Culture vs risk: How to run a law firm in challenging times
23 June 2014 | By Catrin Griffiths
Pages in: Culture vs risk: How to run a law firm in challenging times
It’s a critical balance in the push for innovation and durability. In the run-up to our Awards, Law Firm of the Year contenders tell us their secrets of success
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The management of private practice law firms has never been so dependent on economics, data and pricing. Yet away from the day job the key issues that preoccupy law firm leaders are culture – the ‘known knowns’, to adopt Donald Rumsfeld’s terms, and risk – the ‘known unknowns’.
Culture underpins the way firms arrive at and execute decisions. It determines how professionals work with each other across geographies and practice areas. And it is increasingly an area of differentiation as far as clients are concerned. Yet culture can sometimes be used by elements in the partnership to agitate against change. For any firm, innovation can involve changes to processes, outcomes and habits. Yet law firms are having to adapt to radically changing environments. How, then, to maintain those organisational bonds?
Seven change leaders
The Lawyer brought together the leaders of the contenders for the Law Firm of the Year at The Lawyer Awards this week for a discussion – sponsored by Travelers – of the strategic and cultural issues they face.
Each of the firms shortlisted has had to confront significant challenges to their model and client base. As always, our awards measure not just financial performance but vision, innovation and strategic execution too – all of which demand strong change management. All seven, despite differences in their practice, geographical and structural models have important stories to tell in this regard.
For four of the firms concerned – Clyde & Co, DWF, Pinsent Masons and Slater & Gordon – change has principally involved mergers and geographical expansion. Pinsents merged with Anglo-Scottish firm McGrigors and has launched in Paris and Munich. It now has more offices overseas than in the UK – a significant milestone. In 2013 it took on no fewer than 40 partners. Pinsents has confronted the pricing issue with considerable success, investing in partner training and winning fixed-price mandates from FTSE clients.
Slater & Gordon (legacy Russell Jones & Walker before it was taken over by the Australian personal injury giant) increased its annualised revenues from £48m to £120m and headcount by 50 per cent, to 1,200, through mergers with Fentons (£27m), the personal injury practice of Taylor Vinters, Goodmans Law and John Pickering & Partners (£10m in total) and Pannone (£4m).
DWF’s vision in 2006 was to become a top 20 law firm by 2015, with a national presence and a balanced practice. In its climb it has dispensed with the traditional law firm structure, enabling it to make fast decisions. In 2013/14 it completed four strategic mergers – with Biggart Baillie, Buller Jeffries, Crutes and Fishburns – plus the acquisition of Cobbetts in a pre-pack administration. DWF has grown by nearly 85 per cent in revenue terms.
Following its sector-busting merger with BLG in 2011, Clyde & Co has invested huge efforts in building out internationally. In 2013 it opened six offices, all focused on the insurance, logistics, trade and energy sectors.
For Macfarlanes and Mishcon de Reya, change has meant having to adapt to protect and enhance strategies that have been developed over a decade. Mishcon’s financial growth has been much reported over the years (it won Law Firm of the Year in 2012), but its trajectory has been based on a razor-sharp focus on litigation and private wealth, with its associated practices. Its
financial success aside, it has embedded a social impact programme as part of its internal learning. Macfarlanes has scoped out the Chinese market, but is committed to independence and the premium work sector.
RPC has redefined its position in the mid-market, rebalancing its practice towards corporate work and investing heavily in talent management programmes.
Round the table:
Andrew Leaitherland, managing partner and CEO, DWF
Neil Kinsella, chief executive, Slater & Gordon
Jonathan Watmough, managing partner, RPC
Charles Martin, managing partner, Macfarlanes
Kamal Rahman, head of immigration, Mishcon de Reya
Peter Hasson, chief executive, Clyde & Co
Catrin Griffiths, editor, The Lawyer
Andrew Leaitherland, DWF
Whether it’s organic growth, lateral hire or acquisition, culture is a big challenge.
