We spoke to several experts working in the ESG arena within the legal industry across the world to see what developing issues they see as critical ones to watch. These are what they considered the five most important themes for the year ahead:

1. Supply chain transparency

Supply chain diversity and transparency of material issues around ESG will mature because of upcoming deadlines on reporting by regulators in the United States, United Kingdom, and the European Union.

“As law firms realize that they are actually just a vendor in somebody else’s supply chain, they must recognize the need to start making efforts to comply with regulations,” says Aragon St-Charles, Global ESG Officer at Dentons, adding that these regulations are increasingly being driven by new reporting rule-making by U.S regulators and implementation of existing E.U. Corporate Sustainability Reporting Directive regulatory mandates in reporting that are coming in effect in 2024.

Omar Sweiss, CEO of JusticeBid, a technology platform that helps corporate law departments expand efficiency in outside counsel selection and gain increased transparency on ESG topics for Tier 1 and Tier 2 suppliers, agrees. “A burgeoning area of focus coming in 2023 is that every vendor in the legal space, not just law firms, is really going to have to start thinking about their own supplier diversity programs,” Sweiss explains. “Up until now, the majority of these players in legal have been immune to supplier diversity efforts. I believe this is going to change dramatically in the next 12 months.”

2. The growth of ESG benchmarks, scorecards & frameworks

With an expanded collective understanding of ESG material issues for the legal industry, custom frameworks for the industry too will evolve. The beginning of this trend started in the last 24 months, as numerous outside parties began offering up metrics in the ESG space.

For example, impactvise provides a comprehensive measurement of law firms internal ESG strategy; and the Law Students for Climate Accountability focuses on law firms’ client work around climate in litigation, lobbying, and transactions. While Diversity Lab’s Mansfield Rule provides a measurement for diversity, equity & inclusion as part of the social part of ESG.

3. Increased legal risk for law firms

Clients are starting to make ESG demands about corporate values and positions that present a potential risk for multinational law firms, observes St-Charles. There are important implications for this growing trend regarding the rule of law and the right to representation for multinational law firms. To illustrate how the risk shows up, imagine a client working with a partner at the U.K.-based office of a law firm who asks the firm to agree to terms that contractually prohibit it from working with fracking companies, even in other countries. If that law firm is working with such clients in other jurisdictions, then agreeing to this could contractually open up the firm to legal risk.

4. Biodiversity as an emerging dimension of the “E”

The critical need to retain abundant biodiversity is an issue requiring closer attention of the legal sector, notes Adam Woodhall, chief executive for Lawyers for Net Zero, a non-profit initiative launched in mid-2021 that supports general counsel and their teams to drive action on climate and ESG within their organizations. Indeed, governments from around the world — as part of the United Nations — gathered in December 2022 to agree on a new set of goals to guide global action through 2030 in order to halt and reverse nature loss; and the Taskforce on Nature-Related Financial Disclosures, a financial services industry advisory group whose members represent more than $20 trillion in assets, is expected to release its final risk disclosure framework in Fall 2023.

5. Increased pressure to speak out on controversial events

Law firm leaders are increasingly caught in the middle between activism coming from employees, clients, and politicians on one side of a hot-topic issue and another group of clients who may be on the opposing side. For example, we’ve recently seen corporate clients that are leaning into ESG actions, such as enacting net zero commitments, while expecting their supply chain partners to do the same; yet, on the other side, a small group of members of the U.S. Congress warned law firms in a recent series of letters about the “collusive effort” to restrict fossil fuels.

To successfully navigate these events, law firms should “think through the process of if, when, and how to respond and address it from the law firm’s values,” says Gayatri Joshi, former Executive Director of the Law Firm Sustainability Network and a Partner at Vorgate Legal ESG Impact. Indeed, many law firms already have been doing this during the Ukraine/Russia conflict, either by making public statements or internal statements to their employees or clients describing the impact of the this event on the firm and its stakeholders.

Although the ESG issues that stakeholders care about differ across the legal industry, the fact remains that ESG will only increase in prominence for legal organizations in 2023 because of the many external factors — regulations, clients’ ESG strategies, politics, and activism among stakeholders — that influence the industry.

That means, law firms should proceed with introspection and caution.

“Law firms need to get their own house in order if they do not want to run the risk of losing and not attracting new clients,” says Adrian Peyer, Co-Founder & CEO of impactvise. “Until now, the ESG performance of a law firm has been ‘a nice to have’, but 2023 and beyond will move it to ‘a need to have’.”

Woodhall, of Lawyers for Net Zero, agrees, highlighting the unique role of general counsel. “The foundation of our society is a livable planet, so savvy GCs and their teams are supporting their business to be part of the climate and biodiversity solutions, as well as providing the social and governance advice which helps nurture flourishing businesses and society.”

The number one reason for this lack of ownership mentality is that “most lawyers aren’t raised to think of the practice of law as a business,” says Elaine Fitch, of Kalijarvi, Chuzi, Newman & Fitch. “They become lawyers because they want to be lawyers, not business owners.”

This in turn leads into the personality traits of the kind of people who select law as a career. Many lawyers become lawyers precisely because they do not see themselves as future business owners, but rather as practitioners of a craft. “Their personal commitment to their craft is what often allows them to be great at what they do,” notes Joshua Driskell of Lagerlof. “When stepping into an ownership role, they might often feel as though they have a less intimate connection to their practice.”

