88% of firms saying they probably or definitely will support it. That represents a sizable jump from 62% last year.
- Firms continue to emphasize technology. More than three-quarters of law firm business leaders say they likely or definitely plan to use more technology both to reduce costs and for purposes other than cutting costs. The primary technologies that firms plan to purchase that they’re not currently using include AI-powered legal research, contract management, and AI-enabled litigation tools.
For more on strategies that law firm business leaders are using to drive law firm profitability, download the full report.