The outsiders

Can an 'outsider' such as an accountant run a law firm better than the traditional partnership model? Jon Robins finds out if the trend towards corporatisation is all it's cracked up to be

Senior partner Trevor Lee believes that the typical partnership takes a perfectly good fee-earner and makes a not-so-great manager out of them. “And, at the same time, they're losing a hell of a lot of money in their potential fee-earning capacity,” he says. “What they're trained in is the law, and they suddenly produce a very expensive administrator who isn't as good at his job as he should be.”
It was this line of thinking that prompted Lee to contact the Officers' Association for Retired Services Personnel some 14 years ago in search of a partnership secretary. He interviewed 10 officers from the Army, Navy and Air Force who had reached the retirement age of 38 years of service, and finally appointed David Higson to the job. The former wing commander and business studies graduate was elected chief executive this month as part of the firm's move towards a more corporate management structure.
Challinors is just the latest in a long line of regional firms to 'go corporate'. Keoghs, for example, hired non-lawyer Paul Smith last year as chief executive from chemicals company Lea Ronal UK, where he held the same position. “We want our legal staff to be able to get on with what they're good at, which is law,” marketing director Mike O'Donnell said at the time. Thames Valley firm Boyes Turner also appointed a chief executive in a major management shake-up three years ago, and in the North East, Watson Burton appointed an accountant last year as managing director in another strategic overhaul.
“I really don't understand the model that a lot of firms operate,” says Andrew Chalkley, Boyes Turner chief executive. “They have a managing partner for three years and, just as they're getting experienced and confident, they have an election and appoint someone else and it takes another three years for them to get experienced. And so it goes on.” Chalkley was recruited from Bond Pearce, where he was head of resources, to work full time on management issues.
But change at the firm runs deeper than just bringing in a new figurehead. As Chalkley explains, the reason for his appointment was twofold: when fee-earners become administrators, management issues can play “second fiddle”; also, the lawyers wanted to be freed up from such issues. So now Chalkley, as both a lawyer and chief executive, handles the firm's management issues alongside marketing, HR, finance and IT managers, all of whom are non-lawyers.
While the theory of such arrangements appears fairly obvious, the practice of taking executive decision-making powers away from partners is not quite so easy for lawyers to accept. “It's not something that you can switch on like a light,” Chalkley acknowledges. “It's got to be built around people understanding that the business needs to go forward, and then there's an awful lot of trust and people have to be prepared to let go, and that doesn't happen overnight.”
Could he conceive of the firm going the whole hog and, for example, appointing an outsider – even an accountant – to run the practice? “I think it's conceivable, but experience, however, tells me otherwise,” he replies. “The history books of law firms are scattered with sad stories about this.”
It is an observation frequently made by lawyers, despite evidence that accountants can do a pretty good job. Both Watson Burton and South East firm ASB Law, for example, have accountants at their helms.
Alan Morris, the first non-lawyer to lead a top 10 City firm, stood down from Simmons & Simmons after only three years as managing director. The accountant said he left because of a lack of career options, but clearly things were not going well at the firm, which had gone through a bad time financially and had seen an exodus of senior partners. Morris is now head of operations at Landwell, the PricewaterhouseCoopers-tied firm.
Of course, accountants manage many law firms. “The skills that the average lawyer has don't necessarily lend themselves to being the best managers,” argues Andrew Hoyle, senior partner at Watson Burton, pointing out that there is “constant friction between fee-earning and managing”.
The firm appointed Patrick Harwood, an accountant from one of the big five accountancy firms, who had previously worked at Leeds firm Lupton Fawcett, as managing director. Although there can be cultural problems in bringing in an outsider, Hoyle observes: “It calls for a particularly skillful individual to manage a bunch of lawyers, because they're not the most cohesive group of individuals and there will always be those partners who believe that, as stakeholders, they have a god-given right to manage.” Watson Burton is effectively run by a management board of three partners, which provides Harwood with his authority.
ASB Law recruited accountant Christopher Honeyman-Brown after he steered Alsop Wilkinson through its merger with Dibb Lupton in 1996. “Firms often find that bringing in an outsider who doesn't have the baggage of the past can provide a really fresh stimulus,” says Honeyman-Brown. However, he points out that prior experience of management in a partnership is essential. “There's a difference between the way in which one needs to manage partners and the way in which one would manage a corporate hierarchy,” he says, the difference being that the people you manage in a partnership are the co-owners of the business. “But they're co-owners in a much more subtle way than how a shareholder is,” he adds.
So what about the cultural problems of accountants running the show? “Frankly, there are cultural issues about accountants running anything,” he jokes, before adding that perhaps the environment of the accountancy practice does nothing to help accountants perform as effective business managers.
The legal profession alone divides the world up along the lines of lawyers and non-lawyers, observes Michael Brown, London managing partner at Eversheds. He believes that such an attitude speaks volumes about lawyers' relations with outsiders.
According to Brown, there are really only two questions for non-lawyer chief executives. Do they have the power to hire and fire partners? And do they have the final say over their pay? “I still don't think that we're ready to put that power into the hands of someone who hasn't been through the partnership process,” Brown comments. “I don't know of anywhere where that's been truly successful.” He adds that his firm's core executive (comprising managing partner, head of client services, head of operations, head of international, the finance director and Brown himself) does have those powers.
Of course, as firms increase in size they may appear from the outside to be partnerships but their defining characteristics are being jettisoned. This is how Quentin Poole, managing partner of Wragge & Co, talks about his firm's structure. “We have a holding company of which the chairman and chief exec are John Crabtree and me as senior and managing partner,” he explains. “On that holding company board, we then have the chief execs of all the subsidiary companies, of which there are seven, for each of our main practice groups.”
Each subsidiary company is then broken down into operating companies where the chief executive, “in old-fashioned language” the head of department, reports to the holding company board, comprising the chief executives of the seven subsidiaries plus the two holding company directors.
On top of that, there is a management board that comprises the senior partner, managing partner, three elected partners and two outsider non-executives, one a former senior partner of KPMG and the other a former chief executive of Birmingham City Council.
“You can't have 110 partners ordering the paper clips,” Poole says. “So we have fairly centralised decision-making, but with lots and lots of communication, and so we tell all our shareholders all the time what's going on.”
Personal injury (PI) firm Thompsons claimed to be the first firm to structure itself along the lines of a plc in a structural overhaul over a year ago. “The partnership model is inherently flawed,” chief executive Geoff Shears told The Lawyer at the time. “It must be an outdated notion,” he says now. “Any structure that reinforces the expectations of individual partners, that they have a significant involvement in management, must reduce its capacity to adapt to the changes necessary to sustain growth in a massively changing legal business environment.”
Of course, Thompsons is addressing the seismic changes in the PI market, where many firms are stricken owing to the cashflow problems stemming from after-the-event insurance and the increased competition from claims management companies.
Thompsons has appointed a three-member executive board and the firm has elected a supervisory board, comprising four partners and Lord Sawyer, a former general secretary of the Labour Party, as non-executive chair. The executive board carries the management of the firm autonomously on a day-to-day basis and the supervisory board is responsible for policy decisions.
“It's absolutely vital that people get used to the idea that partnership no longer connotes ownership and the right to veto management decisions,” Shears says. “Everybody within the firm, from the bottom to the top, needs to come to terms with the idea that they all work for an enterprise which needs their full support.”
But not everyone is so prepared to disregard centuries of tradition. For example, Poole's enthusiasm for the corporate approach is not to the exclusion of the partnership ethic. “The one thing that people underestimate at their peril about partnerships is that it really encourages 'buy-in' and commitment from partners,” he argues. “Effectively, you have all your shareholders working in the business and it also encourages a collegiate sharing mentality in contrast with the hire-and-fire mentality that you get in the corporates.”

