Strong Financial Performance in the First Half of the Year

Big Law firms have reported robust financial results for the first half of the year, defying earlier predictions of a slowdown. According to a survey by Citibank’s law firm group, revenue for all operations increased by an average of 11.4% compared to the same period last year. The growth was largely driven by a 2.9% increase in hours worked, marking the best first half since 2021. The top 50 firms led the way, with demand growth of 3.3%.


Resilient Economy and Corporate Legal Spending

At the beginning of the year, many law firms anticipated that the transactional markets would pick up in the latter half of 2023, despite concerns over high interest rates and a potential recession. However, the economy remained resilient, fueling corporate legal spending and enabling law firms to continue raising rates. This resilience has largely prevented layoffs, which some had feared earlier in the year. Among the top 50 firms, 68% reported demand growth in the first half, with nearly a third seeing increases greater than 5%.

Litigation and Specialized Practices Drive Demand

The surge in demand was primarily seen in litigation, investigations, antitrust, and investment management-related practices. While transactional activity has improved from the lows of the past two years, it has yet to reach the levels that firms are hoping for. However, if the Federal Reserve implements the projected interest rate cuts, transactional work could see a significant boost, making the second half of the year even busier for Big Law.

Outlook for the Second Half of the Year

The outlook for the second half of the year remains positive, though there are some challenges ahead. Comparisons to last year’s strong second half will become tougher, and the upcoming U.S. presidential election could cause a temporary slowdown in transactions. However, pent-up demand for deal work is expected to pick up once the election results are known. Early indications suggest that the third quarter has started strong, with over 40% of large firms reporting higher demand than in the second quarter.

Talent War Intensifies in Big Law

As the financial environment strengthens, the competition for top talent is expected to intensify. The most profitable firms are likely to leverage their success to expand and hire more partners. Some firms have responded by increasing top-end partner compensation and redesigning their leverage structures to include more tiers of income partners. These tiers are now being used to retain senior associates by offering them a pathway to partnership, a strategy that has proven to be profitable for many firms.

Generative AI: A Tool for Efficiency and Growth

The adoption of generative AI tools in Big Law is another area of focus. While there are concerns that AI could reduce the need for associate-level work, many law firm leaders believe it will make lawyers more efficient, allowing them to focus on more complex matters. Additionally, the widespread adoption of AI across the economy is expected to create new legal work, keeping lawyers busy even as some tasks become more automated. Although the market is currently flooded with new AI tools, many are not yet ready for widespread use. Nonetheless, firms are preparing for potential changes over the next decade.