Marcie Borgal Shunk, President and Founder of the The Tilt Institute Inc. Courtesy photo

Smart Strategy

The verdict is in: the party is over. The soaring revenue and profits of 2021 are a distant memory. As law firms glide back to earth, an interesting phenomenon is taking hold: fear. The pressures and anxiety of living through three years of unprecedented uncertainty, volatility and near-constant change has left law firm leaders spent—and highly skeptical. Despite economic indicators predicting reduced inflation, slow growth (note, not a decline) and a muted but still active transactional market, many law firms are behaving the way they often do—protecting short-term profits at the expense of long-term prosperity.

This myopic thinking, however, is not the only miscalculation leaders adopt in times of uncertainty. Several wayward tendencies threaten to set law firms back as leaders grapple with how to guide their businesses through uneven times. More importantly, ambiguity is likely to become the norm rather than the exception for decades to come. Effective leaders and successful law firms of the future will learn to embrace change, reject perfection and accept the vague. They will learn to identify and anticipate the following common mistakes and then take action to remap how they approach the world.

They Stop Spending

It is tale as old as time. Profits per equity partner climbed 19% in 2021 on the back of pent-up demand and depressed expenses. Law firms roared into 2022 with high expectations, then contended with significant compensation hikes followed by tempering demand. By year end, at least according to Wells Fargo figures, law firms fared well. Revenue in 2022 exceeded 2021 by 3% and profits per equity partner dipped just 3.9% from the prior year—an expected trajectory given the leap in 2021 was propelled more by market forces than strategic wizardry on the part of law firms. And this is where the disco ball stops spinning.