Beating the mid-size crisis

Lawyers often talk about the success of the magic circle firms, but while they are pulling away from the rest of the market, another tier of firms is digging-in to sustain its position in the industry.

This is the band of firms that can be described as mid-size – those that are not within the top 20 but are substantially larger than average high street practices and have partnership numbers that vary from 20 to almost 100.

But a wrong strategic move could force them to plummet out of this band into that of the high street firms.

As associate director at QD Legal, Sarah David, says: “The medium-size firms are becoming a big issue at the moment. They are grappling with how to stay within their bracket.”

But a large number of mid-size firms are making very wise moves that should lead to longevity.

E-commerce has been a tremendous boon for them. It allows the firms to forge strong bonds with fledgling clients too small to be of huge interest to the top 20 firms, despite the fact that many of them will become powerful companies in the future.

But success in this area will be as dependent on firms’ business knowledge and their willingness to gamble as much as on their legal abilities. They must be astute enough to work out which internet companies are likely to become the big hitters of the future and which will flounder, as according to pundits, the majority are set to do.

Paisner & Co, a 52-partner London practice, is a good example of a firm that has capitalised on this scene and which is, currently at least, proving successful. It set up a computer media and intellectual property (IP) group two years ago that now has 16 lawyers.

Clients it has picked up include FT.com, netvest.com, Apax Venture Partners, Aladdin Knowledge Systems, FTYourMoney, beenz.com, and a host of other dotcom companies that may not be well known now but could be soon.

Harold Paisner, senior partner, says: “You can’t run a firm like ours in the way you used to. What we are trying to do is harness high-tech.

“The larger firms could do this sort of work but they are not focusing on it, just like we are not focusing on trying to get huge merger and acquisition deals such as BP merging with Shell.

“We are then developing our corporate work on the back of this e-commerce work. We also have traditional areas of work where these, and other clients, will want to instruct us, such as corporate finance and property.

“But we are concentrating on niche areas such as e-commerce, construction and engineering.

“This illustrates that we need our traditional areas to become much more specialised and because of this we have a construction and engineering group within the litigation department. Another major niche area for us is trusts and estate management.”

It is not just niche clients that are using an increasing number of middle-tier firms. These firms are being instructed by more blue chip companies than some may think.

Last month, Pinsent Curtis triumphed over a host of firms to win a place on Tesco’s corporate policy panel alongside City giant Freshfields (The Lawyer, 14 February).

John Longworth, Tesco’s director of trading law, argues that many firms outside the top 20 are sometimes more desirable for companies than those within in it.

Longworth says: “In my area of regulatory defence work we would want a firm to have a regional structure.

“That is why we are using Pinsents. We also use Pinsents on our policy advice because it is an expert on this. The firm works on this area along with Freshfields.

“Because this is a niche area, City law firms do not have the expertise at their fingertips.”

But regional structures are not seen as strategically advantageous by all mid-size firms. Wragge & Co, which has just won biotechnology giant The Cambridge Antibody Technology Group as a client, claims one of its biggest assets is the fact that it works out of one main office based in the regions.

Quentin Poole, the firm’s managing partner, says: “We are single site. We have a Bristol office and one in London but most of our people are in one office, which is in Birmingham.

“Our location reduces overheads in terms of management time and duplication, and probably the best thing is you can be consistent and coherent. It would be far more expensive if we were dotted around the country or just in the City.

“But in this way we are also like the magic circle. Firms within it realise that they only need to have one office in this country.”

Opinion on this is divided among the mid-size firms. Howard Culley, managing partner of 76-partner firm Irwin Mitchell, takes issue with the one-office argument.

Culley says: “If we stayed as one office it would have been in Sheffield, which would be a pretty restrictive market. People may think it is fine to have one office in one city but as they grow they may change their minds about that.

“We have not been in Leeds or Birmingham for long but we have made excellent progress in both.”

But he concedes: “What is true is that geography is not as important as it used to be because of modern communications.”

The majority of mid-size firms are concentrating on aspects of their business that distinguishes them from competition outside their tier.

One key area in which they feel they beat larger firms is client care, especially in making sure partners look after cases rather than lawyers lower down the firm’s food chain. They say this type of contact makes them very attractive to all types of client.

Alasdair Douglas, managing partner of Travers Smith Braithwaite, says: “What we offer is consistency of personnel. Clients who come to us see the same partners and assistants on the job time and time again. That is more difficult in larger firms.

“This approach also achieves consistency of quality and a partner- led service. Medium-size firms are well-placed to provide this because of their size.”

Paul Taylor, senior partner at insurance liability specialist Berrymans Lace Mawer, pokes fun at magic circle firms on the issue of client contact.

“Clients meet the A team when they first instruct them, but when it settles in you get the assistant and then the trainee.

“One client said eventually you did not even have a name, just an extension number. But in firms like ours you always have a partner to identify with,” he says.

Magic circle firms refuse to comment on this issue, but logic assumes that mid-size firms have a point.

The ratios of assistants to partners in some magic circle firms is as high as five to one but leverage in the mid-size practices can be as little as two to one.

But although most mid-size firms will cite partner contact as an advantage, not all clients see this as a way of ensuring client care.

Jenny Stevenson, head of legal at banking giant ABN Amro which regularly instructs Clifford Chance, Linklaters, Freshfields and Lovells, says: “I advise not using partners if they are not necessary. We would use a partner on a big transaction but often things can be done by assistants.

“It depends more around the individual involved. When I came here I had a great relationship with an assistant at Linklaters. That person is now a partner and the relationship continues.

“I would rather have a top quality firm and get an assistant than use a lesser quality firm and get a partner.

“The bigger firms have far better resources and more lawyers. But I do admit that because smaller firms are more concentrated it is easier to get hold of someone.”

But she says she has also used 36-partner Gouldens as well as the larger corporate practices. “I have used Gouldens in one corporate transaction. I used it because I was told it would be cheaper. I hope it is.”

Cost is a major area on which mid-size firms feel they are attractive to clients.

But Rodney Smyth, a solicitor at asset management company Invesco, whose smallest outside legal adviser is Ashurst Morris Crisp, feels that mid-size firms do not compete on cost because their partners lead teams, meaning the overall fees are not lower.

“Bigger firms are more flexible, broader, more effective and manage to match the level of service you want with the right person.

“We do not always want a partner working on things. Partners are more expensive and a partner has less to prove,” says Smyth.

But it would be hard to deny that lower overheads mean mid-size firms are capable of offering better value for money. For many it may be just a matter of altering strategies to ensure the right level of lawyer advises on particular issues.

But many mid-size firms are doing well regardless, and some are standing beside magic circle firms on panels and lists of legal advisers.

These practices seem to do this through coherent strategies. Many are focusing on specialising in new areas such as e-commerce, finding the right strategy for them on whether to have one office or several, making sure they exploit their low overheads to push down fees and offer more personalised client care.

If they address these issues there is no reason why they cannot maintain their distinctive role in the legal market.

The Lawyer is running a one-day conference on the future for mid-size firms on 11 April. Contact Steve Warshal on 020 7970 4713 for details.