Key findings:

• • • Pricing and demand are exceptionally strong, but profits aren’t keeping up — 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‑run historical average.

    • Rising costs, falling productivity, and geopolitics are quietly offsetting gains — 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 — 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‑driven competitive divide.

The Thomson Reuters Institute’s Law Firm Financial Index (LFFI) for the first quarter of 2026 landed at 55, exactly matching the long‑run 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’ve seen in years.

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Q1 2026 Law Firm Financial Index

Let’s start with the inputs. Am Law 100 firms pushed worked rate growth to almost 10%, building on an already record‑setting 2025 and marking one of the strongest pricing environments in recent memory — 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’s long‑run average.

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

So, what’s 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 — all joined forces to drag down the LFFI score.

On top of that, a new geopolitical variable — the ongoing war in Iran — 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’ 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 — allowing standard rates to lag while negotiated rates rose — signaling restraint. Midsize firms’ strategy may have been to capture price‑sensitive demand migrating down‑market; but in practice, it hasn’t 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‑cyclical practices are growing at nearly the same pace, signaling not balance, but simultaneous deceleration. Add in tough year‑over‑year comparisons against early‑2025’s 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’t 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 — or the first sign of a heavier storm?

You can download

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

Key takeaways:

• • • Demand slowdown reverses LFFI gains — The LFFI’s Q4 2025 dip reflects a modest demand slowdown, marking a shift from rapid post‑pandemic rebound to a more stable, steady market.

    • Transactional practices plateaued while counter-cyclical regain momentum — Transactional practices leveled off while demand in the litigation, bankruptcy, and labor & employment practice areas accelerated, driven by rising disputes, regulatory pressure, and workforce complexities.

    • Clear opportunity for strategic realignment — Law firms may be able to shift their staffing toward growing counter‑cyclical areas, strengthening their pricing discipline and refining their recruiting processes.

After two consecutive quarters of improvements in the ¶¶ÒőłÉÄêÂź Institute’s Law Firm Financial Index (LFFI) score, the fourth quarter of 2025 marked a modest reversal in which it fell, albeit slightly to 61. The key driver behind this decline was a deceleration in demand that was meaningful enough to pull the overall score down and may signal that the market is moving into a more normalized rhythm — less snapback growth and more steady performance.

To understand what this means in practical terms, it helps to look beneath the headline numbers and examine not just what happened in Q4 2025, but also over the last two years. Then, a clear narrative emerges: Transactional work — M&A, corporate general, real estate, and tax — was powering the market in Q4 ’24 but largely plateaued in Q4 2025. Meanwhile counter-cyclical practices — litigation, bankruptcy, and labor & employment — regained momentum during the same timeframe.

Put differently, the practices that powered growth in the last year are fading as measured against their own baselines, while those practices that performed less strongly then are now starting to take the lead for the legal industry.

Practice level demand dynamics

By applying a magnifying glass to each transactional practice’s behavior over the past three quarters, one can identify a few important contrasts. The practice that stands out for its lowest growth in Q4 2025 is tax — and, in fact, across the final quarters of the last three years (even when it had a good performance in early 2025), that momentum didn’t translate to the end of the year. This indicates that tax has constantly posted the weakest demand growth, bottoming out at -0.9% in Q4 2023, when it was again the practice with the lowest growth. Even in the Q4 2024 — a stronger year for most practices — tax grew only 1.5%, well below both its transactional and counter-cyclical peers.

This persistent underperformance may reflect several factors, such as increased internalization of routine tax work by corporate tax departments, pricing pressure in highly standardized matter types, and slower deal flow in M&A reducing ancillary tax activity. Whatever the cause, tax’s muted trajectory has had a dampening effect on overall transactional momentum and has acted as a drag on top-level demand growth.

On the other side of the room, counter-cyclical practices strengthened in Q4 2025 after a softer Q4 2024, nearly reaching the same growth that they presented in Q4 2023. Collectively, these practices rose to around 3.2% in Q4 2025, compared to about 1.5% growth in Q4 2024. This represents a true rebound after an unusually strong 2023, which was likely caused by lingering pandemic-related effects and the period’s surge in inflation.

Litigation leads the pack

Litigation provides the clearest example of this resurgence. During the Q4 2025, litigation led with roughly 4.3% growth, compared to 2.4% in Q4 2024. Indeed, the practice closed 2025 with renewed momentum, making it the standout in performance among major practices.

Litigation’s acceleration in late-2025 suggests that court systems have fully normalized, backlogs have largely cleared (in relative terms), and organizations are encountering a more contested operating environment. Regulatory scrutiny, geopolitical risk, supply chain disputes, and workforce-related conflicts all contribute to a litigation profile that is less dependent on economic cycles and more tied to the complexity of today’s business environments.

By contrast, after bankruptcy demand growth surged to 6.4% growth at the height of the pandemic recovery in 2023, the practice area experienced a dramatic cooldown the following year, falling to 0.4% just 12 months later. However, bankruptcy recovered modestly to 2.8% in Q4 2025, although still far below the extraordinary levels seen during its previous spike.

Taken together, these patterns suggest that corporate clients may be contending with a broader set of pressures — regulatory instability, workforce management complexity, and the downstream effects of post-pandemic backlogs — that could continue to generate steady legal demand.

Counter-cyclical trends reflect opportunity, not just reactive demand

The upswing in demand growth for counter-cyclical practices is not necessarily a sign of economic turbulence, however. Indeed, it shows the market can be stable and still produce more litigation, it can be cautious and still require restructuring advice, and it can be steady and still demand intensive employment support. The fact that transactional demand continues at a solid, albeit slowing pace, shows that this is not necessarily the recession-boosted practices that are driving law firm performance.

In fact, in a market in which transactional demand has stabilized and disputes and compliance work is rising, many law firms can use the moment to better align their operating model with the practice areas in which momentum is building and by aligning with actual demand.

