Law Firms Reach Tipping Point: 2021 State of the Legal Market

First the bad news: the pandemic forced law firms to shed personnel and slash costs more aggressively than at any time since the 2008 recession. 

Now the good news: they’re already on their way to replenishing their ranks and restocking their cupboards – and most are optimistic about the prospects for 2021 and beyond.

Regardless of what the future holds, though, one thing is clear: many of the changes caused by the pandemic – remote work, expanded use of technology, and operational flexibility – are likely here to stay.

“The legal industry may be at a tipping point that results in major changes that will ripple across the entire legal ecosystem,” says the 2021 Report on the State of the Legal Market from Georgetown Law and Thomson Reuters Institute. “2020 may in retrospect be seen as an important inflection point for the redesign of the delivery of legal services on a broader scale.”

Download a copy of the 2021 Report on the State of the Legal Market here.

One decision that shouldn’t change in 2021 or any other year is to maintain professional liability insurance coverage with Lawyers Mutual. We’ve been keeping North Carolina lawyers and firms safe and successful for more than 40 years.

The 2021 Report on the State of the Legal Market is issued annually by the Center on Ethics and the Legal Profession at Georgetown University Law Center and the Thomson Reuters Institute.

“There are signs we may look back on the COVID-19 crisis as a moment that significantly accelerated many changes that firms had resisted in advancing their delivery of legal services, and introduced new changes as well,” says James Jones, a fellow at the Center on Ethics and the Legal Profession and the report’s lead author, in this press release. 

Here are some highlights from the report:

• Law firms adapted to the pandemic more quickly and easily than expected. “That most firms were able to adjust to these challenges with notable success is a tribute to the innovation and resiliency of law firms and their leaders,” the report states.
• Some firms survived by raising rates. “While demand dropped sharply at the onset of the pandemic, particularly for litigation, firms managed to charge significantly higher rates to help support revenues, partly by shifting work from associates and non-lawyers to partners.”
• Firms tightened their belts. “Nearly all law firms instituted aggressive cost-cutting measures, including the first widespread lawyer headcount reductions since the 2008-09 financial crisis. Firms also cut salaries, reduced partner draws, furloughed staff, and slashed overhead, especially expenses related to reduced use of office space. These moves to support revenues and reduce costs boosted profitability – as measured by profits-per-equity-partner – by double-digit rates.”
• Firms responded to the pandemic in different ways. Here are some things they did: reduced partner draws (46 percent); reduced salaries of fee earners (40 percent); furloughed support staff (34 percent); reduced the salaries of support staff (32 percent); discharged support staff (36 percent); discharged fee earners (11 percent); received support from the Payroll Protection Program (79 percent of small firms, 48 percent of large firms).
• Firms embraced technology like never before. “An overwhelming 84 percent of firms plan to increase their technology budgets.”
• The legal workplace is getting a makeover. Firms are making sweeping changes to operations, staffing, working patterns and use of office space.
• Innovation is soaring. Firms are increasingly open to new practice models, including collaborating with other firms and working with alternative legal service providers.
• Wellness is a hot topic. Forward-thinking firms are investing in work-life balance, employee well-being, and building a safe, supportive and empathetic firm culture.

What about your firm? What changes have you made in response to the pandemic? Will these changes be permanent?

Sources: Thomson Reuters press release; copy of the 2021 Report; ABA Journal

Jay Reeves is author of The Most Powerful Attorney in the World. He practiced law in North Carolina and South Carolina. Now he writes and speaks at CLEs, keynotes and in-firm presentations on lawyer professionalism and well-being. He runs Your Law Life LLC, a training and consulting company that helps lawyers add purpose, profits and peace of mind to their practices. Contact jay@yourlawlife.com or 919-619-2441.