Building the perfect firm
1 September 2014 | By The Lawyer editorial staff
1 September 2014
21 March 2014
30 June 2014
20 October 2014
19 December 2013
We gave managing partners an imaginary wrecking ball, permission to set aside the past and a wishlist of constituent parts and asked them to build from the ground up a law firm fit for 21st century demands. Here’s the result…
Today’s legal market is diverse, vibrant and constantly-developing and very different from the world of even 10 years ago. Increasingly corporate structures and new ways of driving efficiency are now the norm, and firms are finding it harder to justify traditional partnership structures.
But is the modern law firm, with its multitude of offices, low-cost centres and corporate structure, the best way of running a legal business? We quizzed managing partners from a variety of practices and asked them how they would build a law firm, if they were starting from scratch in 2014.
Lessons from the past
What are the worst mistakes firms have made as they’ve evolved?
Chris Saul, senior partner, Slaughter and May: I think that the starting point is to focus on the essential elements of building and nurturing a good law firm. These should be quality of advice, refined and market-aware commercial judgment, responsiveness, emotional intelligence, and recruitment and development of people who are not only bright but who empathetically fit the culture of the firm and the service which you are looking to provide.
I cannot pretend that we have always managed to hit our objectives in all these areas but they have been important touchstones for the firm and, were we starting again today, I believe that they would continue to be our guiding stars.
Simon Beswick, managing partner and CEO, Osborne Clarke: Inaction – many law firms initially ignored the demands from clients for more for less, believing this was a feature of the market at the time and that it would pass as deal volumes returned or clients became much more busy.
Guy Hinchley, managing partner, Mills & Reeve: Some have struggled to balance their senior workforce with enough backup, be they junior lawyers, legal support or business support. Many also have too many people in the most expensive locations in terms of salary and rent.
John Schorah, managing partner, Weightmans: In terms of making mistakes in meeting clients’ demands, it is the obvious ones: not listening properly, trying to sell things to clients that they don’t want from you, not truly adopting a commercial approach to solutions for the client and not having enough rigour in your client relationship management programme in undertaking reviews and taking actions from those reviews.
Another one that always amazes me in this day and age is responsiveness, or more accurately, not being responsive enough. Many clients still see speed of response as a differentiator yet some law firms (or individuals in it) just don’t get that. These are things most law firms (including Weightmans) in some part have been guilty of but the good ones learn from that.
In terms of mistakes by law firms in delivering legal services generally; trying to grow into markets that they don’t understand and chasing growth through lateral hires in areas the firm doesn’t currently operate in without real synergistic drivers, or if there are synergies the firm fails to ensure the investment is properly integrated. Being far too reactive with regard to taking out cost and equally responding too quickly to some cyclical downturns that are relatively short term is another mistake.
Susan Bright, London managing partner, Hogan Lovells: Not engaging with their own people about what they are doing. If a firm is changing the way it is engaging with its clients, it has to make sure that its own people understand what it is doing and why it is doing it.
David Aitman, managing partner, Freshfields Bruckhaus Deringer: Clients want top quality advice. This is nothing new. But over the past 10 years or so they have put ever greater emphasis on a rapid, user-friendly and responsive service. In the past five, value for money is an increasing concern.
Strengthened and sophisticated in-house departments often need no longer instruct outside counsel: and general counsel are skilled in finding the right firm, or firms, to provide the advice they need, very often from a panel of firms.
Success in the 21st century is about responsiveness, working in partnership with clients and making the most of the flexibility and agility technology offers while continuing to provide a first-class legal service.
Richard Masters, head of client operations, Pinsent Masons: In many respects the worst mistake any established firm could make is to ignore its heritage and the legal know-how that has been built up over generations.
However, an attitude of “this is the way we’ve always done it” – be that in relation to the delivery of the service or the way it’s priced – without understanding if that is what the client wants isn’t a sustainable business model.
Michael Chissick, managing partner, Fieldfisher: Law firms are often geared up for peaks, not troughs. That’s a challenge for us. New entries into the market have a core team of people and when they’re busy they buy in flexible resources. They have people on their books that aren’t permanent staff.