For example, as litigation, bankruptcy, and labor & employment areas see higher demand growth, a firm may benefit from adding capacity in those areas, improving staffing leverage, and preventing partner bottlenecks. Meanwhile, steady but flattened transactional demand could call for disciplined, pipeline‑based hiring.

The practices that powered growth in the last year are fading as measured against their own baselines, while those practices that performed less strongly then are now starting to take the lead for the legal industry.

In addition, lower demand for transactional practices can represent an opportunity for law firms to refine their recruitment processes, as recruiters can take the time to seek those candidates whose skill sets offer added value. Prioritizing the hiring of candidates who bring fresh ideas and technological capabilities to support the tech-driven evolution of legal services may be the push some law firms need to meet the expectations of clients that are increasingly demanding greater value for their dollars.

This does not mean transactional work should be deprioritized, however. Instead, firms should adopt a dual‑track strategy: Optimize and streamline transactional capacity for efficiency, while strategically expanding counter‑cyclical teams in the areas in which demand is accelerating.

Making the strategic choice

On the face of it, it seems that many law firms face a strategic choice between doubling down on counter‑cyclical practices or continuing to prioritize transactional work. Current demand performance suggests counter‑cyclical areas offer the clearer near‑term opportunity — they are growing, resilient, and driven by structural forces such as regulatory scrutiny, workforce disputes, geopolitical risk, and more complex compliance environments.

Further, this environment elevates the importance of pricing discipline. As demand normalizes, clients become more price‑sensitive and will expect efficiency and transparent staffing. Litigation and labor & employment may have more pricing power today, but disciplined pricing across all practices is critical for margin stability.

Indeed, the widening gap between transactional and counter‑cyclical practices signals a market in transition. The opportunity for firms lies in balancing these dynamics and aligning staffing, pricing, and operations to navigate uneven growth and capture value in a more complex legal environment.

You can download theÌęThomson Reuters Institute’s Q4 2025 Law Firm Financial IndexÌęhere

Key takeaways in Q3:

• • • Strong Q3 performance — The Law Firm Financial Index (LFFI) score increased by 8 points compared to Q2 2025, highlighting a quarter of robust demand and industry resilience.

    • Client-driven demand shift — Midsize law firms led the increase in transactional practices, while Am Law Second Hundred firms dominated counter-cyclical growth, driven by large corporate clients shifting work to lower-rate providers.

    • Strategic caution advised — Persistent risks, rising costs, and unresolved long-term challenges mean firms must remain cautious and strategic.

Law firms demonstrated remarkable performance through a geopolitically tense third quarter of 2025, as clients increasingly sought legal guidance to navigate market complexity and global uncertainty. This surge in demand propelled the ¶¶ÒőłÉÄêÂź Institute’s Law Firm Financial Index (LFFI) score to 63 for the third quarter, marking a notable rise from earlier in the year.

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Q3 2025 Law Firm Financial Index

Yet, as a closer look reveals, the industry’s strong performance sits atop tectonic forces that, while driving change, also carry the potential to disrupt long-term stability.

Firms on shifting ground

At the core of this shift is a surge in client activity that’s breaking records — and coinciding with a period in which the price for legal services is rising like never before. Transactional practices are thriving, with mergers and acquisitions, corporate law, real estate, and tax practices seeing a marked uptick in demand. Midsize firms have stepped into leadership roles within these practices, demonstrating agility and resilience as they capture fresh business opportunities and respond swiftly to evolving client needs.

However, this isn’t just a story of expansion. The competitive landscape is being redrawn as clients reassess their legal partnerships. Many are prioritizing value and flexibility, shifting work to firms that offer more competitive pricing — a trend we’ve noticed for the past year or so. This is obviously working to the advantage of those firms seeing significant demand growth as a result, but the more expensive law firms are also seeing boosted performance, as the trend helps them secure higher rates on the work they do maintain.

In response to this rising demand, many firms — especially those in the Midsize and Second Hundred tiers — are investing heavily in talent and technology. Even as the cost of hiring continues to climb, some firms are broadening their search beyond traditional legal roles to include specialists in technology, data, and knowledge management. These strategic hires are aimed at boosting operational efficiency and enhancing client service in an increasingly AI-driven environment.

With overhead rising and competitive pressures mounting, law firms must strike a careful balance between strategic investment and disciplined cost management.

Emerging fault lines of legal strategy

As the Q3 2025 LFFI report shows, the current environment is marked by both promise and risk. Economic and geopolitical uncertainties loom large, and the next shake-up could be just around the corner. Law firms are enjoying a period of robust growth certainly, but the ground beneath them remains unsettled. The ability to navigate uncertainty, anticipate change, and respond with agility will be critical in the months ahead.

For law firm leaders, partners, and strategists, this is a moment to reflect on the lessons of the past and to prepare for the challenges of the future. The industry rewards those who can balance ambition with caution, invest wisely in talent and technology, and stay attuned to the evolving needs of clients. A firm’s success will depend on its leaders’ ability to rise above the turbulence and seize the opportunities that lie ahead.

As the legal landscape continues to shift, one thing is clear: The forces reshaping the industry demand careful navigation, and firms must now approach the path forward with greater caution and strategic foresight.

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a full copy of the Thomson Reuters Institute’s “Q3 2025 Law Firm Financial Index” by filling out the form below:

Key takeaways:

• • • Penalties spike when resources and controls are stretched thin — Under-resourced tax departments face significantly higher penalty exposure, with nearly half reporting at least one penalty and one-in-eight experiencing fines exceeding $1 million.

    • Reactive workloads erode savings and accelerate burnout — Tax professionals spend most of their time on reactive or tactical work despite preferring a 70/30 strategic/tactical split, creating an environment in which reaction consumes planning capacity.

    • Incrementally targeted technology deliver faster returns than big-bang overhauls —Nearly 70% of tax departments remain in chaotic or reactive stages of digital maturity, with many tax professionals saying they lack confidence in their department’s ability to upgrade systems within two years.

