Reputational risk for law firms: #1 risk for 2025

For at least the last half-decade, financial concerns have topped the list of concerns for nearly all industries. Rising costs, revenue pressures, and financial sustainability dominated risk conversations across law firms, tech companies, healthcare, and more. But 2025 marked a major shift in the legal profession’s risk landscape specifically, with a dramatic reordering of priorities that reveals an industry operating from a different foundation.

According to our 2025 Legal Risk Index, reputational risks and employment-related claims have tied for the top internal challenges facing legal professionals at 47% each, completely displacing the financial pressures that ranked #1 in previous years. This may not be just a statistical shuffle, but represent a transformation in how legal professionals think about vulnerability, success, and business sustainability.

The great reordering

The shift from financial concerns to reputational and employment challenges tells a story about an industry that has stabilized economically and can now focus on more complex operational risks. Where 58% of legal professionals cited “trouble with rising cost of business” as their primary internal risk in 2023, that concern has been replaced by fundamentally different challenges.

Reputational risks from public controversies, client disputes, or social issues now share the top spot with employment-related claims including harassment, wrongful termination, and discrimination cases. This dramatic reordering suggests that legal professionals have moved beyond survival-mode financial planning to strategic risk management focused on long-term sustainability and growth.

The implications extend far beyond simple priority shifts. Legal professionals are now operating in an environment where a single reputational incident or employment dispute can have consequences that dwarf traditional financial pressures. This new risk hierarchy reflects the reality of practicing law in an interconnected, socially conscious marketplace where public perception and workplace culture carry unprecedented weight.

Reputational risk: The new factor

Reputational challenges have evolved from occasional concerns to constant considerations for modern law firms. The ever-present nature of social media, online reviews, and instant news cycles means that reputational incidents can escalate quickly and have lasting impacts on client relationships, recruitment efforts, and business development opportunities.

Some examples of real-world reputational damage for law firms are still fresh in our recent memory:

• Cyber Attacks
• AI Malpractice & Misuse
• Compliance Concerns
• Employee Misconduct

Legal professionals are increasingly aware that reputation management isn’t just about avoiding scandals—it’s about proactively building and maintaining trust in an environment where public perception can shift rapidly. The 47% of legal professionals citing reputational risks as their top concern understand that reputation is both their most valuable asset and their most vulnerable point.

This focus on reputation reflects broader changes in how clients select and evaluate legal services. Increasingly, clients are more likely to research firms extensively, read reviews, and consider a firm’s public stance on various issues. Legal professionals have recognized that technical competence alone isn’t sufficient—they must also maintain positive public profiles and demonstrate alignment with client values.

If they can’t, the consequences can be dire. While insurance policies will cover financial damages from initial events such as cyber attacks, they often do not cover the fallout resulting from reputational damage and social inflation.

AI-related reputational vulnerabilities

The surge in AI adoption, from 22% to 80% among legal professionals, has introduced new dimensions to reputational risk that may be contributing to its prominence in the current risk hierarchy. AI-related malpractice incidents carry unique reputational risks due to heightened public interest and media attention surrounding artificial intelligence, creating what insurance and legal professionals call “social inflation.”

This social inflation effect occurs when certain incidents, such as AI-related malpractice, generate disproportionate public scrutiny, particularly around concerns that technology is replacing human judgment or that firms are prioritizing efficiency over quality. As a result, costs surrounding such an incident, mostly relating to lawsuits, balloon beyond traditional circumstances. A firm facing allegations that it relied too heavily on AI doesn’t just face a malpractice claim—it faces questions about its fundamental approach to practicing law, potentially explaining why 43% of legal professionals identify “over-reliance leading to professional liability risks” as their top AI concern while reputational risks have simultaneously risen to become the #1 internal challenge.

The financial foundation shift

Perhaps most significantly, the displacement of financial pressures suggests that the legal profession has achieved a level of economic stability that allows focus on higher-level strategic challenges. This doesn’t mean financial concerns have disappeared, but rather that they’ve been incorporated into broader business planning rather than dominating immediate risk considerations.

The normalization of economic uncertainty is evident in other data points as well. Inflation concerns, which worried 52% of legal professionals in previous surveys, dropped to just 28% in 2024. This suggests that persistent economic volatility has become a known quantity that firms have learned to manage, rather than an existential threat requiring constant attention.

This economic foundation has freed legal professionals to address more nuanced business risks that require strategic thinking rather than reactive management. The ability to focus on reputational risk and employment challenges indicates a profession that has moved beyond crisis management to strategic risk planning.

Navigating the new landscape

The shift to employment and reputational risk as primary concerns requires different risk management approaches than traditional financial pressures. These challenges require proactive planning, cultural development, and ongoing relationship management.

Successful navigation of reputational risks involves developing comprehensive communication strategies, monitoring online presence, and building positive community relationships before challenges arise. It requires understanding that reputation management is everyone’s responsibility, not just a marketing function.

Employment-related risk management demands equally sophisticated approaches, including regular policy updates, comprehensive training programs, and cultural assessments that go beyond compliance requirements. Legal professionals must create workplaces that not only meet legal standards but also foster positive employee experiences and align with contemporary workplace expectations.

Of course, these risks are incredibly nuanced and cannot be solved-for in two paragraphs. For more information on how to assess risk in your law practice, check out our Law Firm Risk Assessment Guide.

The road ahead

The elevation of employment and reputational risk signals a legal profession that has matured beyond basic financial sustainability to focus on sustainable excellence. This shift represents both challenge and opportunity—legal professionals must develop new competencies while leveraging their improved economic position.

Understanding and adapting to this new risk hierarchy will be essential for legal professionals seeking to thrive in an increasingly complex business environment. The firms that recognize reputational risk and employment management as strategic priorities, rather than peripheral concerns, will be best positioned for long-term success.

The complete picture of how legal professionals are navigating this transformation, along with detailed strategies for managing these new primary risks, is available in our comprehensive 2025 Legal Risk Index.