Recent research reveals that many large law firms, except for the top 10, express concerns about the financial impacts of generative artificial intelligence (GenAI) on their practices.
Analysis from PwC’s 33rd annual survey of the top 100 law firms indicates ongoing robust financial performance, with almost all firms seeing fee income growth in 2024. However, the advent of GenAI presents a potential disruption to traditional business models, with the majority viewing it as a threat rather than a benefit.
A significant portion of law firms anticipates that GenAI could automate a large share of their chargeable work, potentially affecting pricing and team structure. 80% of the top 100 firms foresee at least 6% of chargeable work being automated, with a third predicting automation could rise to at least 16%. This shift could drastically alter the legal sector’s landscape.
In contrast, the top 10 firms are optimistic, perceiving benefits from GenAI, such as enhanced productivity leading to increased work capacity with existing clients. Conversely, over half of the remaining firms predict stable work volumes but expect a decrease in pricing, and a fifth anticipate a reduction in demand as clients adopt GenAI tools themselves.
Investment in GenAI tools is significant among law firms, with nearly 90% of surveyed firms having implemented or trialled such technologies, a marked increase from 55% in 2023. Despite this investment, returns are not yet widely realised, with only a single firm monetising applications to date.
The trend towards increased external investment, particularly from private equity, is notable, driven by the potential of alternative business models to revolutionise legal practices. Private equity interest is further stimulated by the disruptive potential of technology, offering opportunities for operational efficiencies through automation.
Additionally, lateral hires and strategic acquisitions continue to be key growth strategies, with firms looking to expand geographically or across service lines. However, the pursuit of strategic mergers remains less common.
Financially, the report highlights a general increase in fees and profits across all size brackets, driven by stringent cost control and increased charges. However, cyber risks and macroeconomic volatility are cited as significant threats to future growth, with cyber-security investments increasing notably among the top 25 firms. The concern regarding automation reducing client demand for legal work emerges as a new focal point this year.
PwC’s Kate Wolstenholme concludes that while law firms are thriving, the pace of technological innovation necessitates strategic transformations in operating models and workforce planning to fully harness the opportunities provided by GenAI, data and cloud technologies.
The legal sector faces a period of transformation driven by GenAI. While top firms see potential benefits, most large firms are wary of the financial implications. Strategic investment and adaptation will be essential to navigate this evolving landscape.