The numbers are blunt. A large portion (44%) of respondents to the report, published by the Thomson Reuters Institute and Tax Executives Institute,Ìęsay their department had at least one penalty — and among under‑resourced tax departments, it was nearly one‑half. And one-in-eight say these fines topped $1 million.

And when it comes to technology, large portions of tax department professionals say their departments’ approach to technology is either chaotic or reactive (69%), and two‑thirds say their departments aren’t currently using generative AI (GenAI) to improve efficiency within the department.

This isn’t a skills problem — it’s a system problem.

Fortunately, as the Corporate Tax Department report showed, there are steps that corporate tax department leaders can take, including:

• • Treat penalty reduction as a board‑level KPI, tracking the number, value, and cause of penalties to better pinpoint control gaps
  • Direct a defined slice of the technology budget toward core preventives — such as data accuracy, filing automation, indirect‑tax determination, and reconciliation tools — that can cut errors before they become fines
  • Frame resource requests around real avoided‑penalty scenarios, because showing that incremental investment could have offset last year’s losses builds a more persuasive case for future funding

Ultimately, penalties and fines are data points that reflect a deeper through-put problem and solving that requires visibility at the corporate governance level, not reactive patchwork after the fact.

The reactive‑work trap that quietly kills savings

This year’s report found that tax professionals spend most of their time on reactive or tactical work, even though they say they’d prefer to see a 70/30 strategic/tactical mix. Also, nearly 60% describe their departments as under‑resourced — up from 51% a year earlier.Ìę Having an under‑resourced tax department, our research shows, can create an environment in which reaction consumes any planning and strategic work.

Indeed, the consequences of being under-resourced compound quickly. More than half of respondents from under-resourced departments say they face penalties, and many also report missing tax‑credit opportunities, delaying cross‑functional projects, and operating with less confidence in their forecasts or liability management.

Not surprisingly, burnout is another hidden cost that under-resourced departments pay daily: Tax teams that are stretch through overtime to compensate for structural and personnel shortfalls often see reduced accuracy, just when judgment is most needed.

Again, there are steps that corporate tax department leaders can take, including:

• • Establish a proactive‑time floor and mandate that each week a fixed block of time is reserved for modeling, forecasting, or credit discovery — then, measure results in saved cash or lower effective‑tax‑rates
  • Create a rapid‑triage lane for repetitive fire drills that would allow you to codify recurring crises — such as late adjustments, jurisdictional queries, or document chases — and then automate the intake so these tasks stop devouring cognitive bandwidth
  • Invest in targeted capacity, not generic headcount; adding a tax‑tech analyst or process‑automation specialist yields more lasting leverage than simply dividing the same tasks among already overworked staff

In much of this, the bigger insight is cultural: Reclaimed time is reclaimed value. Every hour shifted from reactive compliance to predictive analysis strengthens your tax department’s compliance posture.

Tech hesitation is expensive, while smaller faster wins matter more

As the report shows, almost 70% of respondents say their tax departments are still in the chaotic or reactive stages of digital maturity, and barely 6% operate optimally. Further, nearly 60% of respondents say they lack confidence in their ability to upgrade systems within the next two years. This correlation between reactive approaches and technological stagnation can feed directly into a department seeing increased penalties and an overreliance on manual processes.

Interestingly, corporate tax departments in smaller organizations, those with less than $50 million in annual revenue, and those from very large organizations, with more than $5 billion in annual revenue, are outpacing their midsize peers when it comes to technology purchases and integration. In fact, these two groups — at opposite ends of the market — are more likely to secure leadership buy‑in, tap external vendors for automation, and climb faster toward proactive operations.

Of course, GenAI sits on the cusp of this changing that trajectory. More than half (57%) of respondents say their tax departments are implementing new technology this year, including GenAI-driven tools. And those departments that are, mainly are using it for research, summarization, and document drafting, rather than more complex integrated tax analytics. However, without a reliable tax data spine — clean, centralized, and accessible data — even the smartest model can’t deliver true automation or insight.

Still, as the report outlines, there are actions that tax department leaders can take now to boost their department’s tech prowess, including:

• • Prioritize ŽÚČčČőłÙ‑R°ż±ő automations, such as indirect‑tax determination, e‑invoicing compliance, tax‑provision close tasks, and certificate management. These are proven areas in which automation immediately cuts cycle times and penalty exposure
  • Pair early GenAI pilots with structured data. For example, start with narrow copilots for research or variance explanation, but feed them curated internal data to evolve beyond guesswork and toward data-driven decisions
  • Borrow capacity intentionally and partner with third‑party automation specialists for discrete projects using a build‑operate‑transfer model. This way, internal teams inherit sustainable, well‑documented workflows rather than black‑box solutions.

Waiting for a full replacement of the organization’s enterprise resource planning system or a perfect end‑to‑end tech stack actually can trap departments in perpetual backlog. Incremental wins, particularly those tied directly to penalty reduction or labor savings, can build the momentum and political capital needed to make the case for proper resourcing for larger transformations.

The recent 2025 State of the Corporate Tax Department report reveals a powerful connection between resource allocation and tax department performance: Under-resourcing perpetuates penalties and reactive workflows that can only be broken by shifting to proactive systems and automation.

For tax department leaders, the imperative is clear — invest in prevention, reclaim strategic time, and modernize incrementally, because true progress comes not from doing more, but from choosing fewer priorities and executing on those select ones with excellence.

You can downloadÌęa full copy of the , from the Thomson Reuters Institute and Tax Executives Institute, here

Key insights:

• • • AI use falls on a spectrum — Appropriate AI use hinges on which trial function it touches upon and how much it influences outcomes.

    • AI uses must align with duties — Administrative and preparatory uses should be aligned with lawyers’ duty of competence, with outputs being checked and used within existing ethical rules.

    • Context and timing control admissibility — Courts should assess tools on a case‑by‑case basis, weighing procedural stage, validation and error rates, expertise, and safeguards.

The integration of AI in the legal system is a complex and multifaceted issue, defying simplistic categorizations of right or wrong. Indeed, the application of AI in court is not a binary concept but rather one that exists on a spectrum. The appropriateness of AI use depends on two critical variables: i) which portion of the trial process is being impacted; and ii) the degree of impact that the AI usage has on the outcome.

