Five Big Questions Facing Law Firm Managing Partners in 2025

Big Law leaders will face no shortage of challenges this year.

A rapidly changing competitive landscape has already prompted strategic moves by top firms and sent ripple effects down the food chain. It’s fueling a war for high-end talent among some and a sprint to scale up through combinations by others.

There are also plenty of ongoing questions for law firms about how to get the most for their work and how much to invest in the latest technology promising to revolutionize the legal industry.

Will Stars Still Command Big Money?

The race is on to match the most lucrative pay packages offered by the wealthiest firms. It’s already led a handful of firms to reportedly pay their stars in excess of $20 million annually.

Simpson Thacher & Bartlett, Davis Polk & Wardwell, and Weil Gotshal & Manges are among the firms who have adjusted compensation systems as a result. A rush of firms—Cleary Gottlieb, Paul Weiss, and WilmerHale among them—also have adopted nonequity partner tiers to protect profits.

Michael Gerstenzang, Cleary’s managing partner, told Bloomberg Law in October that Big Law hadn’t changed much over the past two or three decades compared to “just about any of our clients.”

“For us to remain as effective as we want to be in client service, we need to continue to adapt,” he said.

There’s no relief on the horizon for managing partners feeling sticker shock. More firms are likely to be pressured to match the top salary ranges, especially if their top partners receive offers from competitors writing the biggest checks.

Not all of the high-priced hires will pay off, said Brad Hildebrandt, a longtime law firm consultant.

“I would expect in a year or two we will see some of these high-flying partners out looking for jobs again,” Hildebrandt said. “But I don’t see an end to it.”

Will More Large Firms Merge?

A slew of newly combined law firms became official in the new year.

Troutman Pepper and Locke Lord merged into a 1,600-lawyer firm. Womble Bond Dickinson and Lewis Roca formed a single entity featuring 1,300 lawyers. Ballard Spahr and Lane Powell now have more than 750 attorneys combined. And in May, Herbert Smith Freehills and Kramer Levin will tie-up as a 2,700-lawyer firm.

The urge to merge is “at an all-time high,” Kent Zimmermann, a principal at law firm consultancy The Zeughauser Group, told Bloomberg Law in December.

It remains to be seen just how much that will shake up the competitive landscape. One likely effect is higher billing rates throughout the industry, according to Chuck Chandler, the chief executive at Valeo Partners, which tracks law firm billing data.

“Those mergers will concentrate expertise in a fewer number of law firms, which will shrink the supply of large law firms and increase the price,” Chandler said. He anticipates a handful of new firm mergers will be announced in the first half of next year.

Will Clients Push Back on Rates?

Billing rates already have been rising at historical levels over the past couple of years.

Valeo, which scrapes public records, expects several AmLaw 50 firms next year will have top partners billing more than $3,000 an hour. Large firms, which the company counts as the top 500 by headcount, are expected to hike partner rates by 9%.

Transactions-focused, highly profitable firms will boost partner rates by as much as 13%, Chandler said. The predictions are based on firms that have already filed public documents alerting courts to their billing rate increases for 2025.

Clients do not appear to be pushing back much. The size of discounts on standard rates have generally fallen since 2020, when billing rate increases first began to spike. But Valeo’s data provides one glint of hope—at least for large clients.

Fortune 500 companies have received average discounts over the past decade of 16.1%. That compares with 9.8% for smaller companies. The message: If you have a lot of legal work to hire out you can push for better deals.

How Much Should Firms Invest in AI?

The market for legal-specific generative AI tools has exploded. Law firms are creating AI committees to explore the value of these tools, an endeavor that’s been costly and time-consuming, according to Citi’s law firm group.

The banking unit has helped firms finance technology projects and anticipates more of that work related to AI tools. Firms so far have spent less than 1% of revenue on generative AI-related technology, consulting and staffing, the bank said. That will likely grow in the next two years.

“There’s a broad recognition that generative AI is going to have a significant impact on the industry,” said Gretta Rusanow, head of advisory services at Citi’s law firm group. “It’s going to be a huge investment for firms, and they’re still at the point of assessing what are the right tools to implement.”

Is M&A Really Back?

The M&A market, which feeds Big Law’s leading advisers, had a healthy 2024 with deal values of $856 billion through three quarters, up nearly 24% from the same quarter the prior year.

Dealmakers remain concerned that the market hasn’t fully recovered from the earlier slowdown. It’s still lacking the small- to mid-cap deals often handled by law firms outside the top 50 by revenue. Rusanow is optimistic that type of work will come back next year, driven by interest rate cuts and the clarity provided by the election cycle ending.

The practices that performed well in 2024, including litigation, regulatory, and antitrust, will stay strong in 2025, Rusanow said. And a hot M&A market will also add to law firms’ strength.

“If you add into that the rebound in broad-based M&A, it does signal a good 2025,” she said. “That’s why we’re so optimistic about it.”