Also, law firms that are long-term businesses are saddled with a lot of legacy stuff. We have off-site storage for some files that goes back about 80 years. Law firms have shedloads of paper going back decades.
Guy Stobart, CEO, Kennedys: What firms need to do is ignore the past and work out what their clients need now and for the foreseeable future and execute on it. Continually building on historic certainties will not achieve any step change into the modern world.
David Patient, managing partner elect, Travers Smith: Some firms have stretched themselves by growing too fast beyond their historic roots; others have probably diluted culture and loyalty through extensive lateral hires. Managing a firm’s property portfolio is, to a certain extent, a matter of luck, but a move to expensive new premises if followed by a downturn in demand for legal services can obviously be challenging.
Looking at the shape and size of most big firms today, which parts are firms currently most focused on unpicking and why?
Beswick: Firms are looking at many and varied aspects of their services, particularly those areas where there is a significant mismatch between the value to the client and the cost of production. So, for transactional firms, due diligence is an obvious area of focus and for others it could be disclosure in litigation.
Penelope Warne, senior partner, CMS: I would specifically discourage the long hours culture, replacing this with team-based incentives. This creates a better and more efficient culture for our lawyers and results in more efficient and better quality legal services for clients.
Masters: As a firm we have never been afraid to do things differently and I think that stands us in good stead for the future. That means looking at all service lines and being prepared to challenge the way things have been done in the past and whether there is a “better way”.
Unpicking or unbundling may be part of the answer (and is most suited to areas that have repetitive tasks) but a different mindset and a spirit of innovation and strong project management within the organisation is just as important.
Patient: It is possible that some firms have replaced a portion of their trainee workforce with para-legal and other alternative support. There are various reasons for this including flexibility, reduced cost and keeping retention rates as high as possible on qualification. There is a danger of creating a two-tier firm here, however. At Travers Smith our trainee numbers have remained very stable over the past few years, although we have also increased our paralegal workforce, freeing up trainee time from some repetitive tasks.
Is partnership the right model for a 21st century legal services provider?
Beswick: It will be for some areas of the market but not for all. Generally speaking, it is difficult to see what advantages a legal service provider offering a standardised service on a volume basis would get from operating as a partnership. However, a legal service provider offering complex solutions by experts across a number of disciplines might find that a partnership is the better model to attract and retain those experts.
Saul: I do think that the partnership model is the right model for a 21st century legal services provider.
It brings with it the essential coincidence between ownership and management. That means that all of the owners (the partners) are driven to manage the business and the practice in a responsible, thoughtful, progressive and creative way. Once you divorce ownership from management, problems can arise.
I think that clients very much appreciate the partnership approach. They like the fact that each partner is an owner and is thus naturally motivated to provide the best possible service to the client but in a way that means the full resources of the firm are used in support of the service.
Masters: There is no reason why not – but it will not be right in all circumstances and different models will suit different situations.
I would say that any suggestion the partnership model is broken is wrong. Law firms, and other professional service organisations will be working through partnerships for a long time to come. Undoubtedly there are some challenges, particularly as a business expands internationally, but it remains a very flexible structure.
Tim Eyles, managing partner, Taylor Wessing: I actually like the partnership model. It creates a sense of ownership. That in turn creates glue internally and externally; it engages a team spirit in delivering what’s still a very personal service. We should hesitate before dismissing the partnership model, given the nature of the services that we provide.
If it’s accepted that clients want their lawyers to be in effect their business partners and business advisers, the partnership model is flexible and it engages people, which is hard to replicate in a corporate structure where it’s more pyramidic.
Certainly we’ve moved on from the pure model of partnership of 20 to 30 years ago and this hybrid model we have works well in the business of law.
Schorah: My impression is that most law firms of any size have moved to some form of corporate structure even within the partnership model. It is evident that the partnership model has challenges in areas such as, for example, profit retention.
The proper corporate structure does help facilitate, in some ways, capital growth better than partnership model. But it would be misguided to think the partnership model has no role in the 21 century legal services provider. Partnership can be a really empowering tool and if every partner in a legal services provider did his or her job well, and that empowerment is a big part of that, you will have a really successful legal services provider.