What matters is not whether AI appears in a case, but which aspect of the trial proceeding the AI in question touches — research, drafting, evidence review, jury selection — and how deeply it may influence outcomes. A document-review algorithm that flags potentially relevant discovery operates at a vastly different point on this spectrum than an AI system that drafts legal arguments or predicts case outcomes.

Low‑impact assistance on routine tasks may be not only permissible but prudent, while high‑impact automation in fact‑finding or credibility assessments can quickly cross ethical or legal lines. Understanding this spectrum — and where a specific use case falls along it — is essential for maintaining ethical standards, preserving the integrity of our judicial system, and serving clients competently in an era in which technology is reshaping every corner of legal practice. For professionals navigating this terrain, it is important to consider where, how much, and with what guardrails AI is utilized.

Administrative applications and professional competence

Administrative applications of AI have gained widespread acceptance within the legal community. The Honorable Erica Yew of the Santa Clara County Superior Court observes that many preliminary research platforms now incorporate AI-enhanced features as standard functionality. These features have become so seamlessly integrated into legal practice that their use is not only appropriate but often expected, requiring little deliberation or justification from practitioners.

Dr. Maura R. Grossman, JD, PhD, a Research Professor in the School of Computer Science at the University of Waterloo, dives deeper into this conversation by discussing the use of AI to provide summaries and chronologies as a part of case preparation. She contends that while it still requires being checked by human lawyers, it is an appropriate use of AI.

Further, the deployment of AI tools in administrative contexts aligns directly with attorneys’ fundamental duty of competence. Judge Yew articulates this connection with clarity, noting that AI should be viewed through the same lens as previous technological innovations. “When looking at rules for appropriate AI, it is akin to the rules for social media or even stationary at their inception — they are all tools,” explains Judge Yew. “We need to make sure we know how to use them and use them within the rules already set for lawyers and judges.”

This perspective underscores a critical principle: AI represents an evolution in legal tool use rather than a departure from established professional standards. Just as attorneys were expected to master word processors and legal databases in previous decades, today’s competent practitioners must understand how to leverage AI effectively while adhering to existing ethical frameworks. The emphasis, naturally, remains on validity, reliability, efficiency, fairness, and compliance with professional responsibilities — all objectives that AI, when properly employed, can significantly advance. That is at the heart of the discussion around appropriate use of AI in legal settings.

Evaluating the impact: A spectrum of appropriateness

While AI has demonstrated clear value in streamlining administrative functions and preliminary case management — indeed, many practitioners increasingly expect its judicious application in these contexts — the deployment of AI avatars in judicial proceedings demands scrutiny. In fact, this appropriateness of such technology usage exists along a spectrum, contingent upon both the intended application and the procedural stage at which it is employed.

Two recent cases illuminate the boundaries of this spectrum. In , a court authorized the use of an AI-generated avatar — in this case, an AI-generated video version of a deceased victim — during the victim-impact statement portion of sentencing proceedings. Conversely, a Appellate Court categorically rejected the use of an AI avatar for oral argument presentation, deeming it fundamentally inappropriate for that forum under the circumstances presented.

While multiple variables distinguish these cases, a critical differentiator emerges: The procedural juncture at which the avatar would function. In these cases, this temporal dimension — when in the judicial process that AI intervention occurs — proves instrumental in determining whether such technology enhances or undermines the integrity of the legal proceedings.

The gray area in practice

A Florida criminal case saw a judge use AI-enabled virtual reality (VR) goggles to review evidence — an unprecedented move that highlights the challenges of integrating advanced technology into courtrooms. Supporters say immersive tools such as the use of VR can clarify crime scenes and improve fact-finding; critics counter that AI reconstruction may be inaccurate, biased, and unduly shape memory.

Again, the core issue is context. Admissibility and weight cannot be resolved by blanket rules. Courts must assess the specific technology, its validation and error rates, the expertise behind the reconstruction, and its safeguards against manipulation. Only rigorous, case-by-case scrutiny can balance innovation with the justice system’s bedrock commitment to fairness.

Indeed, this case-by-case framework becomes all the more essential when we consider how profoundly AI has transformed the nature of evidence itself. The Florida VR case exemplifies a broader epistemological challenge facing modern courts: technology no longer simply captures reality, rather it reconstructs, interprets, and in some instances, generates it. Where traditional evidentiary rules presumed a clear distinction between genuine documentation and fabrication, AI-enabled tools occupy an ambiguous middle ground that resists categorical treatment.

It is precisely this collapse of binary certainty that scholars like Dr. Grossman have identified as the defining evidentiary dilemma of our era, one that demands not merely procedural adjustments but a fundamental reconceptualization of how courts evaluate truth.

Dr. Grossman notes that this shows a critical shift in evidentiary standards for the digital age. Traditionally, photographic and video evidence was evaluated through a binary lens — either authentic or inauthentic. Today, however, AI-generated content has fundamentally altered this calculus because content can be altered in different ways, e.g., simple noise removal versus substantive changes.

Truth now exists on a spectrum, Dr. Grossman observes, now requiring courts to navigate unprecedented gradations of authenticity when determining admissibility.

Into the future of courts

As AI continues its inexorable integration into legal practice, the profession must resist the temptation of categorical acceptance or rejection, instead embracing a nuanced, context-sensitive approach that evaluates each application against the twin metrics of where in the procedural stage AI is used and what is its impact on the finder of fact’s decision.

The future of justice depends not on whether we permit AI in our courtrooms, but on our collective wisdom in distinguishing between AI-driven tools that enhance human judgment and those that threaten to supplant it. This critical distinction demands ongoing vigilance, rigorous validation, and an unwavering commitment to the foundational principles of fairness and accuracy that have long anchored our legal system.

