Law Firms May Be at a “Tipping Point”: 2021 Report on the State of the Legal Market from Georgetown Law and Thomson Reuters Institute

The massive disruptions of 2020 may have a lasting impact on the law firm market, creating a “tipping point” that accelerates and makes permanent major changes that law firms have, up until now, often been slow or reluctant to adopt.

The 2021 Report on the State of the Legal Market, issued today by the Center on Ethics and the Legal Profession at Georgetown University Law Center and the Thomson Reuters Institute, says the unprecedented events of 2020 could set off a wave of sweeping permanent changes, such as law firm business models, use of technology and more flexible staffing and operations. The report raises the question of “whether the industry that bounces back will be the same industry that entered the pandemic this past March.”

“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,” 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.

“Notable Success” Weathering the Challenge of 2020

Despite the unprecedented disruptions caused by the COVID-19 pandemic, large law firms, for the most part, were able to adapt. According to the report, “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.” While the pandemic is seen as posing continuing challenges, firms are generally optimistic in their outlook for 2021, and fairly bullish on their three-year outlook.

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.

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. According to Thomson Reuters Peer Monitor data, these moves to support revenues and reduce costs boosted profitability – as measured by profits-per-equity-partner – by double-digit rates.

Back to Normal, or a New Normal?

This sets up a scenario where the legal industry may be at a “tipping point” that results in major changes that will ripple across the entire legal ecosystem. The report states 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” and notes a number of positive lessons:

• Success of working from home, as the transition was less disruptive than expected.
• Greater acceptance by partners of the role of technology in improving the delivery of legal services and reducing costs. An overwhelming 84% of firms plan to increase their technology budgets.
• Consideration of fundamental changes to operations, such as staffing, working patterns and use of office space.
• Greater openness to new practice models, including collaborations with other firms and new law companies such as alternative legal service providers.
• More attention to work-life balance, employee mental and physical wellness, and viewing of people as key firm assets.

“As firms turn the page on a challenging year, they may also be rethinking how they have been managing their practices and operations,” said Mike Abbott, vice president, Market Insights and Thought Leadership, Thomson Reuters. “After previous downturns, we often saw firms going back to business-as-usual. As harsh as the COVID-19 situation has been, it presents an opportunity for firms to seize the new experiences, skills and technologies they’ve gained during the crisis to create sustained competitive advantages for the post-COVID-19 future.”

“To succeed in spite of all this has opened many eyes,” said Jones. “It has fundamentally altered what were previously pillars of the law firm business model. The ultimate result of the sudden shift to work from home, the inability to interact face-to-face with support staff and clients, and no longer needing to be present in the courtroom for hearings – if the courts were open at all – may be far-reaching changes resulting in legal services that are more efficient, predictable and cost effective.”

The Report on the State of the Legal Market is issued jointly each year by the Center on Ethics and the Legal Profession at Georgetown Law and the Thomson Reuters Institute, relying on data from Thomson Reuters Peer Monitor. The report reviews the performance of US 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.

The 2021 Report on the State of the Legal Market can be downloaded at https://legal.thomsonreuters.com/en/insights/reports/2021-state-of-legal-market.

For more information on Peer Monitor, visit legalsolutions.com/peer-monitor.

The Center on Ethics and the Legal Profession at Georgetown Law is devoted to promoting interdisciplinary research on the profession informed by an awareness of the dynamics of modern practice; providing students with a sophisticated understanding of the opportunities and challenges of a modern legal career; and furnishing members of the bar, particularly those in organizational decision-making positions, broad perspectives on trends and developments in practice.

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