Key insights:

• • • AI adoption is now a talent retention and recruitment issue 鈥� Law firms that lack professional-grade AI tools risk losing both current and prospective talent.

    • Client relationships are increasingly tied to AI-driven value 鈥� Corporate legal departments expect their outside counsel to use AI to improve productivity, quality, and innovation; however, few believe most of their law firms are meeting those expectations.

    • Law firms must rethink their business and pricing models 鈥� Although many firms feel financial pressure to accelerate AI adoption, most have not adjusted their pricing structures to reflect AI-driven efficiencies.

Law firms are experiencing unprecedented pressure from the rapid advancement of AI, which is affecting their talent recruitment, client relationships, and business models, according to deeper analysis of the recent 成人VR视频听2026 Future of Professionals Report.

To help law firms navigate this AI-driven disruption, 成人VR视频 has published a new action paper, Future of Professionals Report 2026: Actionable insights for law firm leaders, drawing on insights from 736 law firm professionals and 203 corporate legal professionals.

Indeed, the new paper highlights that almost one-quarter of law firm professionals will refuse a job offer if the prospective firm lacks professional-grade AI tools. Further, any perceived misalignment between a professional鈥檚 AI preferences and the firm鈥檚 strategy increase the risk of attrition, especially among those professionals who value mentorship and skill development.

You can download your copy of the听2026 Future of Professionals Report听丑别谤别

In addition, almost one-third of corporate legal professionals say they are reconsidering relationships with outside law firms that do not demonstrate how they鈥檒l offer clear AI-enabled value within the next 12 months, the paper notes. And clients increasingly expect their outside counsel to deliver efficiency, quality, and innovation through AI; however, only between 3% and 6% say they believe most of their outside firms are meeting each of these expectations.

Finally, almost 4-in-10 law firm professionals say they are feeling financial pressure to act faster on AI, yet almost two-thirds say their firm鈥檚 pricing structure remains unchanged despite clients鈥� demand for new models that reflect AI-driven efficiencies and increased value.

Dealing with AI-driven challenges

The paper notes that firms with approved AI tools are more attractive to talent, while the use of unauthorized “shadow AI” by more than one-third of professionals creates security and compliance risks. To address this, firms should provide transparent AI solutions and invest in training. While AI may reduce demand for some junior roles, it may increase the need for others, especially hybrid tech-legal roles.

On the client relationship front, many corporate legal departments are facing internal pressure to adopt AI and expect their outside law firms to keep pace. In-house legal teams increasingly expect AI-enabled productivity, quality, and innovation, yet many see a significant gap between expectations and delivery. For example, 70% say they expect productivity gains, while only 6% say they believe most of the firms they work with are delivering them.

Clients, for their part, also expect pricing models that reflect AI-driven efficiencies through greater cost certainty and transparency. Outside law firms that fail to adapt may risk fee pressure, ultimately losing business to more agile competitors.

Only half of professionals see their firm鈥檚 AI strategy reflected in their daily work, and this potential misalignment could cause talent and AI adoption problems.

Fortunately, amid all these challenges for law firm leaders, the paper identifies three strategic paths law firms can take, including:

• • • Using AI to elevate by automating routine tasks that would then allow professionals to handle complex, high-value work.
    • Using AI to scale by prioritizing productivity and efficiency and handling high volumes of routine work with AI and human oversight.
    • Using AI to reimagine by rebuilding the firm around AI and offering new models like outcome-based pricing and embedded partnerships.

Unfortunately, some firms are choosing to defer this crucial decision, which increases their risk of client and talent attrition as the market evolves.

Whichever path law firms take, however, the paper makes clear that firm leadership must clearly communicate their AI strategy.听The paper notes that only half of professionals see their firm鈥檚 AI strategy reflected in their daily work, and this potential misalignment could cause talent and AI adoption problems.

The paper encourages firms to move quickly to close the gap between client expectations, talent needs, and operational realities by defining a clear AI strategy, investing in training and tools, and adapting pricing models for an AI-driven market.

Using the guidance from this action paper, firm leadership can navigate these challenges and move their law firm into a more responsive, profitable, and sustainable AI-enabled future.

You can read a full copy of the听Future of Professionals Report 2026: Actionable insights for law firm leaders听paper here

Key insights:

• • • GCs place increased importance on commerciality 鈥� Business enablement is becoming the fastest-growing priority for corporate legal general counsel, creating an opportunity for UK law firms to not only provide legal advice, but to help GCs demonstrate business value to their C-Suite.

    • Business savviness serves as a differentiator 鈥� When asked why they would select one law firm over another, the proportion of UK GCs mentioning business-savvy saw a marked increase in our latest report, as did the concepts of commerciality, knowledge of the client鈥檚 business, and knowledge of the client鈥檚 sector.

    • Understanding the business is critical in an AI world 鈥� Clients are largely ahead of their outside firms on AI usage and sentiment. As AI automates more routine legal work, successful UK law firms can provide additional value above AI output by translating legal advice into practical business guidance and better commercial outcomes.

The definition of what it means to be a successful law firm in the United Kingdom is expanding. No longer is it enough to simply provide subject matter expertise for clients, with good lawyering becoming table stakes to even be considered for a panel. Neither is it enough to provide this expertise in a cost-saving and time-efficient manner, as clients are increasingly expecting of all firms.

Today, clients are expecting their outside UK law firms to go further into truly understanding the client鈥檚 business proposition, according to the recent 2026 State of the UK Legal Market Report from the 成人VR视频 Institute (TRI). And while efficiency and expertise remain top priorities, more corporate general counsel than ever before are rating business savviness and commerciality as key areas of focus. Clearly, GCs don鈥檛 just want legal advice from their outside firms, they want positive business outcomes.

Rather than provide an additional imposition on firms, however, forward-thinking law firm leaders in the UK will view this as an opportunity to stand out. Particularly in an AI-driven age in which low-level work continues to be automated, leaning into commerciality can offer lawyers a way to showcase their value while providing the positive business outcomes that clients truly desire.

Increased focus on enabling business processes

Client needs for outside counsel have evolved in recent years, simply because the corporate legal department itself has evolved. Business pressure has demanded that GCs turn their departments into a business enabler, rather than a cost center. And now corporate executives are measuring legal department success on how well it supports the rest of the organization.

Amid this pressure, GCs have seen mixed results. They have instituted a number of changes to their departments in recent years, leading to the development of corporate legal operations teams and an increased focus on success metrics that tie back to the rest of the business. And while 86% of global GCs say they believe their legal department is a significant contributor to organizational objectives, according to TRI interviews, only 17% of C-Suite executives agree. GCs are doing the work, but corporate executives aren鈥檛 seeing their preferred results.

In order to close that expectation gap, it鈥檚 unsurprising that GCs are doubling down on business enablement at the top of their agenda. When asked about their strategic priorities over the coming year, efficiency remained the primary focus for most GCs. However, business enablement represented the fastest growing priority, doubling its share of mentions to 27% of GCs in our latest research.

