As such, a new leadership mindset is needed to thrive as the profession evolves.

Looking to FY25–26, Clyde & Co Australia managing partner Rebecca Kelly said there is a “convergence of pressures that require a fundamental shift” in how firm heads lead.

“Economically, we’re navigating persistent inflation, geopolitical instability, and growing client scrutiny on value. This demands all businesses lead with financial discipline and a long-term view of sustainable growth,” she said.

While Australian law firms saw strong results in the first half of FY2024–25, a recent Thomson Reuters report noted that there are “signs of potential danger” on the horizon, including declining demand growth in M&A, insolvency and real estate.

Growing economic uncertainty, including recession risks, trade tensions, and shifting political dynamics, demand a “bold recalibration of leadership mindset”, according to ALA Law director Amanda Little, who said that the profession is “navigating a minefield of changes in a volatile business environment”.

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“Economically, firms are navigating persistent inflationary pressure, increased client price sensitivity, and rising operational costs. The cost of running a firm is, in many cases, unsustainable, with firms feeling the economic pressure of real estate space, overheads and other expenses becoming a greater burden. The old levers of revenue growth, being more billables and more headcount, are simply no longer sustainable,” she said.

“Profitability must be driven by smarter service delivery, diversification, and leveraging untapped revenue streams like subscription models and IP. Employed lawyers are also no longer accepting unrealistic billable targets which come with the associated pressures.”

Following increased chatter around a potential recession in the United States, an economic downturn could be looming. Consequently, College of Law post-admission programs director James Crittenden said that current “unpredictable economic conditions”, as well as the “uneven demand for services across markets”, would be among the key challenges law firm leaders will face.

“How this impacts individual firms will, of course, depend on the firm’s practice areas, with some more insulated from economic uncertainty than others. With GDP growing (albeit slowly) and easing inflation, there is reason for optimism, but law firms of all shapes and sizes will be facing tighter margins from rising operational costs and competition,” he said.

“A big challenge for law firm leaders will be effectively containing costs without compromising client outcomes or employee satisfaction.”

Clinging to tradition is a ‘liability’ in an increasingly digital world

From AI legal assistants to automated workflows, technology is transforming how law firms operate – demanding faster adaptation and smarter investment from firm leaders. In March last year, the law tech market was predicted to reach US$50 billion by 2027.

Clients already expect greater efficiency on legal matters, with AI levelling the playing field between boutique and BigLaw firms and changing the relationships between firms and in-house teams.

Travis Schultz & Partners Cairns leader and partner Beth Rolton said that in light of these “rapid technological shifts”, leaders now need to be at the forefront of innovation and change.

“Clients are demanding more value and commerciality, technology is reshaping how we work, and the next generation of lawyers simply isn’t interested in doing things ‘the way they’ve always been done’. For a profession that prides itself on precedent and tradition, that’s a tough pill to swallow. Many partners, myself included, have been guilty of resisting change. We like what we know,” she said.

“But in FY26 and beyond, clinging to tradition isn’t a strategy; it’s a liability. Technology and AI are already changing the way we deliver legal services, and partners need to lead from the front. The days of waiting to see what the firm down the street does are over. We can’t afford to be dinosaurs, we must be curious, hands-on, and open to rethinking how legal work gets done.”

Little agreed with this sentiment – and emphasised that both practitioners and clients now expect automation and digital client interfaces.

“Partners must move from being passive adopters to active architects of tech integration,” she said.

“This includes upskilling teams, investing in digital infrastructure, and embracing AI not as a threat but as a tool to create higher-value work and improved client experience. This will, in turn, reduce overheads, increase productivity and overall client satisfaction.”

For Kelly, technological disruption presents one of the biggest challenges yet the biggest opportunity.

“AI is transforming how legal services are delivered and we all must embrace this change, not resist it. Innovation is no longer optional; it’s a strategic imperative. We need to focus on integrating technology in ways that enhance client outcomes and improve how we work,” she said.

This means that law firms will need to invest significant time and money into new systems, as well as upskilling in how to use technology and generative AI (GenAI) “effectively and ethically” over the next year, according to Crittenden.

