March 2, 2023
The Law Firm Profit Boom is Over: How to Talk About Firm Financials After a Challenging Year.
It’s no secret that law firm profits and productivity slipped last year, as 2021’s legal bonanza gave way to a more challenging stretch in which many firms found themselves with too many lawyers, and not enough work to go around.
Demand for legal services dropped 1.9% in 2022 compared to 2021, while expenses increased 7.9%, according to Wells Fargo’s Legal Specialty Group. Some law firms have already laid off lawyers and staff, while others may be considering reductions.
Last year, when the war for lateral talent still raged, we recommended that firms emphasize culture over profits in their legal media interviews as a way stand out in an environment where strong financial performance was the rule.
But as legal demand dries up while expenses climb, law firms need to adjust their messaging accordingly. Below, we outline considerations as firms prepare for those discussions.
What to Expect During the Interview
Economic uncertainty continues dominating headlines and will be a recurring theme in conversations between legal media and law firm leadership. Expect questions about how your firm plans to navigate the unpredictable financial environment in the coming year, from reining in expenses and headcount to balancing fiscal restraint with the need to invest in technology and talent.
With law firm mergers gaining momentum after a pandemic-era dip, legal reporters may ask whether your firm is open to a combination to grow headcount, expand its regional footprint and/or expand capabilities. Smaller firms and those with softening financial results should prepare for questions about potentially being acquired by larger or more prosperous firms.
The legal media knows your firm’s expenses increased last year, but you can talk about how they grew in 2022 and how you plan to manage them in 2023. On a more granular level, expect journalists to ask how your firm dealt with overcapacity last year – and how it plans to address the issue in 2023. Are you instituting programs to fill lawyers’ unused time through expanded pro bono work or business development initiatives?
Nobody wants to talk about this. However, the legal media has widely covered the firms that have already reduced their headcounts in 2022 and 2023, and reporters will not shy away from questions around this topic.
If your firm plans to lay off attorneys and staff, make sure to announce those reductions internally before discussing them with members of the media. Keep in mind that any memo sent to lawyers and staff will be leaked – so when drafting the announcement, have your external audiences in mind, too.
If your firm has already reduced its attorney or professional staff ranks, interviews can help contextualize those decisions by framing them around your firm’s overall 2022 performance and strategy for 2023.
Real Estate, Technology and DEI
Where and how lawyers work will also be top of mind. Hybrid and remote work continue to be topics of interest. Firms should expect questions about changes to in-office policies and whether they remain open to fully remote hires.
Reporters will likely ask about firms’ physical footprints, too. Firm leaders should plan to discuss any changes in office space, and the adoption of strategies like hoteling. If your firm has a hiring strategy for 2023, this interview offers a great place to share it with potential talent.
Leaders should also expect questions about their firms’ technology investments. Has your firm splashed out on new software or platforms in the past year? Does your firm plan to scale back technology spending in the coming year?
Prepare for questions about potential retrenchment in other areas – including diversity, equity and inclusion (DEI), which many firms prioritized after the social and racial reckoning of 2020. Reporters may ask about what measurable progress you made against those commitments last year, and whether your firm plans to cut or pause its DEI and/or talent development initiatives amid profit pressures. Consider sharing your organization’s DEI targets and how you plan to meet those goals in the coming year.
Reflect on 2022 – And Map Out What’s Next
When preparing your talking points about 2022, think about how you would characterize the year at a macro level. Be prepared to talk about the practices, regions and industries that drove growth last year, and where your firm saw shifts in demand. This is a great opportunity to discuss notable matters from 2022, so ensure you have those details on hand.
During these interviews, firm leaders can discuss their strategy for 2023. Any major investments your firm plans for the year – office openings, new practice group focus, ancillary practices – should be shared here if possible.
Explain where the firm will focus this year in terms of practices and initiatives, as well as areas where you will be creating efficiencies. Where do you anticipate increased demand? Leaders should plan to talk about practices that may be ripe for growth, such as bankruptcy and restructuring, data privacy and security and regulatory.
With the economic outlook for the legal industry still uncertain, firms can find value in being transparent about financial results, strategic plans and cultural considerations – topics that will resonate with current employees and potential talent.