A panel of law firm C-Suite executives and corporate general counsel outlined what they see as the key issues impacting the legal market going into 2025 and beyond
NEW YORK — By almost all measures, the metrics around the legal market in the United States have been very good of late. Legal demand climbed in the third quarter of this year, notching up slightly from Q3 2023, and the growth in the billing rates that law firms charge to clients have continued their impressive run, reaching 6.5% in the third quarter of this year.
Further, corporate clients are expressing a net spend optimism in which those thinking their legal spending will increase in the coming year are outpacing those that think it will decrease.
Yet a panel of law firm executives and corporate general counsel, gathered to discuss the state of the legal market at the Thomson Reuters Institute’s 23rd Annual Law Firm COO & CFO Forum, held this week, said that despite these signs of strength in many areas of the market, there are still factors that are keeping legal organization leaders up at night, including challenges in areas such as talent and technology’s impact on law firms’ business model.
“I would urge all firms — if they haven’t already — to begin coordinated client programs to keep close in touch with a firm’s top clients.”
“We’re still in a war for top-quality talent,” said one law firm panelist. “Our firm has lost people to their ability to find full-time remote jobs.” Indeed, several panelist agreed that law firms need to be more creative with how they are attempting to lure new associates to the firm, and that while it’s important to match levels of compensation, it is becoming equally important to demonstrate a firm’s commitment to technology innovation in order to make work easier and more efficient as well as its commitment to employees’ mental health and work/life balance.
“Those firms that can cater to this — especially around employee benefits and flexibility — will be the ones that benefit,” explained another panelist, adding that those firms or organizations which order all employees back to the office, five days a week, may end up regretting that decision. “As long as the work is getting done, and the lawyers are being responsive to clients, that’s what’s important,” the panelist added.
Yet, it’s that chase that can be extremely frustrating for corporate clients, another panelist contends. “Not being able to find enough of their outside counsel team available in person for collaboration opportunities can be difficult for many clients,” the panelist said, adding that this also impacts younger lawyers who may not receive the training experience that in-person contact can bring. “So, I think that’s why you may see a push for more in-office time.”
On the horizon for 2025: Client conversations and billing rates discussions
Panel moderator Mike Abbott, head of the Thomson Reuters Institute, asked panelists what top issues they were expecting to see for the rest of this year and into 2025. Initially, some of the speculation involved in what direction specific practice areas might be heading — for example, many thought litigation was slated for a continued rise, and some predicted an increase in restructuring situations and, not surprisingly, regulatory guidance. However, the discussion shifted when several panelists explained that no matter what the practice area involved was, it’s becoming essential for law firms to open deeper and more frequent conversations with their key clients in order to more fully understand what those clients will be needing in terms of legal services in the near future.
“I would urge all firms — if they haven’t already — to begin coordinated client programs to keep close in touch with a firm’s top clients,” suggested one panel member. “And it’s not just a specific practice area view, but rather an overall understanding of where the client is and what that clients is going to need or want.”
The idea of what clients need and want reverberated through the panel, which also took up the issue of law firm billing rates, which have been consistently going up for the past few years. “The pace of law firm rate growth has been phenomenal,” said one panelist. “And while it seems mostly market-driven, it still continues to go up.”
Avoiding the doom loop on rates
How long that might last — especially given the anticipated time-savings benefits of more AI-driven efficiencies in legal work — was a question not far from the minds of many on the panel. “We are already seeing some pushback from some clients on their rates, although that is just in certain specific markets or legal matters,” explained another panel member. However, the panelist cautioned that law firms were in danger of entering a doom loop of continually raising their rates and then expanding their discounting to ease clients’ minds. While this hasn’t been reflected yet in the level of rate realization and collection, which hasn’t dropped precipitously, legal market experts are keeping an eye on the situation.
“All the strategic planning in the world means nothing if you can’t read the market and pivot when you need to.”
“To be honest, we’re seeing it in some of our lawyers,” another panelist said. “They are becoming increasingly uncomfortable with charging more every year for what is essentially the same legal service year after year.”
Indeed, many on the panel agreed, noting that many firms need to adopt strategic pricing by mixing billable hours with alternative fee situations, while explaining to clients the real value proposition of the work they’re doing on the clients’ behalf.
Overall, the panel agreed that the legal industry is entering a phase in which more client communication and a focus on finding the right talent will become the essential differentiators among law firms. “Basically, firms need to identify what they’re good at and prioritize their investments in that direction,” said one panelist. “Beyond that, finding out how you can get close to your clients and identify the talent your firm needs will be critical.”
Many panelists agreed, adding that while strengthening client relationships is important, keeping an ear to the overall legal market may be more so. “It’s a matter of listening, being nimble, and being innovative,” said a panelist. “Because all the strategic planning in the world means nothing if you can’t read the market and pivot when you need to.”
For more on what you might have missed at the Thomson Reuters Institute’s 23rd Annual Law Firm COO & CFO Forum, click here.