You can find out more about the appropriate use of AI in legal proceedings in the Thomson Reuters Institute’s AI in Courts Resource Center

3 key takeaways

• • • Law firms are adopting AI to stay competitive — While AI adoption remains robust, law firms’ biggest challenges are around data, metrics, pricing, and client management.

    • AI investment may be driven by fear — Law firms fear being outpaced by clients’ in-house legal teams, which are often ahead in AI adoption, and this is prompting law firms to invest more in AI tools and solutions.

    • Many priorities are vying for attention — Key priorities for successful AI integration include training lawyers to use new technology, creating pricing teams to set profitable rates, and focusing on metrics that demonstrate clear value.

WASHINGTON, DC — One of the most impactful issues in the legal industry today — to hear many of the law firm leaders attending the Thomson Reuters Institute’s 24th Annual Law Firm COO & CFO Forum tell it — isn’t AI. Rather, it’s locating and cleansing proprietary data so the firm can properly use AI, identifying what the firm can do with AI, developing the AI metrics to measure performance, and then determining how to price AI-driven legal work in a way that shows clients real value.

Those, to hear attendees, panelists, and speakers tell it, are the real issues.

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The 24^th Annual Law Firm COO & CFO Forum Executive Summary

“AI isn’t the hard part,” one panelist said. “Law firms just have to understand what they’ve done in the past, then see what needs to change in order to give clients what they say they want.”

Sounds easy, right?

Others at the annual event weren’t so sure. “My greatest fear is that somewhere there’s a lawyer right now typing into ChatGPT: ‘Please show me how to price you for clients’ — and that’s concerning because lawyers need to be looking to firm leadership for how to price legal work differently in this environment.”

Still in the early years of AI

Fears aside, the debate at the annual Forum around whether AI — and more specifically generative AI (GenAI) and agentic AI — will have an impact on law firm operations is pretty much over, and most lawyers know that. Now, the debate has morphed into questions about the level of impact, how to use AI to stay ahead of the competition (and that includes clients’ in-house legal teams), and how law firms are going to remain profitable as charging by the hour continues to move slowly off the table.

In one of the many Forum panels that discussed AI and its impact on law firm operations, several panelists suggested that some law firms may have been scared into using AI before they were ready and before they actually knew what problems they wanted AI to solve. “We are in the early times of this technology, even though it seems to be moving very fast,” one panelist said. “Everyone is just trying to figure out what AI can do for them.”

And while process automation seems like a no-brainer, it’s important to give thought to that also. Ryan Alshak, CEO of Laurel, an automation specialist company, explained that law firms need to automate those tasks that will allow lawyers to be more effective. “AI should automate the laundry and the dishes, not the science and the arts,” Alshak said. “For lawyers that means automating the business of law, not the practice of law.”

Indeed, several panelists said they remembered that it wasn’t that long ago that more than a few clients didn’t want their outside legal providers using AI. Now, in many cases, corporate legal teams are already running ahead of law firms in AI use — a fact that is not going unnoticed by law firm leaders. Indeed, one law firm executive related how the firm developed a use case for AI around proactively analyzing markets and their clients’ positions in them after one lawyer came back from a meeting with a client in which the clients’ in-house legal team had already used AI to better understand its own market position. “The lawyer was worried,” the executive said. “He knew if things didn’t change, the firm was going to lose the work.”

Questions begetting questions

In fact, several panelists said it was this fear of being eclipsed by their own clients that is pushing more law firms to expand their investment in AI-driven tools and solutions. Of course, as they said, that is the easy part.

As many panels at the Forum discussed, the decision to even dip a toe into the AI pool leads to a plethora of ensuing questions, from best ways of training lawyers to use the new tools to figuring out exactly what problems you want AI to help you solve. Then, there are also the inevitable questions of how to price legal work that takes your team much less time to do, how to measure your performance in a demonstrable way, and how to manage heightened and often-changing client expectations around speed, execution, and value.

“Every client wants to talk about AI, but only in the sense of how their outside law firms are going to use it to the client’s benefit,” noted another panelist.

Not surprisingly, there often seemed to be as many different tech-driven priorities as there were attendees at the event. One firm executive contended that AI-guided metrics were the key — that a firm’s ability to deliver on measurements that can demonstrate clear value was critical to future success. Another said it was pricing, because that was the area that GenAI was primarily going to up-end. To address that, he explained, more firms will need to create pricing teams that leverage AI and data to determine how to set rates and create profitable business models for firms. Yet another said training lawyers to properly use this new technology was the factor upon which all else depended.

Overall, it became clear that the final brew was a heady mix of all of it — and much of it depended on a firm’s lawyers themselves. “There’s a technological aspect to all of this, certainly,” one law firm leader noted. “But there’s also a human psychology aspect as well.”

In short, legal professionals have to be ready for the change that’s coming. However, that also means understanding that for law firms to move successfully into the future, they will need a business model that works both for their clients and for them.

“Law firms aren’t asking themselves,Ìę‘What’s in it for us? What’s best for the firm?’” noted Laurel’s Alshak. And that may be where the next big questions lie for the legal industry.

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Key insights:

• • • Ethics must be embedded, not bolted on — Corporate leaders should move beyond legal compliance to proactively weave ethics into decision-making and define their legacy by how results are achieved, not just what is achieved.

    • Misconduct is usually systemic, not individual — Unethical behavior often arises from environments in which there are misaligned incentives, pressure, and self-deception. Thus, redesigning rewards and evaluations to balance short- and long-term outcomes is pivotal.

    • A practical playbook exists — Use a catalytic anchor event, measure the ethical climate rigorously, empower local teams with data and AI-driven tools, align policies and incentives globally with core values, and run small, iterative experiments to refine what works.

We’re at a pivotal moment in history, a defining moment in which rapid societal change and mounting crises are intersecting with awe-inspiring technical advancements. This convergence — undoubtedly dangerous — is also an opportunity for leaders and their teams to turn the tide and demonstrate how principled decisions can lead to transformative outcomes for business and society.

