A law firm economic theory has been expressed by people like Professor Ben Barton in his 2015 book “Glass Half Full: The Decline and Rebirth of the Legal Profession” and others. The basic premise is that in the future, large firms will survive and prosper because of their ability to scale, make technological investments, and their ability to handle large and complex matters. And of course their reputation.

Small firms will succeed by becoming specialized boutiques and having lower overhead. But the ones in the middle — the proverbial midsize firms — will struggle the most. They lack the ability to scale and the specialization and agility of the boutiques.

I had written about this barbell-looking long-term picture pre-2020 based on some research by ALM and also by LexisNexis. Since then, the theory has been largely ignored or outright rejected. But the recent Thomson report “Q1 2026 Law Firm Financial Index Analysis: The Quiet Rate Erosion Impacting Midsize Law Firms” gives some new credence to the idea.

And if it’s correct, it appears the midsize market ship Titanic is taking significant water.

A Definitional Issue

When we discuss midsize law firms, we need to be careful with definitions. A midsize firm in one city may be either a smaller or larger firm in another location. What I, coming from a large firm background, consider a midsize firm may be different than someone with a different background would consider. Some would say a 25 person firm is midsize while others would say midsize starts at 50.

The Thomson report doesn’t help much since it doesn’t define midsize other than by comparing the statistics of the midsize market with Am Law 100 and 200 firms.

Nevertheless, certain generalizations can be made about the report’s conclusions and their impact on law firms that are typically locally or regionally oriented, have fewer full partners than the Amlaw 100 and 200 firms and try to be traditional full service law firms.

Turbulent Times For Middies

The report, published May 26, 2026, has three main findings:

Midsize rate growth in the first quarter and in 2025 was significantly less than the rate growth at Am Law 100 and 200 firms.
Midsize firms had the least growth in technology and knowledge management investment than not just Am Law 100 and 200 firms but of any segment.
Midsize firms have a low investment in recruiting expenses and are virtually absent from the lateral market.

According to the report, not only is the midsize rate growth modest, their expense growth rate was also the highest of any segment.

The report summed it up this way: “Slowing demand and lagging rate growth, the highest direct expense growth but the lowest technology investment, and minimal lateral recruiting investment … together these divergencies show a widening gap between earnings and costs.” It’s a scary picture.

A Troubled Future

And if this trend continues, it will get worse. The gap in investment in talent and technology means larger and smaller firms will be able do more with less. Their overall cost to the client could, in turn, be less even if their rates are higher. That could impact demand for midsize firms.

Of course, failure to recruit talent, particularly at the lateral level, will mean midsize competitors end up with lawyers with more skill and expertise. The result: more work for competitors and less for the midsize.

And think about what it means for the more talented partners at midsize firms. Lower rates and higher costs translate into reduced profitability. Reduced profitability translates into reduced compensation. Talented partners aren’t likely to stick around when they could make more money at a larger or for that matter, smaller, firm.

Well, you say, midsize will still be able to get the work from businesses and individuals that aren’t bet the company but still need more sophisticated servicing than small firms can provide. The meat and potatoes work that in many respects has traditionally powered the midsize firms: work from local business and wealthy individuals.

But that ignores reality. In the age of AI, smaller firms can do that sort of work perhaps just as well and at a lower cost to the client. Just because things have always been a certain way doesn’t mean they always will be.

So there are threats on all sides of the equation for the midsize firms.

How Did We Get Here?

It’s legitimate to ask what got midsize firms to this point. There are several factors. But one that stands out is the consensus decision-making model most midsize firms employ. In many Am Law 100 and 200 firms, there is greater centralized decision making by management committees. These firms are run much more like a business.

In part this is because investment costs for things like technology and recruiting are spread among large numbers of partners. The financial impact of these costs to individual partners is low, making it easier for them to go along. It’s also because partners in these larger firms have gotten used to centralized management that developed over time.

In small and solo firms, it’s easier to get consensus among the partners for expenditures as well. Fewer numbers for one thing. And for boutique firms, there is a commonality of purpose that makes agreement easier.

But these decision-making issues spell trouble at the midsize level. Typically, midsize management has less control and decision-making ability. Instead, the partnership as a whole often has to be involved in and agree with investment and financial decisions. Not only does that take a lot of time, it’s often hard to get agreement on anything: saying it’s like herding cats is an insult to the cats.

And because the financial impact on individual partners is greater, there are more holdouts. In many respects, midsize firms function like a bunch of individual lawyers sharing space.

Where Do Midsizes Go From Here?

It’s a difficult problem to find solutions for, again assuming that the new report is correct. One option is for the middies to merge with one another and try to bootstrap themselves into the Am Law 200 at least. But that won’t in and of itself, solve the leadership and management situation, it only means that costs will spread among more. That could help but won’t close the gap without more.

Midsize firms could adopt the smaller firm boutique strategy and focus their firms into fewer areas of specialization. Certainly, a number of midsize law firms specialize in particular practice areas: the statistics for those firms likely look quite a bit different than those from a general purpose midsize firm that considers itself full service.

Adopting this model would enable more unity of purpose, an ability to retain specialists in a given area and perhaps increase profitability. But it means reducing the impact and clout of many longtime partners. Given the consensus decision-making model, that doesn’t seem all that likely to happen.

The best option is likely increasing technological capabilities through investment, commitment, and training. Midsize firms could adopt an AI-first attitude. That would enable them to do more with less and compete more directly with larger and smaller firms on cost. And it would enable them to maximize their advantage in resources over the very small firms. But that requires sacrifice and commitment and a sea change in attitude. And partner buy in.

So Is There A Solution?

Which brings us to a final point: sometimes the economics of the marketplace just have to play out. If the smaller and larger firms can do work better at a lower price than the traditional midsize firm, the real winners are the clients which after all we are in the business of serving. If the midsize firms can’t or won’t compete on this basis, there is no inherent reason that they should continue to exist, at least in the way they do now.

And therein lies a solution for the midsize firms, if there is one. They need to analyze how they can better serve their clients than the smaller and larger firms. And then focus relentlessly on that, investing in the future and making decisions with that as their guiding star.

Maybe that’s their local connections and involvement in areas where that’s important that larger firms can’t always replicate. Maybe it’s an appeal to talent based on having the best of all worlds: smaller firm collegiality and larger firm capabilities. Maybe it means greater specialization and purpose.

The Thomson Reuters findings make one thing clear: continuing to do what they have always done isn’t going to work. Continuing to believe the Titanic won’t sink as the water floods in is a recipe for the same disaster.

Stephen Embry is a lawyer, speaker, blogger, and writer. He publishes TechLaw Crossroads, a blog devoted to the examination of the tension between technology, the law, and the practice of law.

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