You have to deal with IT and so on – that’s your nuts and bolts. But the more difficult thing is to get the culture piece right. We went from 1,200 people to 2,500 people, so you have to think about the 1,300 people who’ve joined.
We went out to the businesses and got people to tell us what’s right about the firm, what’s wrong and what its values are. That has produced one culture deck for the whole business that gives us the value-set to go on from.
We were fortunate in having the right firms to do deals with. It wasn’t a quick ‘hello, how are you? Fancy doing a deal? Great’. We’d spoken to most of them for two or three years beforehand. We had a record of getting to understand them and know what makes them tick, so there was a lot of legwork even though the deals were done in quick succession.
What emerged was the positivity. When you go through that amount of change you kind of expect negative sentiment. It was reassuring because it meant we didn’t have as hard a battle.
Neil Kinsella, Slater & Gordon
Our sector has been softened up for change in the past 10 years, so having a well-funded organisation that can build scale and systems around culture is important.
The key is to spend a lot of time identifying people who you’ve got a lot in common with.
Alternative business structures (ABSs) will give people opportunities around the different forms of equity. That is one of the important tools.
We’re evolving from being a partnership with former owners having shareholdings to a more mature plc environment. That makes it more about incentives and broader staff ownership programmes.
Jonathan Watmough, RPC
Nobody’s going to be led anywhere they don’t want to go, so if you spend a lot of time talking about where you want to go and people decide that’s the right thing, they’ll go there.
Equity partnership is pretty fundamental to us. Yes, it’s one of those badges, but let’s be clear, just because you’re an all-equity partnership, doesn’t mean you‘ve got a partnership ethos. For us, it’s all part of maintaining that strong partnership ethos. You don’t need a partnership to maintain a partnership ethos. I don’t see the two as mutually exclusive.
The annual profit-strip short-term law firm model is madness. You can only be yourself. The firms [shortlisted] have been successful because they’ve been themselves –distinctive – and we’ve all been helped by clients segmenting the market.
Ultimately, better people make better partners and better partners get better clients and better work, so the basics haven’t really changed.
Partners want to be in the right place with the right scale, but beyond that it comes down to culture – questions such as ‘am I going to enjoy it?’ or ‘am I going to flourish?’ The esoteric, intangible things.
Charles Martin, Macfarlanes
The problem with the collegiate badge and the way people interpret that is that it’s fuzzy – people think you’re not the sort of place that has a gritty culture that demands performance and has tough conversations when tough conversations need to be had. But we regard ourselves as both collegiate and pretty demanding of partners.
For professional firms, including law firms, culture is the only sustainable source of competitive advantage. This is core not only for us but for the choices our clients have in the market.
Managing growth – and the related issue of culture – would have to be top of my list.
Also vital is maintaining partners’ appetite for embracing change they didn’t think they had but acquired after the downturn, and ensuring they don’t sink back into the old ways.
Kamal Rahman, Mishcon de Reya
When we come to a gritty decision, we go back to our core values. The best thing about them is that they don’t date, as they’re based on fundamental truths. I’m sure many share these, but they are: the highest quality legal service but in a cost-effective way; a culture based on diversity that empowers us; acting with integrity; frankness; and placing the highest value on mutual support so when discussions happen, internally or with clients, they are not predicated on blame. Also, we believe in growing a sustainable business that partners hold in trust for the firm.
Complacency discussions don’t arise within the firm.
Peter Hasson, Clyde & Co
We operate in 40 offices on several continents and if you tried to run a business like that in a centralised way you’d make mistakes all over the place.
The key is the glue that holds it together – have a common vision of where you want to go, but leave people to make decisions on how to pursue it. This is one of the reasons US firms have struggled to expand internationally – they tend to have centralised decision-making structures.
The big thing we’ve found on the mergers point is that people are given the scope to bring their ideas to the party and drive the firm forward.
One of the big challenges is hoping clients keep up the pressure of change and don’t let our competition go back to the good old, bad old days.
