Senior lawyers question law firm business model
5 January 2009
The economic crisis has caused partners to cast doubt on the fundamental business model of law firms, while associates are living in fear of losing their jobs, according to the largest survey of the UK legal profession.
Sixty-nine per cent of managing partners and senior partners believe that the current economic turmoil will force law firms to radically change their business models, according to The Lawyer’s latest YouGov-Centaur survey of nearly 2,000 lawyers across the profession.
“That’s a fear barometer,” commented Mayer Brown vice-chairman Paul Maher. “I don’t believe 69 per cent would be saying that in any other environment. We didn’t see managing partners out in the street applauding the Legal Services Act.”
Maher said he has been questioning the fundamental business model of law firms for years – even during the boom times.
“The basic problem with law firms is that we’re annual cash vehicles,” he argued. “Because we don’t have the exit that other owner-managed businesses have, there’s this constant drive to pay out as much as you can to partners at the end of each year. People see our industry in terms of short-term gain, not in any long-term sense.”
Rank-and-file partners are barely more confident in their business models, with 60 per cent saying fundamental change is needed.
Brodies ;outsourcing partner Andrew Rigby, a ;former ;Addleshaw Goddard partner, said he has been banging this drum for a number of years.
“The way we expect every fee-earner to be a good marketer, a good lawyer and a good manager is just bizarre,” said Rigby. “You have the extraordinary situation where you have your coalface worker also acting as your manager.
The model for legal firms is fundamentally flawed. We need more of a corporate structure or to structure ourselves like the big accountants. Set rainmakers free from fee-earning and let them get out and win new business. Let the fee-earners do the lawyering.”
The managing partner of one global firm said this was a simplistic view, with many firms providing more training for lawyers, more preparation for partnership and letting partners carve out suitable roles. But he conceded that this may not be true of the majority of firms.
While partners may be questioning the very business model they have depended on for their whole careers, associates have more base concerns.
Only 15 per cent of associates felt strongly that their jobs were secure.
The chair of the junior lawyers division of the Law Society and Nortel in-house counsel Katherine Gibson said: “There’s a feeling of nervousness. Everybody’s scared about their jobs.”
This is understandable. According to the survey, 44 per cent of the UK’s law firms have already made redundancies – twice the amount previously reported.
TheLawyer.com’s Legal Job Watch has been documenting the travails of the job market since last October and has revealed that 44 of the UK200 have made redundancies. However, the YouGovCentaur research suggests that many more firms have made redundancies under the radar.
Gibson, whose organisation supports law students and lawyers, from newly-qualifieds up to those with five years’ post-qualification experience (PQE), said: “It’s a huge area of concern, especially for my members, who are at the junior end of the profession. They’re worried that if they’re made redundant and go out to the job market they’d lose out to those lawyers with more than five years’ PQE.”
The YouGovCentaur results confirm Gibson’s feelings. Only 9 per cent of associates felt strongly that they would be able to find another job easily.
That figure slumped to just 6 per cent of those at firms with turnovers of between £25m and £50m, which roughly equates to the bottom half of the top 100 firms.