A dispatch from the front line of change as our Hot 100 leaders talk mergers, PI pressures, and pay and recruitment
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Pick a term – transformation, evolution, consolidation, shakedown. Whichever degree of dramatic intonation you choose, the reality is that the legal profession is seeing profound change – and managing and senior partners are in the front line.
Those roles used to involve little activity more strenuous than hosting a monthly partnership lunch in a wood-panelled dining room or rubber-stamping the annual lockstep moves for young guns. Today, law firm management is a crucible for the testing of business and commercial nous, requiring full-time attention in all but the rarest cases.The transformation issue topping agendas last year was consolidation.
The Lawyer brought together the management figures from this year’s Hot 100 for a no-holds-barred fat-chewing session on the 2013 achievements they were most proud of – as well as the issues that give them sleepless nights. Of the 11 around the table five had been involved in a recent merger, while a fair few had overseen office openings and other expansion.
Merger as a strategy
“This is the beginning of offering a different sort of law firm in this sector,” comments Kinsella, before explaining that Slater & Gordon takes the view that “consumer law firms will have a more diverse structure” in the near future. That could be “one-man operations or online offerings, but there also has to be consolidation with larger law firm entities so they can give good career prospects to lawyers”.
The undisputed merger king at the table was Slater & Gordon chief executive Neil Kinsella. The Australia-based mega-firm appears to be on protein drinks normally reserved for weedy teenage boys fed up with being pole-axed on the ruby pitch. Indeed, Kinsella’s role is a by-product of that growth – he was managing partner of London’s Russell Jones & Walker before it cut a merger with the Aussies two years ago.Many firms would have paused for breath after such a big deal; not Slaters. Over the past six months or so, the firm has made half a dozen moves to hoover up smaller UK players and effectively treble in size, boosting UK turnover to some £120m in the process.
Another firm on the merger path was SJ Berwin . There was already a strong whiff of change in the air when Stephen Kon took over the managing partner role in 2012.
Kon acknowledges there were some well-publicised flirtations with US global practices, but in the end the firm looked east, cutting a deal with King & Wood Mallesons last October to become the first Asia-based international practice, King & Wood Mallesons SJ Berwin (KWMSJB).“We had to decide what type of firm we wanted to be,” he recalls, “a European firm or a global firm.”
“It’s exciting,” he says, before conceding that the fallout has required “an enormous amount of work in internal integration”.
Another international merger involved City practice Ashurst , which last September tied up the loose ends on a two-year process to link up with Ashurst Australia. The firm’s chairman, Ben Tidswell, took over post-merger and invoked a touch of understatement at the roundtable, saying: “It’s been a pretty busy couple of months. We’re now a much bigger business – the merger substantially increased the size of our partnership. The move has given us a significant weighting in Asia Pacific, and that was very much the rationale for the deal.”
Also on the merger bus last year was Penningtons chief executive David Raine – although the high-profile deal with Manches last October had more of a distressed takeover feel about it. Talks were triggered by a tax demand resulting in a pre-pack arrangement.
Despite that firm being portrayed as a zombie with nose-diving profitability, Raine says the Penningtons side bagged a steal.
“The merger, which is what we’re calling it internally,” he says, “has provided a boost to our family and private wealth offering, as well as in technology, particularly with the Oxford office.”
Now, he says, the management team is “focused on what we should be doing internationally”.
But Irwin Mitchell chief executive John Pickering points out that evolution is nothing new to the firm.Rounding off the merger angle at the meeting was Irwin Mitchell , which has grasped the ABS model with both hands. Last year the firm nailed several deals, including taking over a Manchester personal injury (PI) specialist and subsidiaries including a debt collector.
“We embraced the ABS idea at an early stage in terms, at least, of putting in our application, even though the machinations of the SRA meant it took a long while to go through,” he says.
His firm and Slater & Gordon share the experience of being at the cutting edge of structural transformation brought on by implementation of the Legal Services Act 2007.
“We’ve moved away from being a professional partnership towards a corporate entity,” says Pickering.
One move saw the appointment of non-lawyer Andrew Merrick as chief financial officer, coming from a corporate background.
The rapid developments at Irwin Mitchell come against the backdrop of a reputation for top-level PI work. But the practice had to take quick decisions after the funding changes in that field, which came into effect last spring, as well as reforms of the civil legal aid system generally.
“Dealing with law reform has been a massive issue,” acknowledges Pickering. “Several firms are getting out of the PI and legal aid space, and it will be a case of the largest and strongest surviving. You need economies of scale.”