Around 80 per cent of what I do is talent management so there’s always the worry of losing your best people, and linked to that is the need to maintain momentum.
If you’re a magic circle or global elite firm you can drift for five years and it won’t make a scrap of difference, but firms like us can’t. We need to maintain momentum, so we are constantly innovating and changing.
Technological innovation has barely hit the legal sector yet. The future is here and now, it’s just not evenly distributed. This is the new industrial revolution.
A major risk for us is geopolitical change because so much of our work is international. You could even say that the situation in Russia changes the nature of our practice. London being the safe haven for the flight of capital in a fragile and disruptive world is what our practice is predicated on.
We’re alive to international threats and that’s what we are focusing on to stay ahead of the game and keep nimble.
Risk is part of what we’re doing and how we’re consolidating.
One of the keys is the fight for talent. We’re in a sector where, to do the work we want to do, including shareholder actions and so on, we have to compete.
For me it’s about having a consumer brand, which I don’t think exists in the UK at the moment. We’re making significant strides towards that, but to achieve the scale we think is necessary will require further growth.
We’ve trebled in size in the past 18 months, so the challenge is to make sure we have a solid platform on which to create a genuine brand.
Getting better than the people we compete with day in, day out is a big challenge, particularly for a 350-lawyer firm.
Threat to reputation is always a risk. Reputation has never been more important and in an era of social media it is vulnerable and hard to control in a way that never used to be the case.
As for commoditisation, we need to be dropping the bottom 15 per cent of our practice every year as other firms take some – and who knows where that stops? We believe there’s a defensible premium end of legal services, but maybe we’re wrong – that’s always a risk.
The City is full of risk: private clients, investigations, M&A – so much is related to it. When you see what’s happening with Europe – and I don’t know which is worse, to be in Europe and have restrictive regulation or not to be part of it – there’s a danger of the City becoming less significant in the global economy.
In the insurance sector there’s a lot of innovation that’s come through – and cost pressures.
We have to respond to those competitive pressures, but are also trying to apply those models on a global basis, and it’s how you cope with that level of change while trying to manage it on a global basis.
With an improvement in the UK economy you can see the legal sector about to make the same mistakes it did six or seven years ago. We’re seeing a whole load of new entrants coming in and doing exactly what they did in 2007. The first thing they do is hire the existing people in the market, so the cost of lawyers gets bid up. Then they compete for the same sort of work and to justify the investment they have made they need to get revenue through, so the price goes down and then profitability goes down.
A whole load of firms will pile in and then they’ll all pile out again. That behaviour has characterised some parts of the legal sector over the years, and it’s coming back.
We’re human capital businesses so we need the best quality people. One of the biggest challenges is the war for talent and recruitment.
Our corporate team is growing massively and corporate lawyers are back to where we were six years ago in terms of being busy, so it’s hard to get a conversation.
Our service is partner-led, but we gear it down to a deeper level based on the pricing and we use processes and systems to drive that – it’s our differentiator. If you look at our cost base compared with a lot of our competitors, I’m glad we’ve been able to build the firm with regional centres and then invest in London in the right way. It has meant that we have kept our overhead base at the right level as opposed to getting carried away and thinking, ‘we’ve got to be big in London’ and then suddenly finding that it is too difficult to maintain.
Our challenge is to stay ahead of new entrants and defend our client relationships.
We can do that only when we innovate, and that’s where the knowledge bit and the risk bit are like two horses tethered together but running in opposite directions – how do you support partners to innovate but know that not every innovation is going to take off?
Size or geographic spread becomes an issue. The longer your supply chains are, the harder it is to engage with people on a daily basis.
All the international markets are closely linked – you’ve got to keep a weather eye on, say, levels of debt in China and the impact that might have on their investments around the world.
Reputationally, the further you get from the centre, the more there are different ways of taking clients on, and different types of work being done. Keeping on top of all that and trying to identify what is high-risk and what is low-risk keeps me awake at night.