Law Firm Leadership Series 2023

A new era for law firms

The three operating models, one year on


The 2022 edition of this series examined how law firms were responding to the evolving market and how they were positioning themselves to compete for both clients and talent. Our research and discussions led us to identify three routes or positions that law firms were taking.

The Pace Setter

At one end of the spectrum are the Pace Setters. These firms are focused on the high-value, lucrative work linked to private equity transactions and other specialist work. They balance substantial financial rewards and pay with considerably higher billable hours. They expect Associates and Partners to meet their clients’ demands, come what may, and are less focused on issues such as wellbeing and work/life balance.

Some leaders among the Pace Setter firms have this year reported that their competitive, ‘up or out’ culture is sometimes creating a negative side-effect. Firstly, their operating model is driving hyper-specialisation with Associates not getting the breadth of experience they need to develop their careers. They are also finding that they are faced with increasingly individualistic, even protectionist attitudes to client relationships and work. This is a problem if they want any of their Associates to develop the client base that they will need to become Partners in the future.

Career Firms

At the other end are what we called Career Firms. These firms responded to the challenge of recruitment and retention by offering a more sustainable and balanced approach to work.

They demand fewer billable hours and offer more flexible working arrangements. These firms hope to retain and incentivise talent by offering better working conditions and career development rather than more transactional financial reward.

Mainstream Firms

Finally, there are firms that sit between the first two groups; the Mainstream Firms. These firms demand more billable hours and offer more financial rewards than career firms, however, they cannot offer the same financial rewards as the Pace Setters. The challenge for these firms is how to compete for talent when other firms offer either better rewards or better conditions and wellbeing.

These firms have struggled with the ratcheting up of hourly targets. Some are now finding that Associates and even Junior Partners are simply reporting that they are at capacity when they reach 90% of their nominal capacity. They may still be working more hours than would have constituted 100% capacity a few years ago. Clearly, this is not sustainable or good management.

Last year, the differences between these operating models were brought into stark contrast and exacerbated by a boom in demand and a real talent shortage. The market for talent was in turmoil as many in the industry reconsidered their priorities following the pandemic. The result was a swing in the balance of power towards staff and away from the firms. Firms were forced to re evaluate how they attracted the talent they needed.

As well as making themselves more attractive employers, law firms were also forced to increase financial rewards, in a way that some felt was unsustainable. One year on, the most important change is that the market has re balanced, and firms are no longer chasing talent. One senior Partner remarked that he "could get any Associate he wanted". This has gone some way to reducing the financial pressure on Mainstream Firms competing for talent.

“We had been using remote working for many years. Our culture was to trust people to be adult about it. When lockdown happened, we switched pretty seamlessly to working from home.”

The crucial factor underpinning this successful shift by law firms was that demand for legal services held up during the lockdowns. In fact, many of the firms we talked to actually struggled to meet demand from clients. The result is that almost all law firms have emerged from the pandemic in sound financial health; many had record breaking years in 2021 and are not expecting things to slow down.

There is no sign of a reduction in demand for legal services. Most of the firms we spoke to expect demand to remain strong and are concerned with finding ways to effectively meet that demand. Overall, the legal sector has done more than survive the pandemic. The extent to which firms saw demand increase during the pandemic varied from firm to firm. Those most exposed to the Private Equity boom did especially well. Some law firms also reported some reduction in this work. But all firms we interviewed reported growth in overall demand, coupled with a reduction in expenses.

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