Law Firms See Sector-Wide Profit Loss as Demand Falls
The global legal sector's profits have been hit by slowing demand and soaring operational costs, according to a worldwide sector snapshot by Thomson Reuters.
The report showed that overall demand for legal services in Q3 this year was down 0.7% compared to the same period in 2021. Labour and employment was one of the few practice areas to see an uptick in demand, rising 0.3%, while M&A advice collapsed by 13.7%.
Thomson Reuters attributed the loss of demand to both a drop in transactional work compared to the previous year and an increase in lawyer salaries as a result of the escalating war for top talent. The report also noted that the costs of staff returning to physical offices post-pandemic will have compounded expenses.
Firms’ direct expenses and overhead expenses grew by 10.8% and 12.8% respectively. The report also noted that most law firms’ responses to the elevated costs has been to “wait it out” and continue with seasonal hiring.
“With fresh memories of the difficulty of rehiring talent, law firms seem willing to accept some productivity contraction in the
short term,” the report stated.