Another obstacle to developing an ownership mentality is lack of training. Most law schools do not include any education or training in the business of law, and that is unfortunate. “The consequences of the lack of this training often shows up down the road,” says Brian Temins of Minden Gross. “Making the transition to owner isn’t as easy as just changing a title — training and preparation need to go into it.”

Indeed, adds Bijal Vakil of Allen & Overy, having business acumen “is just as important for obtaining work and retaining it.”

“Most lawyers aren’t raised to think of the practice of law as a business. They become lawyers because they want to be lawyers, not business owners.”

Often firms are not intentional about exposing their lawyers to the business side of the firm. And this problem starts early because many law firms encourage young attorneys to focus on developing their legal skills, rather than on developing a book of business. As their practice builds, these lawyers tend to focus on getting their legal work done, and perhaps never develop and understanding of why they do what they do. Instruction on why the work matters to the client, and how lawyers’ time is billed and collected, as well as how new work comes to the firm, may broaden attorneys’ focus beyond the day-to-day legal work.

Another possibility to consider is that an attorney may, in fact, already have an ownership mentality, but the more senior attorneys are not allowing him or her to express that. If senior partners insist on doing things the way they have always been done, or are not welcoming toward new ideas, other partners will have little incentive or opportunity to demonstrate an ownership mentality.

What’s a firm to do?

Many law firm leaders that were interviewed emphasize “drawing back the curtain,” and involving more attorneys in the business of the firm. This approach requires transparency and education at all stages. Tom Segars of Ellis & Winters recommends starting early by “involving young lawyers at every step of the initial client intake and billing processes, including conflicts checking, initial consultations, discussing terms of engagement, preparing an engagement letter, and editing invoices.”

David Lackowitz of Moses Singer, agrees, saying that transparency means sharing information. “Just like in other industries, [the attorneys] should be provided with data about lawyer productivity, revenue, expenses, hiring and firing, strategy, goals, etc.,” says Lackowitz, adding that such information given to attorneys at the beginning of their careers is the first step in creating an ownership mentality.

Too often, however, firms keep financial information within a small, tight circle. In some larger firms, even seasoned partners may not have access to important financial information. Instead, firms should share as much information as possible to encourage ownership mentality among their lawyers. “When people understand the mechanics of the business and feel like they have skin in the game, they are more likely to work harder for [the firm] rather than just themselves,” observes Sean Dolan of Evans & Dixon. Information is power and can lead to open discussions and improvements to the overall firm.

Law firms should start this process early by involving associates in the client relationship. This simple commitment goes a long way towards instilling an ownership mentality. When associates see how clients use and value their work — including knowing that the client has paid the bill for the work — associates then feel a sense of ownership to the client relationship.

Involving associates in the entire project creates a sense of ownership, while simply assigning tasks insures they develop purely a task orientation, explains Mickey Maher of Hecht Solberg. “If a younger lawyer hasn’t experienced the opportunity to take ownership of matters or some piece of client relationships, the lawyer will be less likely to take ownership in the enterprise of the firm over the course of his or her career,” Maher adds.

Indeed, firms should take this one step further — let younger lawyers play significant roles in hearings, depositions, trials, and more, especially as they become more senior. Introduce them to clients and encourage clients to contact senior associates directly with questions.

Heather Linn Rosing of Klinedinst observes that “the things that law firms can do to instill an ownership mentality in those up for partnership are the same things that firms can do to promote retention.” These include fair compensation, wellness programming, a commitment to the community, and a mechanism for employees to express their opinions and participate in the betterment of the organization.

Many of the leaders interviewed also emphasized the importance of active mentorship by senior lawyers, as well as active sponsorship for attorneys, and especially for women and diverse attorneys.

Promoting teamwork

While it is often challenging to motivate lawyers to participate in activities beyond their normal billing hours, firm activities that promote bonding, teamwork, and cross-selling are valuable in reinforcing ownership mentality. Involving lawyers on firm committees, such as recruiting, can help to instill an ownership mentality within them, says Heidi Yernberg of Jayaram Law. This activity brings “[the] entire team into operational issues from the beginning, involving associates in a wide range of areas, from project management and workflow to reviewing bills and budgets, to fostering business development relationships, encouraging thought leadership and more,” Yernberg says, adding that group activities, no matter what they are, instill a connection and sense of responsibility to others in the firm.

Developing a strategic plan, with the input of all attorneys and staff, is a way to encourage involvement and ownership. The plan should be consulted and reviewed on a regular basis, so that all stakeholders can see how it is being utilized to determine the direction of the firm.

“When people understand the mechanics of the business and feel like they have skin in the game, they are more likely to work harder for [the firm] rather than just themselves.”

Indeed, Mary Vandenack of Vandenack Weaver encourages her lawyers to develop their own practice plan and “that plan should be incorporated into the firm plan.”

At Ellis & Winters, a North Carolina-based litigation and commercial real estate firm, they take it further by having their director of Client Services & Business Development work with each attorney to develop an individual plan for business development, focusing on the lawyer’s interests and strengths, while holding each lawyer accountable for implementation.

And finally, accountability is a large part of this process — and often, it is the hardest part of the equation as managing partners often have difficulty holding their partners accountable. “I would give them actual business responsibilities,” says Marco Antonio Gonçalves of Veirano Advogados in Brazil. “A make them accountable for [those] responsibilities, as well as for what is expected from them as a firm partner in the long run.”