As we navigate this critical juncture, it’s clear that the path forward requires more than mere compliance with laws and regulations. It calls for proactively embedding ethics into all aspects of organizational decision-making. Indeed, this is corporate leaders’ opportunity to redefine their legacies — to be remembered not just for what they achieved, but for how they achieved it.

The challenge

First, we acknowledge the trade-offs and ethical dilemmas that often seem insurmountable in the corporate world. The perceived tug-of-war between people and profit, speed and safety, or quality and quantity, pose significant challenges. However, our belief is that, despite these hurdles, it is indeed possible to create ethical ecosystems that not only survive but thrive.

What is important to understand is that ethical lapses are often . Employees don’t suddenly become dishonest; however, in the absence of an evidently ethical culture, rationalization and post-justification can make it seem as if one is grappling with complex ethical dilemmas of balancing benefits against potential risks. While this dilemma is often real, it can also be fundamentally self-serving, cloaking the profit motive in the guise of the societal benefits — be it patient care or financial well-being.

Further, misconduct in business arguably most often stems not from a couple of rogue actors, but rather, the broader environment that either promotes, or fails to curb, unethical behavior. In other words, it’s , and more about a work environment that allows ordinary people to succeed professionally, through what they perceive to be acceptable compromises. Misconduct therefore doesn’t occur in a vacuum; it festers in conditions in which flawed incentives, unreasonable commercial pressures, and ethical blindness prevail. Similarly, hyper-competitive performance evaluations that incentivize individuals to compete in a zero-sum contest, rather than and their ethical conduct, can encourage unethical cultures to spread.

5 steps toward ethical cultures

Admittedly, redesigning these systems requires a paradigm shift in business. However, there are several practical steps that enlightened business leaders can take to foster ethical organizational cultures.

1: Identify an anchor

To initiate such a transformation, it’sÌęcrucial to identify an anchor — a notable event that can serve as a catalyst. For example, this could be prompted by a scandal or a change in leadership. The key is to use this event not just as a standalone occurrence, but to signal a shift in how seriously ethics is taken within the workplace.

Use your anchor event to announce your intention to enhance your organization’s ethical infrastructure. This should be the moment that captures people’s attention.

2: Establish a baselineÌę

While data from engagement surveys may offer some insights, they often lack the rigor needed to assess the ethical climate of the typical workplace. To create a precise measure, consider other factors such as employees’ perceptions of fairness and trust.ÌęThese perceptions can be evaluated using methods such as anonymous surveys and confidential interviews.

By establishing a robust analytical system, you will be able to produce a clear picture of the current ethical climate across your organization, while identifying those business areas that need intervention.

3: Empower locallyÌę

Presenting data can ignite interest and spark meaningful conversations about ethics, which in turn can help shift the narrative and establish a common understanding.

Focus on creating interactive sessions in which leaders can digest data and discuss implications for their business areas.ÌęEmpower HR, Risk & Compliance, Legal, Finance, and other corporate functions with the tools and training needed to analyze and interpret the data. This could involve training modules, workshops, and the integration of AI tools to provide nuanced insights.

4: Act globallyÌę

While empowering local teams to address ethical dilemmas is crucial, it is equally important to ensure their policies and processes are aligned with the organization’s overarching values.ÌęWhile such alignment can be a challenge for large multinational organizations, emphasizing these universal values can be done.

For example, revisit incentive systems and check that they promote desirable behavior,Ìęrather than solely focusing on financialÌęperformance. Also, ensure that these systems are transparent and communicated clearly and consistently to all employees.

5: Embrace experimentationÌę

Finally, foster a mindset of experimentation. Run a series of small-scale pilots to test various interventions. Approach this with humility and scientific rigor, acknowledging that adjustments may be necessary, and that success is rarely straightforward.

This approach, while it may sound daunting, is actually quite manageable. By embracing the challenge with the curiosity and methodology of a scientist, you can pave the way for genuine and lasting improvements.

Moving forward to an ethical environment

Today’s business leaders are navigating a multitude of hazards, ranging from rising geopolitical tensions, rapidly evolving AI-driven technology, and society’s shifting attitudes and expectations. Yet, in these challenges lies an unprecedented opportunity for leaders to redefine their legacy by embedding ethical principles deeply into the heart of their organizations. In this way, business leaders can turn these risks into sources of long-term competitive advantage.

You can find out more on how within their workplaces here

Key takeaways:

• • • AI is blurring the lines between HR and IT — The increasing integration of AI agents into workflows is prompting organizations to merge their HR and IT functions, with a significant percentage of IT leaders saying they expect this trend to continue.

    • Strategic actions for success — To effectively integrate HR and IT and leverage AI, organizations need strong, cross-functional leadership, a clear strategic direction for AI adoption, cultivation of AI literacy and adaptability, and a data-driven approach to cultural transformation.

    • Human adaptation is key — Unlocking organizational potential can only occur with thoughtful leadership that prioritizes human adaptation and intelligently orchestrates the integration of people and AI.

As AI continues to transforms the future of work, a are breaking down traditional departmental silos by merging their HR and IT functions under unified leadership — and many expect this trend to continue in the future. Indeed, 64% of IT leaders surveyed say they believe HR and IT will . This strategic convergence is a fundamental shift that is compelling organizational leaders to reimagine how work gets done while presenting other complex challenges.

The convergence of HR and IT functions

The rapid ascent of AI agents from current tools to a future state in which they are expected to be colleagues is blurring the lines between traditional technical and non-technical roles. As Skillsoft’s Chief People Officer Ciara Harrington : “There is no role that’s not a tech role.”

For many forward-thinking organizations, merging these departments offers a combination of benefits and paves the way for a more integrated, data-driven, and agile organization, that clearly offer some benefits including:

Holistic workforce architecture — Merging HR and IT enables leaders to design how work is done and better align human skills with hardware, software, and AI. For example, around workflows by segmenting what technology should do and where humans add irreplaceable value, explains Tracey Franklin, the company’s chief people and digital technology officer.