The definition of what it means to enable the business varies depending on the GC, of course. Some mentioned the need to enable business initiatives, others mentioned support specifically for M&A activities, while still others pointed to the imperative to meet changing business needs such as business innovation.

As a result, GCs are now increasingly turning their attention towards how their outside law firms can help with business enablement, and in doing so they鈥檙e shifting their criteria for choosing outside firms in the UK. When asked what drives favorability when selecting one firm over another, the proportion of GCs mentioning business-savvy rose to 37% in our most recent survey, compared to 31% from the year prior. Diving deeper into more specific sub-themes, the concepts of commerciality, knowledge of the client鈥檚 business, and knowledge of the client鈥檚 sector all saw increases in the portion of respondents mentioning those factors.

As the report notes, under real pressure to demonstrate their strategic value upwards, GCs are looking for external advisors that can help them meet their commercial goals. Those UK lawyers who want to stand out can begin by not only providing legal advice, but much-desired business advice as well.

The impact of commercial focus

Law firm leadership and partners in the UK have long said that they鈥檙e happy as long as their clients are happy. However, what does it mean for clients to truly be happy? That definition has shifted over time, and even has different permutations based on clients鈥� industry and geographic location.

When measuring their own success, UK general counsel place less emphasis on compliance & risk compared with their global counterparts, and less emphasis on cost & financial outcomes than do GCs based in the United States. Instead, UK GCs are heavily focused on quality & effectiveness, getting to the best outcome possible regardless of what it takes to get there.

UK law firms should be measuring their own success similarly. As the report notes, the ability to understand a client鈥檚 industry, strategic priorities, and risk tolerance 鈥� and then to translate legal advice into practical guidance for decision-making 鈥� has become central to how today鈥檚 clients select their outside counsel. Although work is cost-sensitive to a degree, law firms will ultimately be judged on their ability to deliver on high-stakes, bet-the-company matters, in which superior outcomes will outweigh marginal cost savings.

This is particularly true in an AI-centric environment. Previously, law firms were more readily able to compete on price for some low-level, repeatable work. Now, however, that work is increasingly being automated away. Clients are largely ahead of their outside law firms in both AI usage and sentiment towards AI鈥檚 impact on the legal industry, the UK report shows.

As the report notes, the ability to understand a client鈥檚 industry, strategic priorities, and risk tolerance 鈥� and then to translate legal advice into practical guidance for decision-making 鈥� has become central to how today鈥檚 clients select their outside counsel.

What’s more, corporate legal departments are becoming unafraid to use AI in those situations in which it makes cost-efficient sense with little legal risk. This means that law firms need to stand out not only from one another, but from the output that internal AI tools can provide.

Understanding the client鈥檚 business context can help provide this additional value, the report notes. That does not mean every lawyer needs to become a business consultant; but it does mean that firms must embed commercial understanding into the way they advise clients, staff matters, manage relationships, and measure success. Lawyers who can connect legal risk to business consequence will be better positioned to earn client trust, strengthen panel relationships, and demonstrate value in ways that AI tools cannot easily replicate.

As corporate legal departments in the Uk and elsewhere continue on their own path to become business enablers, they will increasingly expect their outside counsel to evolve with them. Those firms that thrive will be those that understand not only the law, but the client’s market, pressures, priorities, and definition of success.

In the UK legal market of 2026 and beyond, commerciality is not simply an added benefit 鈥� it is becoming central to what clients believe good lawyering looks like.

You can download a full copy of the 成人VR视频 Institute鈥檚 recent 2026 State of the UK Legal Market Report here

Key takeaways:

• • • Productivity softened at an unexpected time 鈥� Productivity declined to -0.4% in Q1 2026, even as demand remained strong at 2.7% growth.

    • Value per lawyer provides the clearer signal 鈥� Fees worked per lawyer (or value per lawyer) continues to grow, reflecting the combined impact of hours and rates despite volatility in productivity.

    • Margin pressure is emerging unevenly 鈥� In the Midsize segment, value growth is trailing expense growth, creating early signs of compression.

The Q1 2026 results present an unusual combination. Demand grew by 2.7%, well above historical norms, and worked rate growth remained elevated, with Am Law 100 firms pushing toward double digits, according to the 成人VR视频 Institute鈥檚 recently released听Q1 2026 Law Firm Financial Index. These inputs would typically support strong overall performance.

Yet productivity declined slightly, falling to -0.4% after six months of positive growth. On its own, that change is modest. In context, however, it reflects a more interesting shift in how performance is being generated.

The key is understanding what productivity measures and what it does not. Law firms鈥� traditional measure of productivity is hours worked per lawyer, which tracks the average number of hours logged by a firm鈥檚 lawyers to give an estimate of efficiency. However, that traditionally has not incorporated pricing mostly because, historically, law firms have focused more on the hourly output of lawyers as the mark of success. This means firms were often not concerning themselves with whether the pattern is profitable, let alone taking into account factors like demand elasticity or automation鈥檚 impact on the equation.

This is changing, however. As more and more revenue growth is being driven by rate increases rather than increases in demand or hours per lawyer, the disconnect is being magnified. And this distinction helps explain why strong inputs are producing a more muted output and why understanding that relationship is vital for firm leaders to get an accurate picture of how large law firm economics are evolving.

The divergence between hours and value

To see that situation more clearly, it is necessary to move from activity-based metrics to value-based ones 鈥� and fees worked per lawyer (or what we鈥檙e calling value per lawyer) provides that view. Fees worked is a pre-realization revenue proxy, representing the total value a firm produces before billing and collections take over, then averaging it across lawyer headcount. This method accounts for scale, giving a cleaner read on efficiency than looking at just raw hours. Because fees worked per lawyer folds rates and hours into a single measure, it captures the value that the traditional productivity metrics leave out.

As shown in the chart below, the industry is experiencing a widening gap between the hours lawyers work and the value that their work generates even as demand has remained consistently positive and rate-driven growth has stayed strong across recent quarters. As a result, productivity has been more volatile and recently turned negative. At the same time, fees worked per lawyer (or full time equivalent) has continued to trend upward, indicating that value per lawyer is still increasing rapidly despite what the old metric might have historically implied.

That means that law firms are producing far more value per lawyer even though hours per lawyer have softened slightly. The factor magnifies once you consider what period firms are measuring against. The first quarter of 2025 was exceptionally strong, creating a high baseline that can subdue the current level of growth 鈥� against a 鈥�normal鈥� year, law firm performance would be even greater.

While this is a historically recent phenomenon, it鈥檚 not one unique to 2026. Strong rate growth has often offset weaker productivity for the last couple of years. What makes the first quarter of this year more unique is that it no longer seems uniformly true across the market.

Where performance is beginning to diverge

The Q1 2026 data shows a clear separation in how firms of different sizes are translating demand and rates into value per lawyer. Among Am Law 100 firms, for example, strong rate growth remains the primary driver of revenue performance, which is being supported by disciplined headcount management that鈥檚 kept efficiency high. These firms have continued to push pricing while maintaining selectivity in hiring, allowing value per lawyer to remain resilient even as productivity softens.