To reinforce what it means to be a partner, Fairfax, Va.-based patent law firm Harrity & Harrity conducts partnership skills training that requires new partners to meet with the managing partner on a bi-weekly basis to review scenarios, such as hiring or firing an employee, or how to deal with a potential malpractice issue. When a partner has an ownership mentality, they hold themselves accountable because they want their firm to improve and succeed in every way possible.

Clearly, creating an ownership mentality among firm partners is not easy. Often, all a law firm can do is provide training, resources, opportunities, and support. It’s up to the individual lawyers and partners to fully embrace being a law firm owner and all that it encompasses.

Consequently, many corporate law departments (CLDs) will remember these past 12 months as the great pricing reset in which law firms required significantly higher hourly rate increases over and above anything the legal marketplace has seen in at least a decade.

The new year finds both the buyers and sellers of legal services having to grapple with the economic reality of high inflation, increasing labor and infrastructure costs, attrition, labor arbitrage, and major shifts in market demand — all of which will in some way or another impact the cost of legal services into 2023 and beyond.

Using cost control counter-measures

With this reality, many CLDs are not looking forward to a repeat of last year’s rate hikes; however, that is not necessarily a fait accompli for corporate clients. Yet, there are counter-measures that can be deployed to help them mitigate, control, and even create cost savings in the face of such pricing uncertainty.

There are many familiar options that CLDs have at their disposal — such as tiering, RFPs, volume discounts, panel convergence, budget structuring, and in-sourcing — although these approaches, while important considerations for every CLD looking to control their costs, may take time to mitigate the impact of proposed rate increases.

Instead, let’s focus on a few things that might help CLDs achieve tactical and immediate results.

Rebates

Similar to, but distinct from, volume discounts, most rebates exist with those law firms that enjoy large volumes of billing. Rebates are typically negotiated at the start of a calendar year and are contingent on a firm achieving a certain dollar threshold or tier of billings in that year.

Rebates are a good tool for CLDs to utilize during any rate negotiations and especially on large matters or a portfolio of work where a CLD is looking to reduce its legal spend, offset the cost of future work, or simply to mitigate the impact of future rate increases.

Value-added services

Not all clients have sufficient scale with a law firm to entitle them to ancillary benefits with the firm. However, value-added services — such as free legal advice, secondments, market research, access to proprietary technology, education, and training sessions — can be separately negotiated.

If a CLD must accept higher rates, then perhaps trying to negotiate or tie some level of complimentary ancillary services to those rates may help offset the CLD’s legal costs in other areas.

Rate management policy

While many CLDs have billing guidelines in place with their law firms, far fewer have any language in their guidelines that talks specifically about rate management and prescriptive requirements related to how a law firm is to address any proposed rate increases. Consequently, the process becomes much more ad hoc.

A proper rate management policy should address criteria such as when a firm can make a rate increase request, the frequency of a request (e.g., one increase per year rather than two incremental increases), permissible rate increase caps for specific professional groups, and the permissible criteria or reasons that qualify for a rate increase (e.g., merit vs. market pressures). All of these criteria are fundamental to managing expectations up front for both the firm and the CLD and for providing predictability and transparency around rate management.

ALSPs

ALSPs offer CLDs an opportunity to leverage less expensive providers than traditional bricks-and-mortar law firms. Tiering transactional matters or components of a matter away from expensive firms to ALSPs provides CLDs with cost saving and convergence opportunities.

Contingent worker ALSPs are a good example of legal work that typically has been sourced to traditional (and more expensive) law firms. Now, however, CLDs have the option to utilize virtual and less expensive service providers for components of legal matters or other resource needs.

Staffing ratios

As part of rate negotiations, CLDs should consider imposing staffing ratios on firms requiring them to assign a greater percentage of their work to lower cost mid-level associates, rather than expensive partners, thereby offering up potential cost savings for the CLD.

Disbursements & cost recovery

Legal e-billing systems are great for implementing quantifiable rules around non-reimbursable expenses on invoices. However, there are many charges or billing practices that cannot be quantified and corelated to an automated e-billing rule that rejects the proposed expense. Further, there are also other expenses that may be subjective in nature and require more powerful tools to review.

Diving into law firm disbursement data offers a CLD an opportunity to: i) find patterns of billing that are non-compliant with a CLDs billing guidelines; and ii) use the exercise to close any compliance gaps and save money; .

Quick-pay discounts

The importance of timely payment is not lost on a law firm’s management team as tracking outstanding accounts receivable balances is instrumental in measuring productivity and effectiveness of lawyers or identifying servicing issues.

A CLD can utilize quick-pay discounts as a solution to a firm’s balance challenges by providing an incentive for the law firm to lower its rates or offer a discount in exchange for the CLD’s commitment to paying the law firms invoices within a specific time frame.

Alternative fee arrangements (AFAs)

AFAs (e.g., fixed fees, flat fees, contingency, volume discounts, risk collars, etc.) are often touted as the great pricing panacea to hourly rates; however, before accepting any AFA proposal, CLDs should consider asking the law firm to provide quantifiable proof as to the value of the AFA and what if any determination was made to validate that the AFA is a better pricing option for the client. Without any such empirical validation, CLDs risk making costly assumptions around cost savings, when in fact the opposite may be true.

Getting ready to negotiate

Before engaging any law firms in discussions of the above strategies, CLDs need to address two key components that must underlie any of their efforts — billing data and communications.