Simon Davies, managing partner, Linklaters: A hypothetical ‘blank sheet of paper/perfect model’ law firm today comes with no guarantee of long-term success tomorrow. Every operating model needs adapting sooner or later and that’s where the real challenge lies.
Such a law firm might do worse than to build an operation that keeps this need for flexibility front of mind and choose an organisational model that is equipped to respond quickly.
I firmly believe that lockstep firms have a real advantage when it comes to implementing lasting change, largely because of the shared ‘team’ objectives that are inherent to that model.
Stobart: No. Unless you see LLP as a partnership structure. It will be interesting if the Government continues to chip away at the tax breaks for being self-employed if even the LLP model survives. If the national insurance benefits are removed I think more and more will look at the range of options that a corporate enables, particularly on the remuneration front, and look to head in that direction.
Duncan Weston, managing partner, CMS: Global firms should be structured around the Verein concept. They need to be truly global and the Verein allows for faster growth and strength and depth of service. It is also about diversity; not only diversity in culture but diversity in economies.
Patient: For the time being, yes, I think so, although I am sure we will see different types of legal services providers in the future. I am not convinced, however, that in the short term they will compete for the type of work we do at Travers Smith. A law firm partnership should be built on trust, respect and friendship – ours is, and it’s a key component of our culture and our ability to provide the highest quality service to clients.
Is full service still viable or is boutique the way forward?
Schorah: I’ve heard it said that full service is a scattergun approach or a euphemism for not really having an effective strategy. Some clients not only prefer but actually expect the legal service provider to provide a comprehensive (or fairly comprehensive) range of legal services to them. That doesn’t mean to say clients want a one-stop-shop if they are looking for a full service firm.
There are also clients, however, who are either happy to engage legal service providers in only certain areas or won’t entertain engaging a firm in areas other than where the law firm is truly a leader in those services.
Full-service in a firm is viable if it is structured, coordinated and firm orientated but not if it is purely aimed at income growth. There will always be boutique specialists who will do well but I think it unlikely the legal market is going to turn into purely so called “specialist” firms or boutiques.
Bright: Many clients like the opportunity to provide a full service – I am very committed to the idea of a full-service law firm. I would try to pick out some key areas and then try to grow from those.
Masters: In many respects there is room for both. Some of our clients may see us as a full-service firm which is ‘boutique’ in the sense that we have an unusually high concentration of specialism in sectors such as energy, financial services, infrastructure and advanced manufacturing and technology.
Christopher Mills, COO, Schillings: This will depend on your strategy and how you intend to stand out in the marketplace. There will always be a place for full service as that is what some clients want, although I imagine there will be fewer full-service firms in the future as clients continue to demand more competitive fees. This creates a new market for new entrants to come in and introduce new business models that will undercut incumbent firms.
As the ABS market matures and professional management individuals are seen to run firms well and competitively for the benefit of both the client and the partners or owners of the firm, you will see more expert lawyers leave the full-service firms and decide to set up on their own. They can do what they enjoy and provide expert advice to their clients and leave the running of the firm to the business professionals. It’s much harder to change a full-service firm than it is to adapt a boutique or start-up firm.
Chissick: The world has moved on from full-service firms. I don’t believe that any client uses law firms on a full-service basis. In some respects, it’s a very ’80s idea. You can offer it but no one uses it.
Andrew Tucker, group CEO, Irwin Mitchell: First and foremost, it’s not just about the type of services you offer, it’s about the quality of the service and about putting clients first. The client must be at the heart of everything. They’re the most important people after all.
Beyond that important point, we believe that offering a breadth of services is one of our key strengths – giving expert advice to business clients and private clients and ensuring the service you deliver is high quality, efficient and good value. Smaller, boutique firms will continue to exist and do well in some cases but we believe the diversity of services we offer is a significant differentiator and puts us in a good position to continue to grow as a business and help more clients all the time.
How would a top London law firm’s head office be different if you were starting up today?