Shoosmiths has also taken a hard view of the PI market. Chief executive Claire Rowe told the roundtable that, when she assumed the role five years ago, the firm decided “to reduce its turnover and profit reliance on that field”.
Rowe describes her challenge as having to recognise that “we were no longer going to be competing in the volume PI market. We were going to be more choosy about what private client work we took on. The challenge was to grow the commercial client base, and that meant everything transactional – corporate, employment and real estate.”
Despite the tough economic conditions, last year saw several Hot 100 managing partners overseeing office openings. Leading the way was RPC , where the management team sat around maps in its Tower Bridge HQ and pushed pins into Bristol, Hong Kong and Singapore.
Also opening a lower-cost UK venue was Ashurst, which cut the ribbon last year on an office in Glasgow. According to Tidswell, the outpost will focus on due diligence and disclosure work, with the firm also having moved a significant proportion of its back-office workforce north of the border.
Office openings come in all sizes. For Joanna Worby, managing partner of Maidstone-based Brachers , a recent office launch in Sandwich is just as important as global flag-planting is to the City players.
Another manifestation of structural transformation has been Pinsent Masons ’ launch of Vario, a ‘hub’ of freelance lawyers working for clients on a flexible basis, which began servicing clients last summer.
The business was launched by Alison Bond, a member of Pinsents ’ central management team, who says: “We’ve had to work hard to ensure we’ve got our selection criteria and processes right, so the lawyers not only have the technical ability required but also the behaviours that suit the freelance market. We’ve done a lot of profiling. Working in this way is now a valid choice – 10 years ago people were a bit sniffy about freelance working.”
Management challenges for 2013 did not all revolve around mergers, office openings and service launches – for example, RPC tackled the tricky issue of NQ salaries.
In 2009 the firm moved to a meritocratic remuneration structure for all associates, abolishing any link to post-qualification experience.
But, explains managing partner Jonathan Watmough: “The one thing left over was NQ rates. They were still paid a market rate regardless of practice area or experience. So a couple of months ago we removed that last bastion and they are now paid on merit. That’s a range slightly higher than the magic circle at one end, and lower at the other.”
Issues around evolution and transformation are not exclusive to solicitors. Indeed, barristers’ chambers are arguably facing an even more dramatic combination of threats and opportunities. Internationalisation and arbitration were issues highlighted at the round table.
Blackstone Chambers senior clerk Gary Oliver warns of minefields abroad. On an exploratory mission in Singapore recently he was told by global law firms already on the scene that “they would see us as competition if we opened there, so instead we’re concentrating on India – we have a senior member of chambers from India, locally qualified and well-connected with Indian firms and in-house counsel.”
Meanwhile, Matrix chief executive Lindsay Scott points out that much of her role since she joined seven years ago has been to change the perception that the chambers is just Cherie Blair’s human rights set.
“We’ve done a lot of international work, but in the past it was not pulled together,” she says.
That changed with last year’s launch of Matrix International, the physical manifestation of which was the September opening of a Geneva branch.
“We do commercial work there,” says Scott, “but also quite a lot of work with the UN, and sports work. We’ll be rebranding this year to reflect that international offering.”
Roundtable discussions of transformation issues are fine in theory but how change affects lawyers and staff on the ground is what really matters. For example, solicitors are going to have to get used to remuneration structures that look much more corporate.
“Essentially, people will get salaries and bonuses,” commented one attendee, “and those levels can go up or down. If they’re into what would have been the equity level, they have the potential to gain shares.”
Does that mean waving goodbye to the romantic collegiate vision many still hold of partnership? Unavoidably, to an extent, but some maintain elements of tradition can be retained.
“You can reach corporate status and retain a partnership ethos,” says one of the Hot 100. “It will mean sharing in a corporate environment. And the opportunities of becoming a corporate are exciting. A corporate structure makes it easier to drive increased professionalism.”
Around the table
Ben Tidswell , chairman, Ashurst
Jonathan Watmough , managing partner, RPC
Joanna Worby , managing partner, Brachers
Neil Kinsella , chief executive, Slater & Gordon
Stephen Kon , senior partner, KWMSJB
David Raine , chief executive, Penningtons Manches
Alison Bond , central management team member and head of Vario, Pinsent Masons
Claire Rowe , chief executive, Shoosmiths
Gary Oliver , senior clerk, Blackstone Chambers
Lindsay Scott , chief executive, Matrix Chambers
John Pickering , chief executive, Irwin Mitchell
Sam Steer , content strategy manager, Thomson Reuters
Catrin Griffiths , editor, The Lawyer