Billing data — When leveraged correctly, CLD billing data offers a plethora of opportunities to save money in a runaway market that has pivoted in favor of legal service providers. By mining timekeeper data (e.g., rates, year of call, geographic locations), disbursement charges, invoice line item detail, time allocation, staffing ratios, and more, CLDs may uncover opportunities for savings when comparing billing data between multiple firms and ALSPs.

Communications — Having an open and honest dialogue with their law firms on budget constraints or their companies’ cost saving targets may allow CLDs to obtain voluntary law firm rate freezes or even rate reductions in the interest of building stronger and lasting relationships.

Indeed, holding these candid discussions at an opportune time when a lot of companies are facing financial challenges, may remind law firms that many CLDs are committed to growing lasting partnerships with those firms that understand the client’s budgetary pressures and are willing to help clients meet their cost-saving targets for the greater good of the relationship.

While all of these reactions are normal, remember that critical feedback is not personal; it’s integral to business. It’s critical to our legal practices and the business of running a law firm that we are always learning, growing, and developing, especially if a particular behavior has a negative business impact. The key is to understand the situation objectively, try to resolve the issue, and then move forward. With shifts in the way we communicate, feedback can be a great gift to many senior-level attorneys.

Certainly, receiving difficult information can be a challenge. When you handle a negative situation graciously and calmly, however, your demeanor and professionalism will be noticed and appreciated. More importantly, you the gain the ability to pivot in the best direction possible for you and your organization.

Communications strategies

With that in mind, here four tips that may prove useful the next time you find yourself at the receiving end of constructive (and possibly uncomfortable) feedback.

1. Stay engaged in the conversation

It’s common to tune out feedback — and even mentally map out the counterargument before hearing someone out. That’s why many of us shut down or become closed off when presented with negative information. When this happens, we give off nonverbal cues through facial expressions and body language that show we’re not engaged in the conversation. Yet, this is a guaranteed way to rapidly escalate the conversation from constructive to destructive.

Because a conflict cannot be resolved until the situation is understood and addressed, it is important to stay open and actively listening. That way, you can be part of the solution and help everyone find a way to move forward. Keep your face neutral, your arms uncrossed, and your mind open.

2. Keep emotions out of it

Shock, anger, and embarrassment are all common reactions to bad news or criticism. In fact, many people may experience an entire range of emotions when presented with negative information at work. And while these reactions may be considered normal, unfortunately, they only serve to escalate an already negative situation.

By remaining calm and emotionally regulated, you can maintain a professional presence and offer solutions to help determine the next steps.

If you feel the conflict has arisen from misinformation, feel free to make that correction — but stick to the facts. Making excuses or placing blame will only cloud the issue and make it difficult to make headway. Further, it may seem like you aren’t taking responsibility but are instead throwing others “under the bus.”

3. Ask to reconvene

Not every conversation has to be resolved in a split second. Take a break and ask to reconvene once you’ve had a chance to review the details. Separating yourself from the situation will allow time to regulate your emotions, process the information, and start to come up with productive solutions or next steps. And if you have to share the bad news with others, taking time to review the situation can be even more important.

Your ability to remain emotionally regulated and handle feedback well will make it easier for your team or clients to model your behavior and provide a more straightforward path forward for everyone involved.

4. Look for the positive

As unpleasant as it may be, try to remember that constructive criticism, negative feedback, and difficult conversations are all key opportunities for growth. Each time you find yourself at the receiving end of bad news, try to see what you can gain from the situation.

For example, if the issue comes from a client, take time to listen and ask questions. The client may appreciate your openness to their feedback and your desire to improve. If you’ve hit a challenge within your firm’s partnership, having an open conversation will help you build trust and develop the relationship, as well as maintain a healthy work culture for others.

If your client is leaving you for a new firm, ask them why. If they’re committed to moving on, they still may be able to offer insight that will help improve your engagement with your other clients going forward. Being receptive to critical feedback will help establish you as a highly respected lawyer within your field, as well as one who is always trying to be responsive to their clients.

If the bad news comes internally, work together with your colleagues to see if they can share their suggestions on how they could have handled the situation differently. Use these scenarios to strengthen your relationships internally, possibly gaining information that may help you in the future.

Importantly, don’t be afraid to ask for constructive insights from both higher-ups and junior members of your team. Each perspective can contribute knowledge that helps create and refine best practices for your firm.

Responding with grace

When you respond to challenging feedback with grace and open communication, others will come to see you as a confident and emotionally intelligent person — one that they will be more likely to seek out in the future. You will also help create a psychologically safe work culture in which people aren’t afraid to give constructive feedback.

Remember that no one gets to the top without facing conflict multiple times throughout their career. What sets the best professionals and leaders apart is the way they handle these uncomfortable situations.

So, the next time you find yourself in a difficult position at work, remember to stay engaged and open to discussion, separate yourself and process your emotions, and accept feedback with grace and poise. These tips will help you navigate tricky situations confidently and allows you to continue growing and developing your key relationships internally and externally.

Receiving constructive feedback professionally and with grace is one step towards building communication and strengthening relationships among your colleagues and clients. For more on how internal collaboration can enhance your firm’s standing in clients’ eyes, check out our recent Thomson Reuters Institute Insights podcast.

Indeed, one key metric — profits-per-equity partner (PPEP) — is down for the first time since 2009, which occurred during the last global financial crisis.