Beswick: Given the increased cost of those offices and those employed in London compared with other regions in the UK or other countries, you would minimise the amount of office space, lawyers, business service professionals and PAs based in London to the extent that you are able to recruit the right quality talent elsewhere.
Bright: I’d start out thinking what legal services should I provide. I would focus on what I would like to work on and then get the right people for the job, starting out in London and then other people in key jurisdictions.
I think what will be different is that you have to decide what kind of law firm you would be. Culture would be critical.
Masters: It would depend on what the focus of that firm is to be. For some it may not look very different but for others it may be appropriate to have a more front-of-house operation in London with a delivery capability elsewhere. The decision should always come back to the clients and markets – what does the client want and how can that best be delivered?
Having said that, perhaps paradoxically, there will be some City firms out there today who view those firms with a heritage in the regions a little enviously. City-heritage firms can reverse out into lower costs bases but it will take time to build up the institutional knowledge of how best to leverage those networks.
Stobart: It would use space more efficiently. No filing cabinets. Paperless, more agile working, recognising not everyone is in at the same time.
Patient: Having a head office is very important for us. When you are working closely in teams, as we are, you need to have regular access to, and interaction with, your colleagues. That said, it is important to be able to allow flexible working arrangements, which can obviously include working from home.
Would you immediately start with a low-cost operation in the regions or overseas?
Schorah: It very much depends what you want to build, or especially what services you want to deliver and with whom. London is obviously very important for certain types of work and certain markets if you want to do that work and get into those markets.
As far as the regions are concerned, you have to ask yourself two questions: first of all, what do your clients want? Many clients, including some significant corporates, still like to have some form of geographical proximity to their legal service providers. It is also still true that geography can play a part in being able to attract talent, expertise and know-how in delivering legal services.
If I were starting a new law firm today, being in the regions obviously has a cost advantage over London but the main drivers have to be what does the client want and where are we best sourcing the people to deliver what the client wants?
I think it is inevitable that you would have to have a low cost operation in the regions if you are going to be a firm of a reasonable size or scale. Whether or not you choose to go overseas on that isn’t just a question about costs. You would have to find other reasons beyond the desire or commitment to reduce cost.
Eyles: I’d be reluctant to say there’s any prescriptive rule that it should happen or that everybody could or should do it. You have to manage very carefully whether it’s right for you. What kind of legal services are you intending to supply and what’s the nature of your client base?
There’s no doubt services need to be delivered efficiently and we’re seeing a change in how they are delivered. If your model is a high-value service that requires significant client contact then it doesn’t necessarily follow that you have a need or the client should wish you to have an office out of London.
Chissick: I’d try to keep costs low as clients want better value legal support. But, I’m not a fan of running stuff from cheaper countries. You might start by thinking it’ll definitely be cheaper to have a lot of admin people in India. But then you might realise it’d be cheaper to move it to China, and then the Philippines. You end up treating what you do as a commodity.
It works for some parts of the legal sector, but others I think you can only do here. I’d of course look to save costs, and maybe outsource some IT overseas, but I want to be with my core people.
If you look at research about why London is so high-performing, it’s because everyone’s here including all the best law firms and accountants. The secret to success is collaboration. You need that energy and buzz.
You could have a firm that only has a London meeting room. But when you have all of your talent in one building you’re sparking off each other. If you operate purely on a cost basis you miss out on productivity. You never get the cream on the cake of high performance.
Stobart: Not necessarily. It depends on what markets you are serving, what skillsets you require and where. The experience of those who put back-office operations into India has been in many cases to bring them back home.
Business services and support
How far could the 21st century law firm push the outsourcing model?
Beswick: In the ‘Big Law’ market more services are likely to be outsourced in future but most firms are likely to keep those areas which provide them with competitive advantage in-house. Those areas will vary from firm to firm and over time what is considered to give them competitive advantage will change.
Hinchley: In theory there should be no limits but there must be a point where the identity of the firm or brand is lost and the question I would ask is why? There are very few, if any, examples of extreme outsourcing which are proven success stories, unlike major UK law firms where there are many proven successes.