The Am Law Second Hundred has embraced a different strategy. Firms in this segment are continuing to pursue growth through lateral hiring and increased capacity. This supports overall revenue but can dilute per-lawyer metrics as new lawyers ramp up. The result is softer value per lawyer despite the segment鈥檚 continued headcount expansion.

The most consequential shift is occurring in the Midsize law firm segment. Rate growth has slowed for Midsize firms, while those in other segments have maintained or exceeded prior pacing. At the same time, expenses are accelerating and are now outpacing overall fees worked growth. This creates a dynamic in which value per lawyer is still increasing, but it鈥檚 running closer to expenses.

What this all means for profitability

In the near term, there is no indication of a broad downturn. Value per lawyer continues to grow despite declines in hours per lawyer, and pricing remains strong, particularly at the top of the market. At the same time, however, the balance between value and cost is beginning to shift, most notably in the Midsize segment, where expenses are rising faster than revenue proxies.

Looking ahead, we will keep our eyes on value per lawyer, which is developing into a critical performance metric. If this metrics continues to strengthen as comparisons normalize, the softness in Q1 will likely prove temporary. If it remains constrained, particularly in segments already facing cost pressure, however, it may point to a more persistent challenge.

The broader takeaway reflected in the Q1 2026 LFFI data is that law firm performance is no longer defined primarily by the traditional measures such as hours per lawyer at the forefront without the context of rates. Indeed, this should no longer be given as much psychological weight as it was before the pandemic. In a market shaped increasingly by pricing power, the more important question for today鈥檚 law firm leaders is how much value each lawyer is generating and whether that value is keeping pace with the cost of delivering it.

You can download a full copy of the 成人VR视频 Institute鈥檚听Q1 2026 Law Firm Financial Index here

• • • The real gap in AI transformation is between tools and strategy 鈥� Many law firms mistake owning AI tools for having an AI strategy, measuring success through usage data alone rather that measuring the created value for clients and the firm.

    • 鈥淐hange agility鈥� is operationally required 鈥� Because AI reinvents itself every few months, firms must embed continuous learning as a standard operating reflex rather than a one-time training event.

    • There are 5 key markers that denote true transformation 鈥� Firms pulling ahead share five consistent traits that compound into a durable competitive advantage.

Organizations with a visible AI strategy are 3.5-times more likely to experience critical AI benefits compared to those without one, and almost twice as likely to be experiencing revenue growth because of their AI investment, according to recent 成人VR视频 research.

For law firms 鈥� organizations in which the human dynamics of transformation are particularly complex 鈥� new details are emerging that separate those firms that are executing AI transformation well from those firms that are not, say two practitioners that work on law firm AI transformation every day 鈥� , Principal Consultant of AI Strategy and Transformation Services at 成人VR视频; and , an organizational and process transformation specialist on the same team. Together these two help firms move from adopting AI tools to rethinking how their legal work gets executed and delivered.

Both have said they鈥檝e observed that the firms pulling ahead are those that have put their lawyers at the center of the firm鈥檚 transformation strategies.

The gap between activity and accomplishment

Many law firm lawyers who are serious about their AI strategies have attended AI webinars, learned the vocabulary, and can readily name the leading tools in their practice area. Going one layer deeper, however, begs a key question on whether those tools have changed how those lawyers work and deliver value to clients.

Snavely says he sees this disconnect often, especially as firms can confuse having AI tools with having an AI strategy. In fact, many firms measure the effectiveness of their AI strategies with usage data, but Snavely and Lein argue that only focusing on usage does not give a full picture. Rather, they say that the key to effective AI transformation is driving measurable value for clients and the firm. 鈥淎wareness and simple use are not a strategy,鈥� Snavely notes. 鈥淭he real question is whether lawyers have actually changed how they work and the benefits that brings to the firms and its clients.鈥�

Since AI is always evolving, law firms need to alter their cultural paradigms to better prioritize a proactive mindset that treats constant technological change as a standard operating environment rather than a temporary disruption 鈥� a concept known as 鈥渃hange agility.鈥�

Lein underscores the challenge by pointing out that the technology-first mindset is getting the order of operations backwards. When firms lead with the tool rather than the lawyer’s problem, they are asking people to change their entire workflow for a solution that does not yet feel worth the investment of time and mental bandwidth to change.

鈥淲hen you lead with the tool, you are asking lawyers to change their process or approach to the work for something that has not yet proven its value,鈥� Lein says. 鈥淪tart with the problem, then the right technology becomes obvious.鈥�

To address this challenge, Snavely and Lein recommend that law firm leaders do the harder work of mapping lawyer problems to AI capabilities and identifying those professionals who can bridge that gap before investing broadly in AI adoption. Simultaneously, they should also focus on opportunities that AI can unlock for clients that were not previously possible.

What ‘change agility’ looks like

Since AI is always evolving, law firms need to alter their cultural paradigms to better prioritize a proactive mindset that treats constant technological change as a standard operating environment rather than a temporary disruption 鈥� a concept known as 鈥�change agility,鈥� Snavely explains.

鈥淐hange agility is not a skill you train once,鈥� he adds. 鈥淚t鈥檚 a strategic reflex you build into the organization 鈥� change agility means continuous learning is baked in, not bolted on.鈥�

Lawyers are being asked to keep up with a technology that reinvents itself every few months; and without careful prioritization, firms will see their professionals burn out from the noise of the technology changing.

At the same time, the pair acknowledge that constant change is exhausting. Lein flags a particular fatigue risk that leaders often underestimate. With prior technology cycles, there was a stabilization window in which people could absorb, adapt, and refine 鈥� however, this does not exist with AI tools.

Lawyers are being asked to keep up with a technology that reinvents itself every few months; and without careful prioritization, firms will see their professionals burn out from the noise of the technology changing.

Emerging indicators that some firms are succeeding

To strike the balance, both experts agree that a key part of the solution to better AI transformation within a law firm is clarity of direction. People can tolerate a great deal of ambiguity if they understand where the firm is heading and what their role is in getting there. Firm leaders who communicate a clear AI strategy 鈥� one that is connected to the firm’s overall direction and not just bolted on 鈥� give their people something on which to orient themselves amid constantly changing dynamics.

Further, Snavely and Lein identify five markers that consistently distinguish those law firms making progress from those generating activity without resulting AI transformation. These five markers include:

1. Fostering an acceptance of failure 鈥� Firms that have normalized rapid experimentation 鈥� trying, adjusting, and moving forward 鈥� without the expectation of getting it right the first time are outpacing those that still operate under the assumption that AI adoption will occur solely through webinars and one-time training events.

2. Developing consistent storytelling as a key tactic in communications 鈥� In the highest performing firms that Snavely has assessed, the same client success stories circulate repeatedly and consistently across interviews with different lawyers. These firms treat these success stories as cultural infrastructure, repeating them until they become part of the firm鈥檚 shared identity.

