The 2021 Report on the State of the Legal Market — issued jointly by the Center on Ethics and the Legal Profession at Georgetown University Law Center and Thomson Reuters Institute — concludes that “2020 may in retrospect be seen as an important inflection point for the redesign of the delivery of legal services on a broader scale.”
The report reviews the performance of U.S. law firms and breaks down the new market realities that drive the need for firms to take a longer-range, more strategic view of their market positions.
It cites unprecedented disruptions in law firm operations throughout 2020, and the resulting attempts to rapidly adapt to market changes, as the impetus for significant change. The report suggests the industry has been evolving towards a new, more efficient, more predictable and more cost-effective delivery model since the Great Recession, but is still hamstrung by law firm partners who have resisted innovation for a variety of reasons.
“The question is whether the combined effects of the pandemic may have softened partner resistance to fundamental change enough to create a tipping point in the pressures building for a significant redesign of legal delivery systems,” it says.
Indeed, while most firms were able to remain reasonably profitable in the last decade, this changed dramatically in March 2020 as the pandemic started to spread. The downturn affected nearly all law firm practices, other than bankruptcy and reorganization work.
Many firms responded with aggressive cost-cutting measures such as hiring moratoriums and dramatic cuts in staff much like they did during the Great Recession of 2008-2009, as well as significant reductions in discretionary spending.
“By the second half of 2020, law firms were actively reducing the size of their legal staffs in all categories of lawyers.”
A large number of firms also applied for and received financial support from the government during 2020, mostly in the form of Payroll Protection Program (PPP) loans from the U.S. Small Business Administration as part of the CARES Act.
The stringent measures were by and large successful with incredibly strong growth in in profits per equity partner even during a global pandemic that saw courthouses shuttered, all but essential businesses closed, many either unable or unwilling to leave their homes, and more than 500,000 Americans dead of the highly contagious disease.
Indeed, according to the report, many law firms planned to return to some version of a pre-pandemic normal during the second or third quarter of 2021, albeit with some lasting changes.
For instance, remote work is likely here to stay with the proportion of U.S. lawyers now interested in working remotely at least one day a week has doubled from pre-pandemic numbers. Additionally, 84% of partners surveyed for the report expected their firms to increase investments in technology.
“This is not to say that resistance to future change will disappear, but the experience of adapting to the radically changed market conditions in 2020 may well create more openness to experimentation in other forms of service delivery.”
Some of the most common changes include pricing, technology, the role and expectations of clients, and growth of competition, as clients began to embrace non-traditional competitors in order to achieve more palatable rates.
Together, these changes are driving the industry to make delivery of legal services more efficient, predictable and cost-effective.
That said, the report points out that while many firms are embracing change, “most law firms have not made significant progress in adjusting to these new competitive realities,” as partners generally remain resistant to significant change.
“The interesting question is whether the experiences of law firms during the pandemic might be a sufficient tipping point to accelerate the pace of significant change in the industry.”
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