Saul: It would not be true to say that everything can be outsourced. Many parts of the legal service which firms provide will continue to need to be provided by the firm itself – this is of course the essence of the product that we offer – and there are limits to the support services that can be outsourced. IT, for example, is so important to law firms these days that any outsourcing needs to be handled with care.
Schorah: The extent a law firm could push the outsourcing model in the 21st century depends on a number of factors. Law firms are no different from most businesses in that respect.
Delivery of operational excellence is fundamental to the success of a modern law firm and it is absolutely imperative that the business support is aligned with the business in every way. Outsourcing all of it creates real challenges with such an alignment.
Bright: No it certainly couldn’t. Law firms are sophisticated organisations and the ability to provide the legal service is backed up by people who can provide that support.
Masters: Innovation will really always be about responding to client demand, and there may be some clients whom for whatever reason are not comfortable with wholesale outsourcing.
Progressive law firms will design solutions around their clients – often in partnership with them – rather than imposing a ‘one size fits all’ model on them.
Davies: Outsourced arrangements that are put in place should be flexible and adaptable to client needs but the focus should remain on the core offering to maintain and uphold the highest standards of quality and service.
In the future, which parts of business services will be genuinely on a par with partners and why?
Hinchley: Directors of marketing, IT, facilities, risk and compliance, knowledge management, finance and HR will all eventually be regarded as being on a par. This is because they are the heads of departments in large successful businesses. Their status and rewards should reflect what they would be in an equivalent company in sectors other than professional services.
Schorah: Many parts of business services are already generally on a par with partners. The strategic importance of technology means talented people performing, or overseeing performance, for you in that area can deliver enormous benefits for clients and often add as much value as the traditional legal work.
Most law firms have for a long time appreciated the significance of a sound financial strategy; aiming to produce a robust balance sheet with deep financial strength. You really need to understand how you price for services and what that pricing costs the business. All of that requires an acknowledgement that the finance department and the finance director have a key role in the firm’s strategy.
All law firms and legal services providers talk about the client being at the heart of what they do. I think it is really important that your marketing team is at the heart of that.
Finally, there has to be recognition that few law firms outside of the magic circle can effectively operate a lockstep system, and even they manage that process in a way that ensures equity partners are delivering the right contribution. For all partners, not just equity partners, getting contribution management right is vital and you can’t do that without a good reward structure that best fits the business and a governance system for that structure. If we link all that to the importance of training and development, talent management, performance management and other HR functions, it has to be the case that the HR side of the business support if executed correctly can make a huge difference to the success of a firm’s strategy.
Bright: From my perspective the input of people in key leadership positions is invaluable and I have the highest respect for them because they are experts in their own areas.
Masters: I think there’s a big assumption in this question that this isn’t happening already. Top quality client service is at the heart of the law firm proposition. It’s not possible to deliver that without really top quality business support, be that IT, facilities or knowledge. Unless business services are respected and integrated as a key part of the overall service solution, they cannot provide the quality of support service that’s needed.
Mills: I don’t think we could be as efficient as we are if risk and compliance, marketing or finance weren’t part of the core team. It is because everyone feels passionate about the firm and the firm’s clients that it all works together.
Charles Martin, senior partner, Macfarlanes: Many law firms are responding impressively well to the new world. Clearly as Darwin had it, it is not the biggest or strongest that survive but the most adaptable.
Big change is hard in law firms. There is a lot of fear, innate conservatism and vested interest in the status quo.
In an age where doing something that clients want really well (pricing, expertise, geographic footprint, quality, service) is key, whether you are a boutique or global giant, few firms can say that they have it all just right. Few have exactly the right expertise at the right price in the right places, the culture and values spot on with the cost base perfectly managed. Most will think that they are moving too slowly and that a magic wand would be a great thing. For some a wrecking ball must be a tempting idea too.
Eyles: It’s an absolute privilege to be in a law firm, certainly in the sort of space that we’re in serving clients with globally challenging issues. It’s quite right that you face pressure from these clients as they themselves experience challenges – we have to continue to adapt. The fact that the profession has opened up is an excellent motivator for the delivery of quality service.