“We seem to be approaching a tipping point. Law firm leaders will face difficult decisions about how far they go to integrate this technology into their firms. Reasonable minds will differ about how enthusiastic or cautious to be with it, and every law firm leader will need to carefully weigh up the costs of embracing GenAI against the risk of being left behind, in their own set of circumstances,” he said.

“Effective change management to integrate new technology in firms will be important, especially robust processes that ensure professional obligations are balanced against speed and efficiency. The other major technological pressure relates to data security. Law firm leaders will need to make sure their security measures keep pace with the threats, and this will create more cost pressures.”

Rethinking talent retention in FY25–26

In a market where top talent expects flexibility, purpose, and progression, law firm partners must rethink how they engage, support, and retain their teams.

The attraction and retention of talent has been one of the highest-rated challenges for a number of years within the Australian legal industry, with mid-level lawyers in particularly high demand and the best lawyers still “sought after and hard to find”.

Generational expectations will also continue to shift as the next wave of lawyers joins the profession, according to Little.

“Firms that fail to offer meaningful work, psychological safety, and modern career pathways will struggle to attract and retain the next wave of talent. Principles of ethical hiring need to be applied if firms are to thrive, unrealistic wage versus billing models lead to practitioner burnout,” she said.

“To thrive, partners must cultivate adaptive leadership, which means balancing commercial acumen with emotional intelligence, and guiding younger lawyers to make wiser choices for the longevity of their career. It’s about fostering innovation, collaboration, and transparency.”

Authenticity is also important for the new generation of lawyers, as well as offering more than “a pay cheque and a path to partnership 15 years down the track”, Rolton emphasised.

Last year, more Australian workers said they would accept alternative benefits along with a promotion, with more flexibility and more time off being popular alternatives to a salary increase. And earlier this year, quality of leadership and support for work/life balance were consistent priorities shared by lawyers across all groups under 40 in the Legal Firm of Choice Survey.

“Younger lawyers are ambitious, values-driven, and far less willing to accept the old-school apprenticeship model. They want flexibility, not just in where they work, but in how they grow. They expect feedback, real career development, and a sense of purpose. And if they don’t find it? They’ll walk. Quickly,” Rolton said.

“Leaders in FY26 need to be willing to change and adapt. The firms that thrive will be those led by partners who aren’t afraid to get uncomfortable and try something new.”

However, attracting and retaining talent is only going to become more difficult with mounting cost pressures and a declining economy.

To this end, while Crittenden admitted firms have “benefited greatly” by embracing flexibility, non-traditional working arrangements are generally more complex and challenging to manage, requiring more effort from leadership moving forward.

“Good leaders will understand that their staff don’t necessarily share the same ideas as to what constitutes success, so the ability to astutely balance the unique aspirations of individuals against the priorities of the business will be what sets the best leaders apart.

“With so much complexity and uncertainty, the most important thing for law firm leaders will be to avoid the trap of being driven by fear. You’ve got to accept that you will face difficult decisions on multiple fronts and that every big decision will have an opportunity cost. You won’t necessarily be able to foresee the consequences of prioritising one thing over another,” he said.

“The best leaders will be values-led and data-informed. They will have a sharp focus on the human element of their businesses. They will be creating meaningful workplaces for their employees, which give clients the outcomes that they need at a cost that is fair.”

As such, talent attraction and retention is “perhaps the most defining challenge” and remains a key strategic move for firm leaders, according to Kelly.

“Generational shifts and evolving expectations around purpose, flexibility, and inclusion are reshaping the partnership model. I see it as our responsibility to build cultures that attract and retain diverse talent, not just through remuneration, but through meaningful engagement and a shared sense of purpose,” she said.

“To thrive in this high-pressure, fast-changing environment, I believe we must lead with adaptability, empathy, and strategic foresight. The partnership of the future won’t be defined by tradition, but by its ability to evolve in step with our clients, our people, and the world around us.”

Lawyers Weekly will host the Partner Summit on Thursday, 12 June 2025, at The Star, Sydney, at which speakers will address the range of opportunities and challenges for partners and partner equivalents, provide tips on how they can better approach their practice and team management, and propel their businesses towards success. Click here to book your tickets – don’t miss out! For more information, including agenda and speakers, click here.