Streamlined innovation and agility — When HR and IT co-own transformation, organizations can adapt faster to new tech and processes. In another example, to sit within the same bigger team because they both are building systems that support the rest of the business.

Transformation brings about challenges

Navigating the risks of merging HR and IT is not without challenges, however, and organizations must carefully address several barriers to progress, which include:

Loss of specialist expertise — The most pressing concern involves diluting critical professional knowledge. “Merging the departments risks losing or diluting the specialist expertise organizations need to thrive,” warns David D’Souza from the Chartered Institute of Professional Development. Indeed, the skillsets of HR and IT professionals involve few areas of overlap.

Cognitive depletion — A risk that is just starting to get the attention it deserves is the danger of over-dependence on AI that can cause reduced cognitive capabilities. “If AI agents do everything with us, we lose skills,” says Skillsoft’s Harrington. Indeed, this long-term capability risk is multifaceted, resulting in core human skills atrophying and bench strength, adaptability, and ethical discernment weakening.

New roles, metrics, and leadership — Perhaps the most challenging areas are those that will determine who will manage the AI agents, how human-AI team performance will be evaluated, and what professional development looks like for hybrid human and AI agent teams. Answering these key questions remains an area of ongoing deliberation.

Likewise, traditional HR metrics don’t fit human-AI teams. Organizations must redefine performance, learning paths, and career progression for both humans and AI. In addition, organizations still need leaders who can navigate the human side of transformation as AI integration accelerates.

Key actions for companies

To unlock real returns on AI investments and from HR and IT integration, organizations need visionary, cross-functional leadership that sets clear strategy, aligns operations, and equips people to work differently. Must-do actions include:

Developing strategic direction — Research in the recent ¶¶ÒőłÉÄê Future of Professionals Report 2025Ìęidentifies four interconnected layers for AI success, which include a clear, visible plan for AI adoption (strategy), committed leaders who model the right behaviors (leadership), adjusted workflows and roles to leverage AI (operations), and ways to empower people to learn and set personal AI goals (individuals).

While organizations that align all four layers unlock the greatest value from AI, the first layer, strategy, is the single strongest predictor of AI return on investment, according to the report. And the same is true for successful HR and IT integration. It requires leaders who can bridge both worlds without necessarily being technical experts, while also setting direction and providing vision, allocating capital effectively, removing obstacles, fostering culture, and engaging employees.

Cultivating AI literacy and adaptabilityÌę— Organizations also must develop comprehensive AI training with responsible AI, including clear usage policies. This includes preparing employees to incentivize experimentation around recreating their own workflows to allow AI to execute repetitive tasks while team members can then focus on more complex problem-solving.

Data-driven cultural transformationÌę— Success requires using data strategically to transform the culture to shift to collaborative human/AI ecosystems. Some companies are using data and building accountability mechanisms to ensure leaders are culture promoters and data stewards. Without this data-centric approach to cultural change, organizations likely will fail to realize the full potential of integrated HR and IT functions.

Yet, no matter what functions are merged, organizational potential is unlocked by thoughtful leadership that centers human adaptation and intentionally orchestrates how people and AI integrate to do the work. Now is the moment for companies to define a clear roadmap, invest in capability-building, and pilot human/AI teams with measurable guardrails to help organizations learn fast, acclimate to new work realities, and scale what works.

You can find out more about how organizations are addressing issues of talent development and management here

Key findings:

• • • Law firms are preparing, but many lack a full strategy — While most legal professionals in Brazil have engaged in technical reading, nearly half of firms still have no formal plan for the 2026 tax reform changes.

    • Technology readiness is high, but talent gaps persist — Brazilian law firms are investing in digital tools, yet more than half of legal professionals admit their colleagues are not prepared to manage the regulatory changes due to insufficient training.

    • Client risks are rising, but awareness is uneven — Increased tax burdens and legislative complexity are major concerns for clients and their legal counsel, yet many clients remain underprepared.

Brazil is entering a new chapter in its fiscal history. With a sweeping tax reform regime set to begin in 2026, the country is preparing to simplify its complex tax system by introducing a dual value-added tax (VAT) model. This reform replaces multiple existing taxes with a more streamlined structure, aiming to improve transparency, reduce bureaucracy, and create a more predictable environment for businesses and citizens alike.

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Brazil Tax Reform for Law Firm Professionals 2025

For law firms, this reform represents both a challenge and an opportunity. Many legal professionals and their firms are being called upon to act as guides, helping clients navigate a new and unfamiliar legal landscape. Many professionals have already begun preparing by studying the new legislation and participating in training sessions. However, their early efforts alone won’t be enough.

However, the real test will come in how firms translate their professionals’ knowledge into action by building internal capabilities, advising clients effectively, and adapting firm strategies to meet the demands of a changing system.

The pressure is already being felt. Legal professionals are seeing shifts in their daily work, with more questions, more complexity, and more demand for guidance from their clients. As Brazil’s tax reform progresses, this demand is expected to grow, placing even greater importance on preparation and foresight. Law firms that wait too long to act may find themselves overwhelmed, while those that invest early in the right tools and talent will be in a better position to lead.

Not surprisingly, technology is playing a key role in this transition. Legal professionals are turning to digital platforms that help simulate tax scenarios, interpret new rules, and provide real-time insights. These tools are becoming essential for firms that want to stay ahead of the curve.Ìę

You can download a full copy of the Thomson Reuters Institute’s “Brazil Tax Reform for Law Firm Professionals 2025” in Portuguese here

However, technology alone isn’t enough. The human element — skilled professionals who understand both the law and the needs of their clients — remains a critical piece of this solution. Without the right talent in place, even the most advanced systems can fall short.

Clients, too, are facing uncertainty. The new tax structure introduces unfamiliar rules and potential risks, from increased tax burdens to challenges in interpreting the law. Many already are looking to their legal advisors for clarity and direction. This makes it even more important for law firms and their professionals to be proactive — not just reacting to questions, but anticipating needs, educating clients, and offering strategic guidance.