3. Establishing role clarity 鈥� Lein observes a meaningful difference between firms that formally incorporate AI into job descriptions and those that have left it as an informal add-on. 鈥淓nsuring AI is a clear part of a lawyer鈥檚 role is a meaningful job satisfaction signal and a leading indicator of adoption depth.

4. Aligning performance incentives with AI experimentation 鈥� Most law firms are still in early thinking mode on compensation structure alignment, but those firms with incentive frameworks that reward AI-driven value creation with new service offerings, recovered time that can be redirected to higher-value work, and measurable client outcomes, will more effectively reinforce the behaviors that drive transformation.

5. Defining what 鈥済ood鈥� looks like at the work-product level 鈥� Firms that define explicit standards for quality and build those standards into how AI output is supervised and evaluated will position themselves better over the next few years than those that leave expectations undefined.

Lein frames all these markers as both a cultural and a structural imperative because AI can amplify existing organizational behavior 鈥� both productive and dysfunctional 鈥� within a firm. 鈥淎I is an accelerator of work, but it is also an exacerbator of bad cultural issues,鈥� he explains.

Together, these five signals can complement each other and more importantly, compound into a durable competitive advantage for those law firms that act upon them.

You can find out more about the challenges of AI in the legal industry here

Key insights:

• • • The headline obscures the math 鈥� Kirkland’s roughly $100 million a year is about 1% of its $10.6 billion in annual revenue, a level most research-driven industries would consider a maintenance budget.

    • Build versus buy is the real signal 鈥� Choosing to own a proprietary platform rather than license the same tools that competitors can buy reflects a belief about where advantage now accumulates.

    • R&D is a habit before it is a budget 鈥� The discipline of continuous reinvestment, not the size of the check, is what compounds investment into greater capability.

Welcome back to The AI Law Professor. Last month, I examined the jagged fit problem: Why the same AI tool produces uneven results from one lawyer to the next, and why matching capability to task matters more than the brand on the box. This month, I want to widen the lens from the individual lawyer to the law firm itself and ask what it actually means for a firm to invest in its own future.

On May 28, Kirkland & Ellis claimed it will spend $500 million over the next three to four years building its own AI platform, starting with a roughly $100 million investment this year. The firm will fund the work from its annual revenue, which reached about $10.6 billion last year.

Outside technology companies are helping to build the system, but they will not be permitted to resell it to competitors. Some 250 Kirkland lawyers, including 100 partners, have already contributed detailed accounts of how they work so the platform can be tuned to the firm’s own methods. The ambition is end-to-end. They鈥檙e creating a system that can carry a complex mandate from initial scoping through execution, rather than a scattered collection of point tools for document review, due diligence, and drafting.

A half-billion dollars, in context

Obviously, $500 million dollars is an enormous sum in absolute terms 鈥� but, as a share of Kirkland’s revenue, it is far more modest. The roughly $100 million the firm expects to spend this year sits close to 1% of annual revenue, a level that firm chair Jon Ballis has framed as the firm’s appetite for taking 鈥渂ig swings.鈥�

Place that 1% against how other industries fund their own future. Software and internet companies reinvest an average of about 13% of revenue into research and development. The United States pharmaceutical industry routinely spends north of 20%. Defense contractors land somewhere between 10% and 15%; consumer electronics makers, 8% to 12%. By those benchmarks, a 1% commitment reads less like a moonshot and more like minimal maintenance.

For most of its history, the legal industry has carried no R&D line item at all. This means that there are two things that are true at once: Kirkland is leading the profession, and the profession as a whole still invests a fraction of what the most innovative industries treat as the cost of staying alive.

The deeper signal is ownership

The dollar figure is the headline, but the strategy underneath it matters more. Kirkland concluded that if every firm can license the same AI from the same vendors, that AI stops conferring any advantage at all. So, the firm chose to own its platform rather than rent it, and to bar any outside builders from selling the result to rivals.

This instinct is not new for Kirkland. In 2017, the firm built CTRAN (Corporate Transactions Database), a proprietary database of past M&A transactions that let its lawyers spot patterns in deal terms that its competitors could not see. That data advantage proved difficult to replicate, and it helped carry the firm to the top of the global revenue tables. The firm鈥檚 planned AI platform is the same instinct on a vastly greater scale: Treat institutional knowledge as an asset to be compounded, not a byproduct to be discarded.

That is the signal worth absorbing. The strategic question is no longer only which tool to license; rather, it鈥檚 what you are building that a competitor cannot simply purchase for itself.

Three ways to invest in R&D without a big budget

Certainly, most law firms do not have $500 million, or even $5 million, to commit. Yet, they may not need it. R&D is a discipline before it is a budget, and the discipline can be scaled down.

First, make R&D a standing commitment rather than an occasional impulse. Set aside a fixed share of revenue, even 1% to 3%, and a fixed block of protected, non-billable time each month for experimentation. Name someone to own it and stick to it.

Second, turn what you already own into a proprietary knowledge asset. You do not need to train a model to draw an edge from your own data. Your closed matters, briefs, clause libraries, and playbooks can be organized into a structured, searchable knowledge base, then connected to a retrieval system. This gives you the small-firm version of CTRAN, which can compound with every matter you handle.

Third, run experiments with a clear measure of success. Pick one workflow, define a baseline for time, cost, or error rate, pilot a tool against it for a fixed period, then decide deliberately whether to keep it or kill it. And write down what you learn.

The strategic habit is the asset

The temptation when reading about Kirkland’s half-billion-dollar bet is to conclude that R&D belongs only to firms with billions to spend. Actually, the opposite is closer to the truth. Kirkland’s real advantage is not the size of its check; rather, it鈥檚 the decision to treat building as a permanent part of its long-term strategy and how it operates. That decision is available to a solo practitioner with a free weekend and a stack of old briefs just as surely as it is to the largest law firm in the world.

The half-billion-dollar figure will make the headlines, but it鈥檚 the strategic habit that compounds in value.

Tom Martin is CEO & Founder of LawDroid, Adjunct Professor at Suffolk University Law School, and author of the forthcoming (Globe Law and Business), where he shares exactly how you can build your own strategic habits and assets for your own law firm.

Key insights:

• • • Branches too, not just trunks, drive growth 鈥� Across firm segments and US regions, litigation and corporate work still anchor demand, but they are not always the main sources of new hours.

    • Soil conditions vary sharply by region 鈥� The Southwest US and international markets led all regions with 5.2% and 6.1% demand growth, respectively, driven by niche and transactional practices, while the Midwest and Eastern regions grew more modestly.

    • Midsize firms are growing through specialization 鈥� Struggling to compete on volume with the Am Law Second Hundred or on rates with the Am Law 100, Midsize law firms posted 2.6% demand growth powered primarily driven by smaller, specialized practices.