This scenario and lessons in how law firms are attempting to navigate these choppy waters is mapped out in the 2023 Report on the State of the Legal Market, issued today by the Center on Ethics and the Legal Profession at Georgetown University Law Center and the Thomson Reuters Institute.

The annual report reviews the performance of U.S. law firms and breaks down the factors that most impact financial success and drive the need for a strategic view of firms’ market positions, operations, and future plans.

This year’s report shows that throughout 2022, growing political and economic uncertainty significantly reduced clients’ appetite for transactional work — which had become the white-hot driver of demand throughout 2021 and the early part of 2022. Indeed, possibly the most prominent development in the legal industry in 2022 was the substantial slowing in demand growth that firms experienced throughout the year. On a year-to-date basis through November 2022, overall legal demand contracted by 0.1%, which stood in stark contrast to the 3.7% growth rate recorded for all of 2021.

Not surprisingly, this collapse in demand growth, especially in the transactional practice, fell more heavily on larger law firms. At the same time, many law firms continued to add new lawyers at a healthy pace. As a result, productivity declined, even as direct and overhead expenses remained high, much to law firms’ dismay.

The combination of all these factors pulled down PPEP from its 2021 levels, although it still remains in a relatively good position historically.

However, the report shows that growing uncertainty over macro-issues, such as economic sluggishness in the United States and throughout the world, the challenge of returning to the office, and the rising costs of talent all set the stage for a very difficult 2023 for the legal industry.

One interesting note to the report was the relative strength of the Midsize law firm segment, which stood alone among other market segments in seeing positive demand growth in 2022. The report attributes this to clients’ willingness to move work in search of high-quality but more cost-effective outside counsel.

Looking to the leadership of Luis Urzúa

The report also noted that in times of uncertainty, organizations have a tendency to hunker down to protect against both real and imagined dangers. To steer a firm successfully through such periods requires leaders to embrace somewhat different priorities and be willing to experiment with new ways of operating.

To illustrate further, the report relates the incident of the terrible mine collapse in Chile in August 2010 that trapped 33 miners for 69 days deep underground. Facing certain catastrophe, the miners rallied around their shift foreman, Luis Urzúa, who was a recognized leader and trusted by the men.

The report notes that Urzúa’s leadership skills were a key reason that the miners survived. Taking note that organizations rarely if ever face uncertainties as severe or as consequential as those that confronted the Chilean miners, the report states that nevertheless, it is often in extreme situations that critical leadership traits are most visible.

Urzúa’s leadership manner emphasized telling the truth, requiring teamwork, and staying focused to great success. It allowed his team of miners to concentrate on the singular task at hand — surviving their ordeal together — despite the dire circumstances in which they found themselves.

The report also suggests that as law firms confront a period of significant economic and market uncertainty, the lessons that were exemplified by the leadership of Luis Urzúa can provide some useful guidance for many law firm leaders as they navigate the uncertainties of 2023 and beyond.

You can download the full “2023 Report on the State of the Legal Market” by filling out the form below:

However, that optimistic outlook didn’t necessarily translate into new tech adoption, as fewer small law firms adopted new technologies in 2022 than in either of the previous two years. What small firms did focus on, however, was supplementing and formalizing technologies that had been recently adopted, such as video conferencing platforms that were pushed into use during the pandemic. Further, there’s reason to believe that as small firms anticipate a business boom in 2023 and beyond, business development and marketing upgrades are firmly on their radar.

Just 41% of small law firms adopted new technologies in 2022, according to the report, which was down from 50% in 2021 and 45% in 2020. That decrease in new tech adoption may largely be a function of technology budgets that were static — 78% of small law firm leaders said their budget for legal-specific software in 2022 was unchanged from the year prior, and similarly 82% said their budget for non-legal-specific software also was unchanged. A higher proportion of firms had reported increasing budgets for both types of software in 2021.

A more status quo state of being didn’t surprise Stephen Curley, former chair of the American Bar Association’s GPSolo Division and principal at the Connecticut-based Law Offices of Stephen J. Curley. At his firm, technology spend largely focused on bolstering the use of recently adopted technologies, such as Zoom, Curley says.

“Some of the investments that I made back in 2020 that were more or less done in an ad hoc or an emergency basis, I just backed up,” Curley explains. “I didn’t branch out into something new or different come ‘21 and ‘22.”

Focusing on business development & marketing

When small firms did plan tech investments, however, the report found that business development & marketing priorities played a bigger role than ever before. For example, the percentage of firms planning on purchasing billing & invoice software rose from 6% in 2021 to 18% in 2022. The firms investing in marketing software or a firm website, meanwhile, rose from zero of the 80 respondents in 2021 to 14% of respondents in 2022. These shifting tech priorities mirrored a rising goal for small firms: To grow the size of the firm, which respondents ranked as their top firm goal for the first time.

Part of the reason for these increases could be simple: the emergence of a larger potential client base since the pandemic, Curley notes, adding that previously, as an attorney located in Stamford, Conn., he focused his business development & marketing efforts on clients in his immediate vicinity and out of his local courthouses. Now, with virtual meetings and remote court proceedings, it was possible to take on business in other areas of Connecticut, such as in the state capital of Hartford.