The road ahead will not be easy. The reform is complex, and its full impact will unfold over several years; but it also offers a rare opportunity to modernize Brazil’s tax system and strengthen the legal infrastructure that supports it.

Those law firms that embrace this moment — by investing in talent, adopting smart technologies, and engaging clients with intention — will not only survive the transition but emerge stronger on the other side.

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Key findings:

• • • Expense growth is accelerating — Both direct and overhead costs are rising faster than in Q1, posing a potential risk if revenue growth slows.

    • Law firms are adapting strategically — With Am Law 100 firms leveraging pricing power over headcount expansion, other firm segments are investing in technology and smarter resourcing to manage costs.

    • Overhead spending trends are shifting — Increased investment in tech and benefits, and a decline in occupancy costs are signaling a move toward hybrid work and operational efficiency.

The story of 2025 has been the ongoing trade war, which has driven uncertainty around global economic and policy matters. Coupled with rising geopolitical instability, the situation has left economists and business leaders holding their breath. Yet the US legal market’s second quarter was unexpectedly calm — and surprisingly prosperous, according to the Thomson Reuters Institute’s Law Firm Financial Index for Q2, which rose as more clients turned to their outside counsel for guidance.

This rise can be attributed to an increase in legal demand of 1.6% and robust worked rate growth of 7.4%. Together these gains offset a 1.3% productivity decline. While these topline gains are encouraging, law firm leaders should remain vigilant on the expense side.

Both direct and overhead expenses saw a modest increase in growth this quarter compared to Q1, rising to 7.9% and 6.6% respectively, continuing a trend underway since the second half of 2024. Revenue growth is still outpacing expense growth, keeping profits strong, but any slowdown in revenue could leave firms in a lurch, just like we saw in 2022.

After the robust level of demand and rate growth of the first half of 2025, an increase in spending might have been expected heading into the rest of the year, as law firms continue to chase the opportunities in front of them. However, the broader instability shows no signs of easing, suggesting continued volatility across the global market that will eventually impact firms.

This may leave firms stuck between a rock and a hard place — the strength of the legal market offers opportunities for growth; however an increase in spending in that push for growth could leave firms overexposed to a slowdown if clients may become reluctant to spend. This means firms should consider ways of slowing expense growth in other areas, in order to be able to continue to invest in their growth strategies.

Breaking down direct expense growth

When looking at how firms can limit their direct expense growth, one option that should be considered is to adopt the same strategy observed among Am Law 100 firms since 2023. While direct expense growth is at 7.9% for the market, the Am Law 100 firms saw a slower growth rate at 6.9% as these firms have limited their headcount growth.

Reducing hiring classes and stricter performance management is one of the easiest ways to slow direct expense growth, but it has opportunity costs. As previously mentioned, legal demand remains strong so law firm leaders will not want to miss out on the chance to increase their market share. Indeed, the Am Law Second Hundred and Midsize firms have seen much greater success by seeking to expand their market share in recent years.

Other options such as reducing compensation packages or cutting benefits are unlikely to be successful solutions for firms because those solutions may see talented individuals leave and dampen firm morale amid an ongoing talent war. With very little wiggle room on the direct expenses to maneuver, one way to slow expense growth will rely on leveraging process improvements, technology, and smarter resourcing — not pay cuts.

Changing overhead expense trends

Over the past three years, the proportion of firms’ overhead expenses has seen shifts as well, indicating a change in priorities. The proportion going to occupancy and office expenses has been trending downwards, while technology and benefits expenses have been on the rise.

Rising technology spend will not surprise firm leaders; it’s widely seen as essential to long-term efficiency and profit margins. In fact, many law firms have shown a willingness to invest, especially in AI driven tools. Certainly, leadership will want to see a return on these investments — and if results are not produced or are not at the levels expected, firms could be tempted to cut their losses and scale down investment into technology, especially in the event of an economic downturn. Given the arms race brewing around these tools, however, such pullback may reduce the long-term competitiveness of the firm.

Occupancy’s share of overhead expenses has decreased by 1.9 percentage points in recent years, suggesting that even while firms pushed for a full return to the office, commercial real estate costs have not kept up with revenue growth. With long‑term office leases up for renewal and negotiation, leaders may again embrace a shift toward broader hybrid work to further increase those savings.

Support staff compensation has remained at almost one-third of all overhead expenses, maintaining essentially the same proportion of overhead expenses over the last three years. That does not tell us the full story, however, as support staff covers several different functions for law firms and the growth and the changes in those areas tell us about what business functions firms are prioritizing.

The Thomson Reuters Institute’s Staffing Ratio Survey indicates that the growth of full-time equivalent (FTE) support staff per lawyer mirrors broader overhead trends — one which emphasizes technology, business development, and management roles. Firms are focusing on improving internal business processes to better support lawyers, with the aim of enhancing efficiency and quality across their operations. At the same time, functions that are declining are in more manual-task roles such as word processing and research, signaling that technology investments have been delivering tangible results to the bottom line. This shift is particularly significant because word processing staff constitute the largest share of support staff at 28%, down from 36% in 2016.

What is next for the legal market?

Despite — and partly because of — a turbulent economy, the US legal market remains resilient, posting another quarter of continued demand growth and robust worked rate increases. Yet the memory of rapid expense inflation is fresh for law firm leaders, and with ongoing trade tensions and geopolitical uncertainty, the threat is real.

As firms choose expense strategies, they must balance supporting short-term opportunities with long‑term sustainability. Actions such as cutting headcount can lift near‑term margins but risks leaving firms under‑resourced when growth returns, given the time required to ramp up headcount. Data suggests that firms are willing to invest in process and productivity improvements, which may increase near‑term pain to secure longer‑term gains.

In the second half of 2025, leadership decisions made amid volatility will be pivotal. Firms that pair disciplined cost control with smart, forward-looking investment will be best positioned not only to weather the pending storm but to accelerate when conditions improve.

You can get a fully copy of theÌ궶ÒőłÉÄêÂź Institute’s Law Firm Financial IndexÌęfor the second quarter of 2025 here