Report shows resurgence of transactional practices and effective cost management
A report recently released by Thomson Reuters revealed sustained growth for law firms in the second quarter of 2024, led by a resurgence in transactional practices and solid financial fundamentals.
According to the Q2 2024 Thomson Reuters Law Firm Financial Index (LFFI), law firms saw an overall demand increase of 2.4 percent compared with the second quarter in 2023.
The LFFI rose by eight points to a score of 67, which reflected six consecutive quarters of law firm progress and a significant recovery within the legal industry. The diversified revenue stream of law firms contributed to their financial stability during this period. This has been the third-highest score for the LFFI since the global financial crisis.
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Transactional and counter-cyclical practices
The Q2 report showed the growth of transactional practices, including general corporate practices, mergers and acquisitions, real estate, and tax. These areas experienced a comeback after almost three years of underperformance. Transactional fees worked, driven by higher billing rates, rose in Q2.
This resurgence among transactional practices provided balance within the legal industry, which positioned law firms for what could potentially be one of the most sustainable growth periods in recent history.
Counter-cyclical practices – including litigation, bankruptcy, and labour and employment – showed robust growth, according to the Q2 report. These practices helped drive overall growth for law firms, especially during times of economic uncertainty.
Litigation saw a 3.4-percent increase in demand, the report stated. Bankruptcy experienced a 2.4-percent growth, while labour and employment had 2.2 percent.
Lawyer productivity and expenses
“Law firms’ recovering productivity rates may be an early indicator of the impact AI and generative AI tools are having on their ability to streamline workflows and free up lawyers for more strategic activities,” said Raghu Ramanathan – president, legal professionals at Thomson Reuters – in the news release.
For the first time since the transactional boom in late 2021, lawyer productivity growth became positive at 0.4 percent, said the Q2 report. Over fifty percent of firms saw this growth, with lawyers billing more hours compared with the second quarter of 2023.
“79% of law firm respondents expected AI to have a high or transformational impact on their work within the next five years,” Ramanathan said. “Firms that embrace new legal tech tools will be best positioned to better serve their clients, enabling them to sustain their success far longer than firms on the AI sideline.”
Law firms have also succeeded in managing their expenses for this quarter, the report showed. Direct expenses increased by 5.3 percent, down from the 5.4-percent growth in the first quarter. Overhead expenses grew by 5.0 percent, down from the 5.5-percent increase in the previous quarter.
The stabilization of associates’ salaries and the easing of talent bidding wars have helped law firms effectively manage their costs.