“The reach of a solo who has expertise in those areas isn’t necessarily confined to where you can drive or get to on a Monday morning, when it might have been five years ago,” Curley explains. “Now you can have a more statewide practice, and you can be competitive in other regions of the state that you wouldn’t have otherwise been able to thoughtfully do.”

Curley doesn’t see remote proceedings ending any time soon, indicating that he was planning on continuing to invest in video and other related technologies. Indeed, the report echoed this point: More firms than ever before (73%) said that more than 10% of their initial client meetings were done remotely. More than two-thirds also said they preferred having marketing events, product trainings, and sales & renewal conversations with outside vendors in a virtual setting. And while the proportion of firms with more than 10% of attorneys working remotely dipped slightly from 2021, the survey still reported more than half of firms (60%) with that level of attorney remote work.

Taken together, the report paints a picture of small law firms that are conscious that changing business development and legal practice strategies is necessary for the evolving legal world and are solidifying their efforts to do so.

Not surprisingly, this technology adoption is not only taking place among younger, potentially more tech-savvy attorneys, but also among more seasoned attorneys who find themselves at the frontlines of technology now that the virtual legal world has proven to not be a fad, Curley says. “I think, to a degree, those who didn’t throw in the towel and are still practicing are going to find themselves more and more wedded to it by choice or otherwise.”

And particularly among attorneys who are a decade or more into their career and may be at the peak of their revenue-generation power, it’s even more crucial to keep up with the changes. “If you’re not up to speed on that technology, you’re losing your edge and you’re losing the ability to maximize the most productive years in your career,” Curley adds.

The Great Recession and its fallout saw the introduction of two relatively new concepts into the legal marketplace: the alternative fee arrangement (AFA) and the rise of in-house legal operations and procurement. Prior to the recession, the typical pricing arrangement between a client and a law firm was a relatively simple matter of the firm setting a rate, billing the client, and the client then paying the bill.

As clients increasingly turned to their legal operations and procurement teams to help drive down their own legal costs, the billing arrangements between clients and law firms became more complicated. Enter the age of the AFA, a plethora of pricing options encompassing capped, collared, and fixed fees, rebates, volume discounts, and much more.

While some law firms have had at least some members of their professional staff focused on pricing since long before the Great Recession, for many more, the idea of a dedicated pricing team has grown in importance in recent years.

In a few short years, the use of AFAs grew to nearly 20% of the average law firm’s revenues, and with the rise in revenue, so grew the need for experienced professionals to help shepherd these arrangements into being and thus ensure their success. A key part of that role quickly became having these professionals involved in direct negotiations on rates with highly trained procurement professionals on the other side of the table. In addition, law firm pricing professionals soon were responsible for other matters, such as the strategic navigation of tools like reverse auctions, which clients sought to use aggressively to contain their legal spend.

While some law firms have had at least some members of their professional staff focused on pricing since long before the Great Recession, for many more, the idea of a dedicated pricing team has grown in importance in recent years.

For many firms, this has resulted in fierce competition for experienced legal pricing talent to lead these critical pricing functions. Compensation has followed demand across the industry, from lead roles down to junior analysts.

The True Value Partnering Institute, in collaboration with its partners, Rees Morrison at Savvy Surveys for Lawyers, and the Thomson Reuters Institute, have tracked the progress of these pricing professional for many years. To that end, the group has published its latest report, Compensation for law firm pricing professionals at the start of 2023. Launched originally in 2017, this survey has charted the growth of legal pricing professionals, not only in terms of compensation but also team composition, as well as examining where the team fits into current firm structure, and how the team spends its time.

According to the most recent findings, compensation across pricing roles has risen notably. For example, in the last iteration of this survey, chief-level pricing officers were nearing $500,000 in total compensation; the most recent results show nearly every chief-level pricing officer exceeding this threshold. Even at the director level, some highly compensated directors were earning as much annually as their counterparts with chief-level titles.

For a more complete examination of the current state of compensation and job roles for legal pricing professionals, you can access the new report, Compensation for law firm pricing professionals at the start of 2023 here.

The findings also caution against falling into the trap of assuming that salary is reflective of experience or expertise. Drawing an analogy to lawyers, one would be mistaken to assume that a higher-paid lawyer at a larger firm always provides higher quality representation than a peer at an Am Law Second Hundred or Midsize law firm — the same holds true for law firm pricing professionals. In both cases, the successful outcome of a pricing arrangement is much more closely tied to the skill of the individual, and many skilled pricing professionals can be found outside the echelon of the largest law firms.

In that same vein, the number of years a professional has been with their current law firm was not found to be indicative of compensation. Indeed, it was more common to find higher compensation among professionals with shorter tenures at their current firms. However, this is likely a reflection of the highly competitive market for these professionals. More than 50% of respondents indicated that they’ve been with their current firm for fewer than five years with near 25% reporting a tenure of less than a year-and-a-half.

The market for experienced law firm pricing talent is, indeed, competitive, and the result, predictably, appears to be high mobility and commensurately competitive salaries.

This process then kicked off a volley of communications — internal and external — and necessitated forwarding emails, PDF letters, and spreadsheets for analysis and follow-up. The legal operations team provided some central support, but this was often challenging because data limitations made it difficult to account for past rate increases and freezes across different firms. Overall, the efforts felt somewhat ad hoc and very time-consuming.

“It has always been important to us to get this right,” says Antony Klapper, Deputy General Counsel in Product Liability & Regulatory at VWGoA. “We want to be fair to our law firms, whom we view as trusted partners. At the same time, we must manage our company’s finances responsibly — and execute all of this efficiently with a leanly-staffed team.”

