The resilient law firm: The state of play and the road ahead

September 01, 2023

Much has changed since the year began. Law firms kicked off 2023 with vigilance as demand fell, inflation soared, and fears of a global recession loomed. However, the recession didn’t happen, and economists are predicting that markets will remain relatively robust, making law firm leaders cautiously optimistic that the second half of the year holds more promise.

At the same time, new technologies such as artificial intelligence (AI) and disparate views on how much time associates, partners and business professionals should spend in the office, threaten to disrupt traditional legal models.

Global law firm and industry leaders, including our CEO Clare Hart, addressed these critical topics and more at the second roundtable of the exclusive “Resilient Law Firm” series, organized by Sandpiper Partners and sponsored by Williams Lea.

Here are the key takeaways from the event:

The industry outlook is… predictably unpredictable

According to a survey conducted by Wells Fargo’s Legal Specialty Group, law firms increased their revenue by 4.4% in the first half of 2023. That’s not a lot to go by, especially since the increase was attributed to rate hikes due to inflation, rather than demand or productivity. “If I could characterize what last year looked like, in terms of revenue, what we saw across the board was really being driven more by rates, because demand was down,” one panelist said. “We’re seeing an uptick in 2023, but it really is unpredictable, and we don’t know where things are going.”

“There’s definitely been some improvement in transactional work certainly throughout the summer, but I’m not sure I’d categorize ourselves as ‘busy,’ at least compared to the size of the workforce,” another law firm panelist said, adding in agreement to the “predictively unpredictable” sentiment.

It isn’t just inflation that’s driving a shift in law firm rate setting and billing practices. Generative AI is also set to change billing models, especially since it’s expected to deliver unprecedented levels of efficiency, all while freeing up attorneys so they can focus more on higher-value legal work and less on tedious, repetitive tasks. “Clients tend to accept the hourly rate despite other options presented,” said one panelist. “But as firms become smarter about AI, I’m wondering if more of us will move towards an AFA [Alternative Fee Arrangement] model, but we’ll have to see.”

When it comes to competitive pricing for AI and associated technologies, firms are still trying to figure out how to incorporate them into their billable practice. “If it’s just an efficiency add-on, clients are more likely to expect you to absorb the cost,” one panelist commented. “The charging opportunity comes when you use the technology to build a new tool or app – now that’s a game changer.”

As AI continues to be explored, more opportunities for its use will emerge, but one panelist cautioned to not get distracted: “If you want to be a resilient law firm, sure, go chase AI and yes, that needs to be part of your strategy, but continue to build a strong practice. You’ve got to be diversified and have good systems for getting your bills out.”

When adopting AI, you have to get your data house in order

When it comes to rolling out firmwide AI projects, data plays a critical role. High-quality and relevant data are the building blocks upon which AI systems are built, impacting their performance, accuracy, and ethical considerations. A robust data strategy is required for successful AI adoption. Without one, a firm could end up with missed opportunities, ineffective AI models, inaccurate decisions, and limited innovation.

“We have to be great at understanding our business, our processes, our practices,” said one panelist. “This means being great with the data side of the business too. Generative AI is only going to highlight your data inefficiency, inadequacies, or incompleteness. It’s not going to just magically sit on top of something you haven’t done well already.”

Firms also need to develop a proper data management system, otherwise they would struggle to adopt and implement AI projects in a more structured approach. Insufficient data management systems often lead to disorganized data silos, making it difficult to extract valuable insights.

“You really have to get your data house in order,” one law firm panelist said. “You need to know how the information maps to something that’s useful, to something that’s unified, something that makes sense to people who are doing your analytics, and that’s a huge project.”

Another panelist agreed: “The real challenge is going to be taking the data… feeding it into a central data repository, and actually driving business intelligence. It’s important that firms develop the muscle memory to work these kinds of technologies, and I don’t think you need to build your own AI tool, but rather understand how it can be leveraged to create structured data, how that data can be mapped to your data warehouse, and then provide insights that partners and business leaders actually care about.”

“It will take time to develop confidence in the results the models deliver,” said Williams Lea CEO Clare Hart. “In addition to burgeoning regulation and the significant technology investment AI requires, not having access to internal data that is organized will also slow down adoption.” She added, “We’re seeing a very thoughtful approach in the legal market, which is a Crawl-Walk-Run approach. Firms are saying, let’s not try to boil the ocean and make a huge change across the firm. They are starting at the project level, or a specific practice or functional area where a small team is working on a specific initiative.”

Creating a culture of connection in a hybrid work environment

A recent analysis of data from the Bureau of Labor Statistics by the Washington Post found that law was the most stressful profession. In another survey, conducted by American Lawyer/Law.com, 77% of respondents reported that their work environment contributed to their mental health issues.

Clearly, the constantly evolving work models that both lawyers and business professionals have experienced in the last three years have added more stress, not to mention feelings of isolation and loneliness.

“What creates anxiety and stress is a lack of connection with your peers, feeling like you’re not exactly sure what’s going on, where you stand relative to your peers, not sure what the partner you’re working with thinks of you,” one panelist said. “All of those things are worse when you’re in a remote environment, when you’re not feeling connected to your peers or partners. There’s all this uncertainty.”

For firms with return-to-office policies, this connection (or reconnection) can be built by creating more purposeful spaces. In Williams Lea’s latest research, The future of the legal workplace, it’s recommended that the office “be flexible, a place as a destination.” Our study also found that collaboration and client meetings were the main purpose of the physical office, increasing the number of collaborative workspaces.

“When we talk about space and hybrid working, I think it’s key that we convince people to understand that connectivity with your fellow workers is a huge part of reducing stress,” said a law firm panelist. “And the things that we can do are to create a supportive workplace that will work for employees. We can design our workspaces better, so we see each other, in the hallways and social areas. These are things that I think ultimately help reduce stress and anxiety.”

While space configurations are important, the panelists agreed that communication remains a critical ingredient to rebuilding and reinforcing office connections. “Over-communicate… you can’t communicate enough,” one panelist advised. “You have to continue to find ways to communicate and just make room for life. When I start meetings with my direct reports, I ask what’s happening in their lives and try to engage with them on a personal level.”

The resilient law firm stays abreast of the factors constantly shaping the legal workplace, from hybrid working to emerging technologies like AI. Download The future of the legal workplace to learn more.