The market conditions are changing. With rising inflation, and a possible recession around the corner, legal departments need to take shelter immediately. The past few years have been a roller-coaster ride for the legal industry, as the pandemic unfolded and 18 months of unexpected prosperity followed. Even though we recovered from it, 2023 is a start to the early stages of economic slowdown and looking at our previous encounters, it is best that we prepare for the worst scenario.
The legal industry has been performing extremely well, and if we listen to economists or consider any survey, the recession is not bound to have much negative impact on the legal sector. But even after then, leaders of this sector need to be relatively cautious, the best-run law firms and law departments will be those who continue to invest in future and prioritize development and retention of talent, which they have worked really hard to recruit.
The impact of recession
A recession of some sort has already been initiated in the legal industry and is likely to continue for some time. But the brighter side is that law firms will likely remain steady. If we consider the wester regions, then in particular the Silicon Valley and the New York City are seeing the impact of decreasing legal demand and historical growth from previous boom years. But even after this, we can be certain that this drop will not be as serious as the 2008-09 recession and hence we can expect the growth to become steady with times. Apart from this, in regions of Florida and Texas, there has been a growth in legal market activity, especially in 2022, which we can still expect to grow. However, the rate of expansion of new office openings in these regions is likely to decline from the pace of the previous two years.
The profit Outlook
In this environment, it will be beneficial for law firm leaders to prioritize long-term strategy and growth, even as firms and legal departments try to mitigate the impact of slowdowns. The same can be stated, since the impact of the current recession will be less on the legal firms in comparison to the last recession. During this time, the best firms will be those that let short-term profits drive long-term decisions. As a solution law firms can adhere to investing in training, development, talent monitoring and much more. Apart from this, considering the US market, we can expect the litigation and regulatory practices to grow nationally. The combination of focused regional growth, specific practice area growth, and narrowly focused geographic downturns will likely cancel each other out and cause the industry and law firm profits to remain relatively flat.
The debate concerning hybrid work
Back-to-office mandate has been a hot topic in the legal field. Many firms have been encouraging attorneys to work from their offices, mentioning it to act as a benefit of culture and development, but in practicality, there hasn’t been any meaningful enforcement of these directives. Additionally, firms need to follow this approach in such a way that they retaining talent remains at the forefront of their minds. Five days a week in office is a thing of the past, which no more guarantees a strong workplace culture or supportive environment. Rather, attorneys are more likely to split time between home and the office, with some opting for working fully remotely permanently. Even if this happens, talented attorneys will find ways to hone their skills and seek learning opportunities regardless of where they work.
An adaptive workforce
The recession of 2008 resulted in major layoffs, which severely impacted firms’ ability to respond when the economy recovered. It takes lot of hours to attract talent and train them, therefore, laying them off would affect our business strategy. The same approach also applies to partners as they manage their careers. During tougher times, partners who consider a move typically do so, in order to seek out quality and stability. Therefore, during the recession our prime strategy should revolve around brand protection and on having an effective and strong firm management. While we should expect some number of layoffs, we should also brace for some increase in workload per person. However, despite the economic slowdown, the general counsel hiring is likely to remain strong as companies rely on their top in-house leaders for a variety of skillsets and expertise. These skills are not just limited to legal functions, but are of great importance during recessionary periods.
After a year of turmoil in 2019, the 2020 to 2022 witnessed record-setting profits for the legal industry. While this string of record growth is unlikely to continue in 2023, there is still a significant opportunity for law firm leaders to apply in their business development strategies, in order to achieve long-term success.
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