The 2023 Report on the State of the Legal Market is being released today. The annual report is jointly issued each year by the Center on Ethics and the Legal Profession at Georgetown Law and the Thomson Reuters Institute. The report utilizes data from Thomson Reuters which shows the performance of U.S. law firms and analyses a variety of factors impacting that performance. Download the 2023 Report on the State of the Legal Market here.
Several key drivers of the bad news include the decline in profitability which surged in the pandemic, only to stall as firms absorbed “return to the office” costs.. Expenses further ballooned due to inflation. Law firms once again entered into the talent war “space race” which translates to higher unsustainable salaries for young attorneys whose work can’t be billed to clients. Will law firms ever learn how “not to take the bait?”
Here are the three key take aways:
- Multiple factors threaten profitability, including falling demand and productivity, rising expenses, shifting client outlooks, and inflation
- Midsize firms show strength amidst market demand shifts
- Profits-per-equity partner down for the first time since 2009
“After finding ways to endure and even thrive through the effects of the pandemic, law firms now face a confluence of factors that look to make 2023 a challenging year,” said James W. Jones, a senior fellow at the Center on Ethics and the Legal Profession at Georgetown Law and the report’s lead author. “Firms are being confronted with issues ranging from slowing demand to record-low productivity, all of which could have significant impacts on their economic and institutional health in 2023 and beyond.”
I couldn’t help but notice that Library and KM is the only overhead category where expenses decreased in 2022. There is no explanation in the report, but I suspect this may be due the reduction in print resources accelerated by the pandemic. Eliminating print also drives savings in headcount, filing expenses and space.
Paul Fischer, president, Legal Professionals, Thomson Reuters is quoted in the press release: “Law firms need to closely examine all aspects of their business – including talent management, practice management, workflows, operations, and finances – and employ the necessary solutions and technology in order to successfully navigate the year ahead.”