The voice of experience

“Profit can't be a dirty word,” says Thompsons chief executive Geoff Shears. The personal injury (PI) firm was lauded as the first firm to go corporate towards the end of 2000 and take on the form, if not the formal constitution, of a plc.
Shears is keen to point out, though, that the firm has retained its values. “What is unacceptable for us is the idea that law firms are seeking to maximise profits for individual partners,” he says. “We're not about the enrichment of the individual, we're about paying them a reasonable and fair sum.”
According to Shears, the increased efficiencies of going corporate are already hitting the bottom line. Turnover for the last financial year was £30m and this year the firm is set for a £35m turnover. It took on 35,000 cases last year and is increasing its caseload by 1,000 a year. Not bad statistics for a firm that, like the rest of the PI market, is coming to terms with the brave new world of conditional fees.
The firm is effectively run on a day-to-day basis by a three-member executive board and an elected supervisory board comprising four partners and Lord Sawyer, a former general secretary of the Labour Party as its non-executive chair, who is responsible for policy decisions.
It is a strategy that seems to be serving the firm well. Many PI firms are facing cashflow problems, and it was no secret that Thompsons was having its own well-documented troubles a couple of years ago.
But now, according to Shears, the firm is of the view that it is “absolutely vital to get bigger rather than smaller”, adding that there is going to be a need for mergers.
Shears points out that, under the firm's newly revised constitution, the supervisory board can sign up to a merger without the need for a partnership vote. He also believes that the new structure was helpful in negotiating successfully what he believes is the best insurance product for collective conditional fee arrangements.
Shears agrees that partnership is becoming something of an outdated notion. “Any structure that reinforces the expectations of individual partners, that they have a significant involvement in management, must reduce its capacity to adapt to the changes necessary to sustain growth in a massively changing legal business environment,” he says.