The first quarter of 2026 arrived with law firms still standing on solid ground, although the footing is beginning to feel a little less certain beneath the surface. As the 成人VR视频 Institute鈥檚 recent听Q1 2026 Law Firm Financial Index (LFFI) reported, the score landed at 55 鈥� exactly the historical average since 2006, which is a modest place to be when you consider that Am Law 100 firms pushed worked rate growth to nearly 10%, and overall demand came in at 2.7%, roughly triple the long-run average. Those are not average inputs. Something is absorbing the gains.

The story beneath the headlines is one of diverging strategies, uneven soils, and the quiet question of whether a tree can keep growing by strengthening only its trunk 鈥� or whether it needs to extend its branches.

Reading the soil: Regional demand across the US

Just as trees grow differently depending on the nutrients available in their soil, law firm demand across different regions of the United States reflects the distinct conditions shaping each local market.

The western half of the country set the pace. The Southwest posted the strongest domestic growth at 5.2%, driven not by the dominant practices of litigation or corporate work, but by a constellation of smaller practices (labeled 鈥渙thers鈥�) that collectively delivered the largest single contribution to new hours 鈥� 12 of the 52 additional hours worked per 1,000 compared to Q1 2025. Labor & employment and litigation followed, but the headline is that niche practices 鈥� treated by many firms as secondary concern 鈥� carried the region.

The West grew at 4.8%, with labor & employment as its leading driver, although intellectual property imposed a meaningful drag: Law firms in the West are currently working 27 fewer hours per 1,000 on IP matters than they were a year ago, a loss that鈥檚 partially masking an otherwise healthy broad-based expansion.

International operations led all regions at 6.1% growth, but with an important asterisk. This region, which captures demand generated by US-headquartered firms operating abroad, was recovering from a period of contraction. The surge was powered almost entirely by corporate general and M&A, making it the most transactionally concentrated region in Q1. The flip side 鈥攔eal estate, litigation, and 鈥渙thers鈥� practices all contracted, meaning growth here is reliant on a narrower set of practices than it may appear.

The Eastern and Central regions told a more measured but arguably more durable story. The Midwest grew just 2.0%, but with a notable quality as no practice area contracted. Every discipline contributed at least marginally to new hours worked, with litigation doing the heaviest lifting. The Northeast and Southeast each came in at 2.8%. In the Northeast, growth was similarly broad, with no practice in retreat; while the Southeast offered a small twist as corporate general led for the first time among the regions examined. Litigation followed close behind, and together the two practice areas accounted for 18 of 28 new hours worked. Those two practices 鈥� the trunk of any large firm鈥檚 business 鈥� pulled more relative weight in the Southeast than anywhere else in the country.

The story beneath the headlines is one of diverging strategies, uneven soils, and the quiet question of whether a tree can keep growing by strengthening only its trunk 鈥� or whether it needs to extend its branches.

What stands out across this regional picture is that for most of the US, the new growth is not coming just from the traditional core. Corporate general and litigation remain the largest absolute contributors to demand 鈥� the sturdy trunk 鈥� but in the West and Southwest, it is the branches that are responsible for incremental gains: labor & employment and a diverse mix of smaller practices. In US regions in which the trunk remains the engine 鈥� such as the Midwest, Southeast, and Northeast 鈥� growth is still real but narrower. The more resilient growth stories tend to be the ones in which no single branch bears all the weight.

The tree type matters too: Demand by firm segment

Regional soil explains some of the variation in Q1 demand, but not all of it. The type of firm shapes how growth is structured just as much as geography. And in Q1 2026, the three segments grew in ways that were as different from one another as oaks from aspens.

The Am Law 100 posted demand growth of 1.2%, the lowest of the three segments, but this is consistent with a strategy built primarily on rate power rather than volume. Of the 12 additional hours per 1,000 worked compared to Q1 2025, transactional practices contributed 8 hours, and counter-cyclical practices added 5 among Am Law 100 firms. The one drag came from intellectual property, which contracted by 1 hour. For the largest firms, demand is supplementary to rate growth 鈥� the trunk is wide, and thus, the tree does not need to grow tall to be profitable.

The Am Law Second Hundred grew 4.0%, the strongest demand performance of the three segments, and the composition of that growth is striking. Of 40 new hours per 1,000 worked, counter-cyclical practices 鈥� led by litigation at 15 hours and labor & employment at 7 鈥� contributed 22 hours. Transactional practices added 9. No practice contracted. This is a segment with unusually full canopy coverage: growth is broad, and every branch is pulling upward. The Second Hundred鈥檚 continued 鈥渕oat of demand鈥� in this area remains one of the more durable stories in the legal market.

The most instructive case, however, is the Midsize segment. Midsize firms grew demand 2.6% in Q1, roughly in line with the industry average. However, the source of that growth tells a different story than the numbers suggest. Of 26 new hours per 1,000 worked, the largest contributor was 鈥渙thers鈥� 鈥� a category of smaller, specialized practices 鈥� at 8 hours. Corporate general added 6, real estate and litigation 4 each. No practice contracted.

What that picture reveals is a segment finding its footing not by competing on volume 鈥� where the Second Hundred has structural advantages 鈥� or on rate increases, where the Am Law 100 holds the leverage. Midsize firms appear to be carving out a third path: specialization. The tree is not the tallest, and the trunk is not the thickest, but it is filling out its canopy with branches that larger competitors have left largely unattended.

Growth is in the canopy

As the LFFI showed, Q1 2026 produced broad-based demand growth, but the data is clear on one thing: A healthy trunk is not enough. In some regions, the incremental gains came from practices that many firms still treat as secondary 鈥� labor & employment and a rotating mix of smaller specialties. In most segments, the firms building fuller canopies are outperforming those relying on a narrower set of core practices.

Midsize firms are perhaps the most visible example of a segment adapting to its conditions. Unable to out-volume the Second Hundred or out-price the Am Law 100, they are finding ways to grow through diversification. Whether that strategy can close the widening performance gap against their larger competitors remains to be seen.

However, the Q1 data suggests that for firms at every level, the next phase of growth is likely to come not from further strengthening what is already strong, but from investing in branches that have yet to reach their full height.

You can download a full copy of the 成人VR视频 Institute鈥檚听Q1 2026 Law Firm Financial Index here

Key takeaways:

• • • Falling behind on worked rates 鈥� Midsize firms grew worked rates by just 5.3% in Q1 2026, roughly half the Am Law 100’s 9.8% growth 鈥� a structural gap that has widened with every passing quarter.

    • Underinvesting in the tools that will define tomorrow 鈥� Midsize firms also invested 6.2% more in tech and knowledge management in the quarter 鈥� the lowest of any segment 鈥� leaving them at risk falling behind as larger peers accelerate their investment.

    • Sitting out the talent race 鈥� With recruiting expense growth at -0.2%, Midsize firms are virtually absent from the lateral market while their closest competitors saw 5.6% growth in their investment.

In Q1 2026, demand growth across all segments landed at 2.7% year-over-year, with 听Midsize firms coming in at 2.6%, essentially in line with the market average and comfortably ahead of the Am Law 100’s 1.2%, according to the 成人VR视频 Institute鈥檚 recent Q1 2026 Law Firm Financial Index (LFFI).

