We have crossed the midpoint of 2025, and law firm leaders find themselves in interesting times and a legal business environment filled with unprecedented uncertainty and incredible opportunity. Volatile economic markets, shifting client demands, generational leadership transitions and a polarized political climate have delivered new tests for even the most seasoned law firm leaders.
Many firms experienced a sluggish first quarter and now find themselves in catch-up mode mid-year. While litigation practices remain strong, performance for transactional practices remain mixed, depending on firm size and markets. Profit margin management remains a top concern for firms of all sizes. Global firms are retracting their presence in some foreign markets – their desire for international geographic scope being outweighed by the need to maintain profitability levels and retain highly productive partners. Mid-sized firms continue to grapple with constrained leverage, increasing talent costs and rising technology expenses.
With changing market demands and generational shifts, firms are reconsidering management models, department/practice structure and incremental shifts in leadership philosophy, driven by lawyer demands for increased transparency, collaboration and accountability. Firm leaders are adjusting compensation models to allocate more equity to top performers, increasing the average pay ratio among partners to recognize and retain top talent and adjusting compensation formulas to recognize market changes and remain competitive.
With hybrid work models now a mainstay, firms remain focused on cultivating firm culture and maintaining employee engagement. They are investing not only in firmwide retreats, but executive, practice group and team retreats to create opportunities for communication and collaboration. They are also increasing the importance of “firm citizenship” contributions in compensation, rewarding those who are committed to being stewards of the firm culture and not just individual contributors.
Firms continue to invest in artificial intelligence platforms – both generative AI and machine learning for predictive analytics – and work to determine the impact on operations, service delivery and financial performance. The gap continues to widen between large firms and mid-sized, tech forward firms and those firms who continue to take a “wait and see” approach.
And, of course, ongoing political tension continues to impact law firms – from the high visibility legal challenges that remain ongoing to the quiet shifts in policy occurring within firms. Policy changes include government practice strategies, communications policies and security clearance policies, as well as shifts in strategies, job titles and communications policies around DEI programs.