Trisha Fletcher, Legal Operations Specialist at VWGoA, emphasizes these points as well. “Collectively, our team had a strong desire to find a better way to do this.”

Taking a new approach

The VWGoA team launched a new initiative to process rate increase requests more effectively for 2022 and beyond — one that would ultimately win them an ACC Value Champion Award.

The first step, the team decided, was to establish a more centralized, uniform approach. This would be managed by legal operations with strategic guidance from legal leadership. Of course, there would still be coordination with in-house counsel, but in a more efficient way — built around a centralized process, featuring stronger use of data analytics, benchmarking, and core decision governance from leadership.

The next step then, was to improve the in-take process. Outside law firms were asked to submit their rate increases within a designated window of time and through a common portal. This allowed the team to consider them all together, performing side-by-side comparisons of similar firms to ensure more consistent treatment under then-current market conditions. This commonality also enabled the use of greater analytics capabilities to assess past rate increase history, as well as internal and external benchmarking comparisons.

Within this framework, the team also began examining firms’ compound annual growth rate (CAGR). A law firm’s billing rate CAGR shows a multi-year view of the firm’s rate increase history, accounting for past increases and rate freezes. Standardizing the figures this way enabled better side-by-side comparisons across the portfolio, and showed which law firms were high or low outliers based on their multi-year rate history.

The VWGoA team also found it very helpful to use data to model the dollar impact of the requested increases per timekeeper for the coming year. This was instrumental in identifying the most impactful requests in order to focus on managing costs.

Seeing the benefits

Through this new approach, VWGoA legal leadership and legal operations were able to implement more effective governance and decision logic to streamline the rate decisions in light of portfolio metrics and company financial considerations. By streamlining and consolidating the process, they freed up considerable hours that their staff had previously spent responding to rate increase requests as they came in, managing them all through one common workflow. They saved further time be setting auto-approval thresholds for certain rate increase increments.

In the end, the projected savings for the coming year were significant, with rate increases for various timekeepers, for example, trimmed to about one-half of the increment originally sought. The VWGoA team devoted particular attention to adjusting high outliers and managing the impact on budget in a sustainable way.

Beyond time and money savings, the team built a process that leveraged better data to drive better decisions. The result is a strong business case showing how those in legal can use technology and data more effectively to increase productivity and execute against business metrics.

From law firms’ perspective, understanding the data that informs a client’s financial position is a helpful way to focus their rate increase conversations onto a productive end for both sides.

“We recognize that, in this economy, many clients are facing challenging headwinds,” says Susan Vargas, Partner at King and Spalding. “As trusted partners, we are glad to talk about goals and metrics to strengthen our relationship in mutually beneficial ways — and we welcome informative data to help us do that.”

These preferences can be attributed to generational or gender differences, personal style or cultural preferences, individual reluctance to stray from their comfort zone, or feeling for better work/life balance.

If it was not clear before, the conditions and restriction placed upon workplaces during the global pandemic exposed the truth that the mindset of only one way — no options — is neither fair nor ultimately workable. Leaders need the ability to manage people with unique identities and from different generations and holding different performance capabilities. Then, leaders need to customize their interactions to each person’s uniqueness.

In the past, workplace norms were changed most quickly when clients demanded it, such as having women in firms on client teams and in leadership roles, or more recently, for flexible work arrangements. In general, with notable exceptions, clients have tended to be more open to flexibility on how and where professionals work and to diversity and inclusion factors, including generational preferences, than have their outside firms.

Carefully thought out approaches by practice leaders, managers, and the direct supervisors of matter and engagement teams within law and tax & accounting firms can help fuel the feeling that each individual belongs in the organization.

Working through the hybrid challenges

Not surprisingly, hybrid work adds complexity to internal relationships, especially those meant to serve and build connections with clients. Physical limitations — such as not being seen in the room and less opportunity for casual and spontaneous conversations — will decrease some professionals’ opportunities if not proactively dealt with by management. In particular, limits on physical proximity can lead to “familiarity bias” and “proximity bias,” which can lead to an out-of-sight, out-of-mind attitude from firm leadership when assigning work.

Those professionals working virtually also can have fewer opportunities to share their perspectives. That means that intentional effort must be made by managers to ask for their feedback during team and group meetings.

Norms around professional standards can also get murky over time, especially if there is no intentional scheduling of coaching, training, mentoring, and apprenticeship for business development. Without these career advancing practices, employee expectations and any desired upskilling can suffer because employees have fewer informal opportunities to develop relationships internally at the firm and with clients.

Actions for leaders & aspiring leaders

How leaders and managers can resolve the tendency to push employees back to pre-pandemic norms and mindsets that no longer serve personnel and firm goals is a necessary question with complex answers and a variety of related concerns over where and how work gets done. Some differences can raise strong emotions, including: the differing needs and desires among parents and non-parents; and among those workers who enjoy the camaraderie and nurturing relationships of an in-person workplace and those who don’t care about that as much.

Of course, the question of how those employees who are new to the firm, especially newly minted lawyers, can acquire the needed orienting and mentoring is vital, as is how they can make themselves and their skills known to the more seasoned lawyers. For many, it’s not a generational issue as much as it’s being driven by external motivations and the other factors.