Based on this metric, Midsize firms are not underperforming, as they are capturing work at a pace that outstrips the elite tier; however, a deeper look shows a more nuanced story. The Am Law Second Hundred led all segments with demand growth of 3.9%, posting a notable advantage over the Midsize segment. That growth was enough to make up the ground ceded by the Am Law 100 that the Am Law 200 as a whole still managed to outstrip the Midsize segment in terms of demand growth.

That makes the demand story a very mixed one for Midsize firms. While they are holding their own against the very largest firms, the Am Law Second Hundred 鈥� Midsize鈥檚 most direct competitive set 鈥� is pulling significantly ahead on volume. If that gap persists, it could further shut the gates to demand gains. Of course, that would be made all the more impactful because of how rising demand influences firms鈥� ability to raise rates.

Rates are the most consequential gap in the data

If demand tells a moderately positive story for Midsize, worked rate growth is the point at which the data turns slightly more negative for the segment. In Q1 2026, Am Law 100 firms posted worked rate growth of 9.8%, the highest of any segment by a significant margin. The Am Law Second Hundred recorded 6.9% growth, while the overall market average was 7.0%. Midsize firms, meanwhile, came in at 5.3%.

That is a gap of more than 4.5 percentage points between Midsize and Am Law 100 firms, a magnitude outstripping the entirety of the Midsize segment鈥檚 demand gains.

What makes this especially significant is that the gap is not new 鈥� one year ago, in Q1 2025, the same hierarchy held, with Am Law 100 firms seeing worked rates grow at 9.4%, Second Hundred firms at 7.1%, and Midsize firms at 5.9%. In other words, the rate divergence between Midsize firms and the rest of the market has been consistent and is widening even further. The end result of this is stark: Midsize firms are growing revenue per hour of work at a pace roughly half that of their Am Law 100 counterparts, and that differential compounds over time into a meaningful profitability disadvantage.

Expenses diverge in the wrong direction

On the expense side of the ledger, the pattern reverses in a way that creates a genuine squeeze for Midsize firms. Looking at direct expenses 鈥� the costs most closely tied to delivering client work 鈥� Midsize firms recorded growth of 5.4% in Q1 2026, the highest of all three segments. This compares to 4.8% for the Am Law 100 and just 4.4% for the Am Law Second Hundred. That means that Midsize firms are generating the slowest rate growth while simultaneously growing their client-delivery costs the fastest. That combination reflects a textbook margin compression dynamic.

Overhead expenses per FTE tell a different story. Here, Midsize firms showed lower growth at 4.0%, well below the Am Law 100’s 6.7% and the Second Hundred’s 5.8%. On the surface this looks like cost discipline, but it is worth reading carefully: lower overhead investment, especially when coupled with the market鈥檚 high tech and talent expenditure pressures may actually reflect forced underinvestment rather than efficiency. Midsize firms may simply have less capacity to expand their infrastructure spending, not less need for it.

Making an opposite bet on talent

Indeed, one of the sharpest contrasts in the “Q1 2026 LFFI ” data involves recruitment expenses. The Am Law Second Hundred is investing heavily in lateral talent, seeing recruitment expense growth of 5.6%. The Am Law 100 has sharply pulled back, growing recruitment costs at just 0.3% 鈥� a signal that the largest law firms may be consolidating their existing talent base rather than expanding it aggressively. Midsize firms sit at the opposite extreme, with recruitment expense growth of -0.2%, essentially flat to slightly negative.

This difference is notable because the Am Law 100 and Midsize segments are pursuing fundamentally different headcount strategies. As Am Law firms focus on leaner headcount powered by rates, Midsize firms have finding much more of their revenue growth comes from growing aggregate hours worked by hiring more lawyers. Midsize firms鈥� decision not to leverage as much investment in this area could signal a shift in strategy, simple cost pressures, or perhaps a greater focus on which areas they spend their recruiting money. Whichever the driver, it鈥檚 a sizeable shift across a segment that鈥檚 already feeling pressure across multiple facets of their business.

The compound effect of this divergence

The “Q1 2026 LFFI” data highlights several reinforcing challenges facing Midsize firms: slowing demand and lagging rate growth, the highest direct expense growth but the lowest technology investment, and minimal lateral recruitment investment. While no single factor is critical, together these divergences show a widening gap between earnings and costs.

Of course, this is not to say that Midsize firms are going bankrupt 鈥� far from it. Midsize firms鈥� profitability, on average, is growing at a solid pace as demand and rates continue to power them forward, even as expenses weigh on their numbers.

What may be more concerning is what this means for the future potential of Midsize firms, especially as the market bifurcation grows and the Am Law firms increasingly pull away. As this continues, it鈥檒l become harder and harder for Midsize firms to break into those ranks, compete for talent, and compete for the kind of bet the company work that is some of the most profitable in the legal industry. Reversing this course isn鈥檛 about Midsize firms鈥� 2026 results; rather, it鈥檚 about what they can achieve in 2030, 2040, and beyond.

You can download a full copy of the 成人VR视频 Institute鈥檚 Q1 2026 Law Firm Financial Index here

Key insights:

• • • Law firms have moved from restricting GenAI use (Don鈥檛 use tools that leak client data) to mandating it (Incorporate AI into your practice and market our firm鈥檚 GenAI capabilities)鈥斕齆either phase has given rank and file lawyers what they really need: Guidance on in which instances GenAI actually helps deliver better, cheaper, and faster legal services, where it introduces serious professional risk, and how to tell the difference.

    • GenAI鈥檚 capacity to transform legal work for the better is real, but so is its capacity to degrade it听鈥擥enAI can significantly boost speed and quality on tasks involving breadth, synthesis, or straightforward analysis, but it can weaken performance on complex judgment and revision tasks 鈥� especially for stronger professionals 鈥� by encouraging overconfidence, missed issues, and superficial reasoning.

    • A use-mode framework can close the听gap鈥� A proposed governance framework can give law firm leadership a practical tool for identifying in which situations GenAI enhances legal work, where it introduces serious risk, and where professional judgment is non-negotiable.

This article synthesizes findings from the author鈥檚 paper,

Your law firm undoubtedly has a policy around generative AI (GenAI), which probably tells lawyers to avoid tools that leak client data, admonishes them to look out for hallucinations, and encourages them to incorporate AI into their practice to satisfy client demands.

However, it likely does not tell them which cognitive functions they should delegate to GenAI, which they should not, and where the line between the two is absolute. In the space between restriction and mandate, lawyers are making consequential decisions about GenAI delegation every day. Meanwhile, most law firms have not addressed that space with meaningful governance.

GenAI can make legal work worse

GenAI鈥檚 capacity to transform legal work for the better is real, but so is its capacity to degrade it. Most law firm leaders know that AI can hallucinate; yet far fewer know that it can make expert legal judgment and work product actively worse.

