US law firm turnover rates reached record high in 2021 – report

Retention is about more than money

US law firm turnover rates reached record high in 2021 – report

US law firms are facing a growing talent war that threatens to upend the legal industry's momentum, according to a new report.

The 2022 Report on the State of the Legal Market, issued on January 11 by the Centre on Ethics and the Legal Profession at Georgetown Law and Thomson Reuters Institute, warns: "The traditional law firm response of just throwing more money at the problem is not likely to work as well going forward."

The report notes that the law firm market has rebounded strongly, and firms are performing well financially despite the ongoing pandemic. Demand soared in 2021 following a slow start, driven primarily by real estate and corporate practices. Litigation is one of the major practice areas that is still below pre-pandemic levels. Firms continue to raise rates aggressively, helping push profitability to record levels.

Associate compensation is now surging at double-digit rates – some of the highest levels in more than a decade, according to the report – driving up costs for firms.

However, retention has plummeted. Attorney turnover has risen to record levels for firms, "edging dangerously close to losing almost one-quarter of their associates in 2021." The report warns that relying on higher compensation to retain talent may not be sustainable nor particularly effective.

"While firms are understandably seeking a return to 'normal,' the reality is that, as we predicted last year, the legal industry emerging from the pandemic is not the same one that entered it," said James W. Jones, a senior fellow at the Centre on Ethics and the Legal Profession at Georgetown Law, and the report's lead author. "Much of that change is now happening inside the firms themselves as lawyers re-evaluate their careers and life priorities. Thus, the challenge for firms in 2022 will be adapting successfully to these changes, rather than relying on what has worked in the past."

Lawyers at firms with the lowest turnover billed an average of 51 more hours per year than their counterparts at firms with the highest turnover, the report found.

Many lawyers, especially younger ones, may now be giving higher priority to intangible factors, such as feeling appreciated and recognized, as well as work/life balance and mental wellbeing, the report indicates.

The report identifies additional issues that law firms need to tackle, such as hybrid work and operational efficiency.

"There seems to be some emerging consensus that most firms will probably require about three days a week in the office for most lawyers," the report notes. Firms will have to determine how to manage key areas including equitable assignment of work, mentoring, evaluations, career advancement, and maintaining firm culture in hybrid work environments.

Firms showed "surprising agility" during the pandemic in transitioning to remote work. But the report says they now need to expand that agile approach into other operational areas such as managing support staff and improving financial practices, including billing and collections.

"Much of firms' successful recovery has been a result of their willingness to adapt quickly and decisively in response to the challenges of the pandemic," said Paul Fischer, president of Legal Professionals, Thomson Reuters. "Adapting to the rapidly evolving needs of the post-pandemic workforce will require expanding that risk-taking and decisiveness into areas such as operations, support staff, and technology to drive additional efficiency gains."

The 2022 Report on the State of the Legal Market is issued jointly each year by the Center on Ethics and the Legal Profession at Georgetown Law and the Thomson Reuters Institute.

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