To create better outcomes, law firms and tax & accounting firms need to increase their investment in developing managers at all levels. Daily actions of supervisors, such as using team norms for engagement, seeking multiple viewpoints during group settings, and ensuring team members are accountable all should be daily behaviors. Consistently practices, these behaviors can go a long way to establish productive connections and effective micro-cultures of collaboration and respect among their team members.

Tips for leaders and managers

There are several actions and changes in behavior that leaders and managers can undertake now to gauge the work preferences of their employees, including:

• • • ask questions to establish a more accurate view of preferences and needs without assuming that one size fits all;
    • conduct internal research on the expectations and wants of each generational cohort and level of hierarchy through one-on-one conversations or short surveys if possible;
    • encourage cross-generational discussion because the time spent will pay off in many essential ways;
    • assemble a multigenerational group of leaders and high potential professionals to have candid discussions in an environment of psychological safety; and
    • agree on a short list of desired leader attributes.

Importantly, law firms and tax & accounting firms need to realize that their leadership is situational and revisiting the needed leadership attributes and policies every few years (if not more frequently) is a good idea.

While the impacts of the still on-going pandemic are still being felt, adjusting to living with these changes long-term requires a mindset from all generations. Simply demanding that everyone returns to the office full time is not a workable strategy that will allow firms to retain their most desirable talent. Instead, showing an openness to changing needs is most likely to produce the kind of work environment that sustains and retains valued talent and is productive and profitable long-term.

Looking over the past year, three key themes — around client feedback, talent management, and law firm business development — strongly resonated in our columns and throughout the legal industry.

Leveraging client feedback

Learning what clients are thinking by way of formal client listening programs or feedback opportunities was an especially potent manner in which law firms sought to improve their client relationships and demonstrate their value to clients over the past year.

Whether gathering feedback at the client interview stage or in post-pitch discussions, receiving feedback from clients around what the firm and its lawyers did right or wrong, how the firm’s client service could improve, and even what competitors were doing it better may lead to some uncomfortable questions, but such client insight can prove extremely valuable to the firm’s performance going forward.

Further, a two-part series of columns on client listening programs showed how valuable those can be to a law firm’s own bottom line, detailing how clients spend twice as much with those law firms that ask them for formal feedback than with those that don’t. The series also discussed the typical barriers that exist to establishing client listening programs, most significantly, of course, trying to engage firm partners in the process.

Talent & retention

Not surprisingly, finding ways to keep key legal talent was quite possibly the top concern among law firms and other professional services firms throughout 2022 — and our Custom & Advisory columns certainly reflected that.

Indeed, it became clear as the year went on that legal talent had become extremely mobile, and many lawyers, especially younger associates, were switching law firms with increasing frequency in order to find a good fit that met their needs. Interestingly, while the legal industry initially thought throwing more money at these associates would solve their retention problems, it seemed there was much more at stake in the minds of these associates.

Numerous industry surveys showed that among associates, compensation ranked lower as a reason to stay at their current firm. Much more important in their minds was the firm’s culture and leadership, according to our research.

This meant that law firms needed to look for incentives beyond compensation to retain their top legal talent, such as improving how fairly associates are treated and how much they are shown respect by their current firms — both of which ranked very high on the list of reasons why an associate would choose to leave or stay at their current firm.

In our surveys, associates also noted that they are most likely to leave a firm if they perceive a lack of opportunities for career growth. This insight was extremely valuable to those law firms that were concerned about lawyer retention because it gave them one clear area to address by offering more career development, networking, mentoring, and training opportunities. In fact, all of these factors contributed greatly to an enhanced sense of well-being among lawyers, something too that law firms would be wise to promote in order to keep top talent from leaving the firm.

Business development strategy

As the legal industry (and the rest of the world) moved past the worst of the global pandemic throughout 2022, those law firms that embraced remote and hybrid working environments were now confronted with managing clients that had done the same, dramatically changing how lawyers and clients were interacting.

For example, during the pandemic and now going forward, it became clear that videoconferencing was far superior to phone calls with clients, allowing lawyers to better establish rapport more rapidly and greatly enhance the client relationship.

Another Custom & Advisory column picked up on the theme of improved client relationships by suggesting that a business development strategy that’s lodged in how the firm’s value is demonstrated to clients can be a way for firms to differentiate themselves from the competition. Clearly, all firms lay claim to having client-centric service, but only those that make that claim come to life by demonstrating at every touch point within the client experience will truly differentiate themselves, the column noted.

Like with many strong themes that emerged through our Custom & Advisory columns, embedding the demonstration of value within the client experience was not just a good-to-have mantra of today, but rather a necessary component for law firms if they were to continue forward successfully in the current environment.

Clearly, business development doesn’t just begin and end with finding additional ways to serve current clients. Law firms should be constantly on the look-out for new practice areas or service offerings that can help them add business from current clients and attract new ones. For example, the area of environmental, social & governance (ESG) has become a potentially lucrative vein of new business in compliance, corporate work, and risk management matters for those law firms that are early adopters.

As reflected in our Custom & Advisory columns published throughout 2022, the themes of client feedback, talent management, and business development greatly influence firm leaders’ focus over the past year. Moreover, these themes — and others that will be chronicles here — are likely to continue weighing on law firms leaders’ minds into the next year and beyond.

If you’re interested in learning more about some of the research used in our monthly Custom & Advisory column, and how this data can be applied to your firm, please visit here.