The best evidence of this dynamic comes from a with consultants from the Boston Consulting Group, who were given similar tasks and allowed to use various levels of AI assistance, including no AI. For professional tasks requiring breadth and option generation, GenAI delivered, showing that output quality improved by 40% and consultants worked faster. For tasks requiring judgment and synthesis, however, something unexpected happened. Consultants using GenAI were 19% less likely to produce correct solutions than those working without it.

Governing GenAI鈥檚 uneven performance requires asking a question that most law firms are not asking: What cognitive function is being delegated to GenAI at each step in the workflow?

The same pattern appears in research evaluating GenAI use in legal analysis. An empirical in the Journal of Legal Education confirmed that AI dramatically improves performance on straightforward analysis while producing no measurable benefit for complex reasoning. And in the case of complex reasoning, GenAI use also introduced recurring failures, such as jumping to conclusions, missing less obvious issues, and generating confident prose that masks superficial analysis.

from the University of Minnesota focused on legal tasks showed that GenAI assistance on a synthesis task improved performance by nearly 60% and produced a surprising downstream benefit. Those participants who used AI for synthesis outperformed the control group on the subsequent independent reasoning task even after GenAI was removed. However, when GenAI was introduced at the revision stage, the picture changed. GenAI helped weaker performers, but it actively degraded the work of stronger ones. Indeed, the best lawyers in the study produced worse revised work product when they used GenAI than when they worked without it.

A use-mode governance framework

Given all these findings, governing GenAI鈥檚 uneven performance requires asking a question that most law firms are not asking. Instead of determining whether GenAI is appropriate for a particular deliverable 鈥� such as a brief, a contract, or a board presentation 鈥� the governance question instead should be: What cognitive function is being delegated to GenAI at each step in the workflow?

My proposed framework, outlined below, organizes common GenAI uses into seven recurring modes following the sequence in which lawyers actually use GenAI to produce legal work product. Then, governance controls are calibrated to the risk profile of each mode.

Modes 1 and 2: Retrieval and organization

At the mechanical end of the cognitive spectrum are two distinct functions. In retrieval mode (Mode 1), a lawyer reviewing a merger agreement asks GenAI to identify every representation and warranty in the document. In organization mode (Mode 2), a litigator reviewing 50 depositions asks GenAI to construct a timeline from the testimony. The first locates material that already exists. The second arranges it into a usable structure. No new content is created in either case, and both uses are low-risk and should be actively encouraged, subject to modest verification controls. Firms that unduly restrict these use modes are leaving value on the table.

Mode 3: Summarization

Summarization (Mode 3) introduces selection risk. In this mode, GenAI chooses what to emphasize, include, and omit. Consider a lawyer preparing a board presentation on the results of an internal investigation. GenAI can condense dozens of witness interviews into key points and themes in minutes; however, a summary may focus on procedural detail while missing credibility issues that a lawyer would immediately recognize as material. The appropriate control is to mandate meaningful review by a lawyer with first-hand knowledge of the source material. A lawyer encountering the summary cold has no reliable way to evaluate what GenAI missed.

Mode 4: Candidate generation

Mode 4 is exploratory. A lawyer drafting a brief might ask GenAI to generate a list of potential arguments, propose alternative framings, or identify supporting authority. This candidate material expands options and accelerates iteration. The work product is not filing-ready and must be treated as provisional. GenAI can suggest, but a lawyer must decide.

The authority verification obligation at this stage deserves special emphasis. GenAI will identify cases, summarize holdings, and weave them into an argument structure. Thus, the output will read fluently and cite real-looking cases. However, a lawyer cannot assume the model has accurately characterized the holdings or context, and any authority cited in an external filing must be independently read and verified. GenAI can help find the cases, but a lawyer must read and apply them.

Mode 5: Editing and rewriting

In Mode 5, a lawyer asks GenAI to tighten a dense contract provision or restructure a wordy paragraph, risking, of course, unintended meaning change. An edit may read cleanly while subtly narrowing a representation, softening a covenant, or eliminating a carve-out. The revision risk is not hypothetical. The University of Minnesota study referenced above found that stronger performers produced worse work product when GenAI revised their independently produced memos. In this mode, a lawyer must confirm that the edit produced no shift in meaning and introduced no new factual assertions.

Mode 6: Critique and stress-testing

Mode 6 may be the most underutilized GenAI capability. Before filing a brief or presenting to regulators, a lawyer can ask GenAI to identify weaknesses in their argument. In this way, GenAI finds vulnerabilities before adversaries do; and unlike every other mode, the risk here runs in one direction. Lawyers who skip this step are missing one of GenAI鈥檚 core value propositions. Law firms鈥� governance frameworks should not merely permit it but actually require it in appropriate cases.

Mode 7: Evaluation and decision

The boundary against AI delegation becomes absolute when GenAI is asked to evaluate or decide. A lawyer advising a board on whether an event requires disclosure cannot delegate that determination to GenAI. A litigator assessing settlement value cannot outsource probability judgments because these are core expressions of professional responsibility. In this mode, GenAI may inform background analysis, but it may not substitute for lawyer judgment in making the call. This is a categorical prohibition 鈥� professional judgment cannot be delegated.

Going forward with GenAI

Law firm leaders who have moved their GenAI policy from restriction to mandate without governing the space between have not finished the job. Their lawyers are making consequential decisions about GenAI use every day without the guidance they need and deserve.

The use-mode framework presented above gives firm leadership a practical tool for filling that gap. It identifies the instances in which GenAI enhances legal work, where it introduces serious risk, and where professional judgment is non-negotiable. Firms that govern at that level will capture GenAI鈥檚 value; and those firms that do not will have policies that look serious but govern nothing important.

The views expressed in this article are solely those of the author in his individual capacity and do not represent the views, positions, or opinions of Foley & Lardner LLP, its partners or clients, or the University of Wisconsin Law School.

Key insights:

• • • UK law firms face a more selective growth market in 2026听鈥� Client demand remains steady, but external legal spend expectations have cooled, with growth concentrated in areas such as Regulatory, Labor & Employment, and international work.

    • Legal expertise alone is no longer enough 鈥� UK legal buyers increasingly favor law firms that combine technical excellence with commercial judgment, business understanding, and practical guidance aligned to client priorities.

    • AI adoption is becoming a client expectation听鈥� Corporate legal teams are moving faster than their outside law firms on GenAI, and many UK legal buyers now expect outside counsel to use AI to improve efficiency, workflows, and the quality of legal work.

The legal market in the United Kingdom today has shifted into a new normal. While law firms saw an explosion of demand and spending immediately following the pandemic, increasing client caution has resulted in a shift in priorities. Today鈥檚 law firms cannot simply rely on their old ways of providing legal service to succeed, as UK clients expect firms to combine expertise, commercial judgment, international reach, and visible AI-enabled improvements in how legal work is delivered.

Jump to 鈫�

2026 State of the UK Legal Market

A new report from the 成人VR视频 Institute, “2026 State of the UK Legal Market,” reveals how the UK legal market is shifting, as more judicious clients are beginning to force law firms to reassess their strategy. Overall anticipated net spend from legal clients has seen declining growth rates in recent years, and while some practices like Regulatory and Labor & Employment continue to see strong demand growth, other practice areas such as Insurance, IP, and Disputes face potential contraction.

