Security breaches, economic pressures and salaries among greatest risks
Security concerns and economic pressures have displaced competition for talent as the biggest threats to law firm profitability, according to a new report. Security breaches, data loss, hacking, and ransomware were rated as high risks by 42% of law firm business leaders. The 2022 Law Firm Business Leaders Report from Thomson Reuters, the Georgetown Law Center on Ethics and the Legal Profession, and True Value Partnering Institute surveyed business leaders at US law firms, including chief operating officers, chief financial officers, managing partners, and other leaders.
General economic pressures were cited by 32% of those surveyed, 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%.
Concerns about competition for talent were clearly top of mind last year, when lawyer recruitment and retention, poaching of staff by competitors, and associate salaries ranked as the top three risks. These remain significant concerns for law firm business leaders, but poaching of staff dropped out of the top 10 risks.
Despite the challenges, a majority of law firm business leaders expect moderate-to-high growth next year in demand for legal services and revenues-per-lawyer. Slightly less than a majority expect growth in profits-per-equity-partner and profits-per-lawyer. Expectations for growth are even higher looking ahead three years, with 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.
“Law firm business leaders are taking a multi-faceted approach to improving firm performance even in the face of mounting challenges,” said Paul Fischer, president of legal professionals at Thomson Reuters. “These include financial discipline, talent retention, and geographic and practice expansion. In addition, we’re seeing more willingness to invest in technology not only to reduce costs, but also to increase efficiency, improve the client experience, and produce better firm financials.”
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.
Law firm business leaders identified several steps they plan to take to improve firm performance. Increasing billing rates and cross-selling are the two most common steps, with more than 90% of firms planning to do so. In addition, 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. Promoting firm culture is seen as the biggest challenge of remote work, followed by attorney advancement, and client service/responsiveness.