This shift is also guided by emerging buyer preferences. The report reveals an increasing commerciality to the UK legal market, one in which clients increasingly favor advisors that combine legal excellence with commercial judgement, and those that are leveraging AI to bolster not only efficiency but improve the overall legal work product.

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Taken as a whole, the report paints a picture of clients that now are moving faster than their outside legal advisors, strengthening their internal capabilities, and setting clearer (and higher) expectations. This means that UK law firms cannot rest on their laurels, as clients increasingly push their outside firms to keep up with new business challenges.

The market is cautious, but opportunity remains

The report reveals that UK legal buyers are more cautious about external legal spend than they have been at any point in the last five years. That may mean law firms can no longer rely on the broad-based demand that defined the post-pandemic period and instead need to be more precise about where opportunity exists 鈥� and where it doesn鈥檛.

The report tracks buyer sentiment through net spend anticipation (NSA), which measures the share of buyers expecting to increase external legal spend over the next 12 months minus those expecting to decrease it. Since its 2021 peak, UK NSA has fallen steadily to +5 percentage points in 2025, returning the market to the more stable, single-digit baseline that was seen before the pandemic.

For those law firms looking to capture increased business, the report makes clear that legal expertise is now the price of entry, not the point of differentiation. The firms that stand out will be those that know how to apply their expertise in ways that reflect the client’s business realities.

Indeed, that is becoming even more important as corporate legal departments face growing pressure to demonstrate their own value to the wider organization, and they鈥檙e increasingly pointing to improvements in their own quality and effectiveness even before mentioning cost savings, efficiency, or time savings. Not surprisingly, more than one-third of UK legal buyers now cite business savviness as a reason they favor a particular law firm.

To help demonstrate their internal value, clients are pushing their outside law firms to leverage advanced technology to improve the overall effectiveness of legal work. Of course, this has resulted in a clear gap, the report notes, between how corporate legal teams are moving and how law firms are responding. For instance, the report shows that more than half of UK corporate legal respondents say their organizations are already using GenAI tools across the business, compared with just about one-third law firm respondents who said this.

That difference in outlook matters because clients increasingly believe AI will become a larger part of how legal work is delivered, and they鈥檙e not content to simply wait and see whether their outside counsel will fully adopt the technology. Indeed, corporate legal departments are expecting their outside law firms to keep pace with how legal work is changing, and they will reward those firms that do.

You can download

a full copy of the 成人VR视频 Institute’s “2026 State of the UK Legal Market” by filling out the form below:

Key findings:

• • • Pricing and demand are exceptionally strong, but profits aren鈥檛 keeping up 鈥� Despite worked rate growth reaching above 12% for the largest of the Am Law 100 firms and demand growth hitting almost three-times its historical average, the LFFI landed at a flat 55, its own long鈥憆un historical average.

    • Rising costs, falling productivity, and geopolitics are quietly offsetting gains 鈥� Overhead expenses climbed, productivity slipped back into contraction, and a widening performance gap between large firms and the rest dragged on overall results; meanwhile, the Iran war appears to be dampening demand on the edges of both transactional and counter-cyclical work.

    • The market is splitting sharply by segment 鈥� Am Law 100 firms continue to drive pricing power and lead technology investment, while Midsize firms have seen rate growth slow, demand lag, and costs rise faster than revenue, all reinforcing an increasingly scale鈥慸riven competitive divide.

The 成人VR视频 Institute鈥檚 Law Firm Financial Index (LFFI) for the first quarter of 2026 landed at 55, exactly matching the long鈥憆un historical average since the Index began tracking the market in 2006. On its face, that may sound unremarkable; but dig one layer deeper, and Q1 2026 becomes one of the more puzzling quarters we鈥檝e seen in years.

Jump to 鈫�

Q1 2026 Law Firm Financial Index

Let鈥檚 start with the inputs. Am Law 100 firms pushed worked rate growth to almost 10%, building on an already record鈥憇etting 2025 and marking one of the strongest pricing environments in recent memory 鈥� and at the very top of the market, the largest law firms cleared 12%-plus rate growth. Meanwhile, demand clocked in at 2.7%, nearly triple the industry鈥檚 long鈥憆un average.

Clearly, these are not average conditions by any stretch. And yet, the LFFI score 鈥� a composite output of law firm financial performance 鈥� remained stubbornly ordinary.

So, what鈥檚 eating the gains? It turns out that the answer is multifold. For example, the report cites climbing overhead expenses, productivity that has slipped back into contraction after six months of gains, and a growing performance gap between the largest firms and everyone else 鈥� all joined forces to drag down the LFFI score.

On top of that, a new geopolitical variable 鈥� the ongoing war in Iran 鈥� weighs heavily, darkening the storm clouds further. Early indicators suggest the conflict is blunting both sides of demand at once, the report notes, freezing both the transactional M&A work that thrives on confidence and the counter-cyclical restructuring work that thrives on distress. When both the upside and downside stall simultaneously, strange results likely will follow.

The segments鈥� strategy split

Indeed, one of the clearest stories of Q1 is how sharply law firm segments are splitting apart. After years of moving largely in lockstep, pricing strategies diverged in Q1. Am Law 100 firms, for example, leaned hard into rate growth, while Midsize firms slowed their rate growth, marking the first deceleration in rate growth for any segment since 2021. Meanwhile, the Second Hundred held steady, neatly threading the middle.

This nuance matters. Large firms continued raising standard rates faster than worked rates, accepting deeper discounts to move the prices clients paid higher. Midsize firms did the opposite 鈥� allowing standard rates to lag while negotiated rates rose 鈥� signaling restraint. Midsize firms鈥� strategy may have been to capture price鈥憇ensitive demand migrating down鈥憁arket; but in practice, it hasn鈥檛 worked. Midsize firm demand growth now trails the Am Law 200 average, expenses are accelerating faster than revenue, and productivity per lawyer is declining. As a result, profit growth for the segment is running at roughly half the pace of its Am Law peers.

Rain in the forecast?

Demand, meanwhile, still remains above historical norms, even as a few raindrops are starting to fall. While several practice areas contributed meaningfully, the mix of transactional and counter鈥慶yclical practices are growing at nearly the same pace, signaling not balance, but simultaneous deceleration. Add in tough year鈥憃ver鈥憏ear comparisons against early鈥�2025鈥檚 demand surge, and the growth picture going forward becomes more stormy.

As the report makes clear, the takeaway from Q1 is not that the market is in trouble, but rather that momentum is slipping under the surface. A score of 55 isn鈥檛 a storm warning siren; it is, however, an odd resting point for a market with inputs this strong. The question for the legal market moving forward is simple: Is this just a passing sprinkle 鈥� or the first sign of a heavier storm?

You can download

a full copy of the 成人VR视频 Institute’s “Q1 2026 Law Firm Financial Index” by filling out the form below: