An ill wind… The LB100 leadership debate

Alex Novarese, Legal Business: How is the market generally?

Lee Ranson, Eversheds Sutherland: Most of the managing partners around this table will say it was a better 2017 than expected. We had some of our highest numbers against a budget where we were very, very wary with Brexit and uncertainty. Very strange. We are going into a new budget now and management is more cautious than the practitioners.

David Patient, Travers Smith: I was pretty pessimistic at the beginning of 2017 and it surpassed all expectations by some way. I can see the next six months being pretty good. Beyond that is harder to predict. You hope for the best, and plan for the worst. Inevitably something is going to slow us down.

Lisa Mayhew, Berwin Leighton Paisner: It is unnerving because management is more cautious than the business. We are all reading the same reports of an M&A boom. There are a lot of real estate transactions. Disputes are continuing. But there is unease because 12 months ago we were all feeling pessimistic about what might materialise post-Brexit.

Simon Levine, DLA Piper: Even when you look at firms that operate across other jurisdictions, they all seem to be on the up. We had a difficult time in Australia for a long time. But that market has picked up incredibly over the past year or so.

David Pester, TLT: We are trying to balance the structural piece around profitability against that backdrop and at the same time consider a longer-term investment play we might need to be making.

Sharon Lewis, Hogan Lovells: The accountants have been clever. Think back to the 1990s, their clients could no longer afford to pay for throwing hundreds of people at audit, so they invested in technology. Over the last ten years, they have used that technology to harvest data. They package in a way which is very appealing to CFOs and COOs. They must be taken as serious competitors, not least that they have a war chest they can yet invest more in technology.

Alex Novarese: Let us have a crack at the accountancy issue. I am on the record as saying it I do not rate them in law.

Sharon Lewis: I do not disagree but they can sell.

Lisa Mayhew: Why do you think that, Alex?

‘There has been a wake-up call in the Magic Circle. There is a moment of waking up to where the clients have moved.’
Lisa Mayhew, Berwin Leighton Paisner

Alex Novarese: Look into the claims they have made over the years, they do not stack up. Look at the incentives of their staff, the great majority of people [at the Big Four] have no interest in doing law. And they are riven with conflicts.

Simon Beswick, Osborne Clarke: As technology becomes a bigger part of our business, they become bigger competitors. It would be interesting to be privy to their conversations as to why they feel now is right. I am sure it is related to investment capacity and the productisation of the law.

Lee Ranson: How many people around this table are audited by the Big Four? Audited by competitors. It is remarkable!

John Joyce, Addleshaw Goddard: I suppose a separate question is how many intend to remain audited by them.

Simon Levine: I asked hypothetically the chair of a big accounting firm a while ago: ‘Why do we not merge?’ He said: ‘We could never merge with a big law firm. We cannot have litigation. We cannot have regulatory work because of conflicts.’ That made me wonder about where they were going. Having said that, the Aussie accountants seem to have made a lot more inroads.

Mark Rigotti, Herbert Smith Freehills: Will they cause disruption in trying to succeed? I think they will. They could be very potent competitors in certain areas. Emerging markets would be one. And the context can change very quickly. If Deloitte or PwC spun out their audit division and were left with consulting, then you can have a full-service law firm tacked onto the side. The conflicts decrease 85% and there are banks out there pitching the concept. It is a complex cocktail of strategies and cultures inside those firms around what they are trying to achieve.

Alex Novarese: There are product lines where they can have impact – financial regulatory, cyber security and data compliance. But it is very difficult for them to replicate the M&A or disputes machines.

Sebastian Prichard Jones, Macfarlanes: In my world [private client], they have been there for the last 30, 40 years. They are going to face challenges of their own. [Labour Shadow Chancellor] John McDonnell wants to break them up. We should not be afraid to take them on.

Lee Ranson: We did a client event recently. There were two messages clients gave clearly. The first was: ‘We do not want the Big Four as our lawyers. You do relationships better and we do not want to put more eggs in that basket.’ The second message was more concerning: ‘You need to get your act together.’ If they invest and change how they deliver, that may change the answer.

‘When we ask clients to help us support women in law the answer is: “It is your problem.”’
Simon Beddow, Ashurst

Sharon Lewis: Just look at Brexit, they have been clever around that and sold a consultancy piece.

Mark Rigotti: The world was easy 15 years ago: we were a supplier, the client was the buyer and there were accountants or McKinsey on the side; everyone is crossing over at the moment. I wonder whether there is a piece around collaboration. We talk about investing in technology to compete with the accountants. Why not invest alongside them?

Simon Beddow, Ashurst: I do not see the Big Four as a special threat other than for commoditised work, but all of us need to respond to that challenge. We opened Glasgow four years ago; it is between our third and fourth biggest office. We all need to look at how we process commoditised work to make sure that, for the real added-value stuff, we are still first choice. That is why most law firms in the City will get smaller over the coming decade.

Simon Beswick: Is anybody seeing the consultants going down the law road? There were rumours for 12 to 18 months that McKinsey was going to enter law.

Mark Rigotti: No, but you see crossover areas. We have marketed with McKinsey in parts of Europe on crisis management. McKinsey are good at wrapping around that. What we do not want to be is a sub-contractor.

Chris Lowe, Watson Farley & Williams: You have to pay attention but you should not be distracted from what we have to do.

Alex Novarese: Changing the subject, how well do you think the profession is treating women in terms of retention and supporting female lawyers?

Penelope Warne, CMS: There is a whole load more to do. Things have become a huge amount better with initiatives like the 30% Club. Law has got so much better but has not cracked it.

Alex Novarese: Judging it against ten years ago has it changed a lot?

Penelope Warne: It has. I can give one example. We have a ground-breaking maternity policy, not just in terms of generous remuneration; in terms of allowing women to come back to work more flexibly when it is better for them. There is a 12-month window where a returning mother has her job guaranteed. We offer a more flexible return whether it is 12 months, 18 months, two years or three years. Also, there is more emphasis on agile working.

‘There should be zero tolerance to inappropriate behaviour, although it does potentially create a witch hunt culture. There will be some unfortunate consequences.’
Chris Lowe, Watson Farley & Williams

Alex Novarese: Chris, how progressive is your firm?

Chris Lowe: Not enough.

Alex Novarese: Do you hold onto the talented mid-level associates?

Chris Lowe: No. We see quite a lot of returning talent but I do not think the infrastructure exists in the UK or many of the jurisdictions where we operate. Germany is good and Denmark and Norway are good but the UK is a long way behind. You look at our management executive and six out of 17 are female. The statistics are quite good at the high and low end, but rubbish in the middle.

Alex Novarese: Roughly, what would the partnership proportion be?

Chris Lowe: Less than 30%.

Alex Novarese: Better than some.

Chris Lowe: It is not great, is it?

Alex Novarese: There is such a heavy influx of talent in the legal industry of women flocking through. That keeps translating in many firms into 15% to 20% at partner level. This is now a 20-year phenomena. Is that not embarrassing?

Penelope Warne: It is not about policies. It comes down to culture. There are still some perceptions that for large transactions a woman with family commitments may not be able to do it.

Sharon Lewis: The banks have some very good returnship programmes where they can support both women and men returning to the workplace. I would be very interested in making this much more widespread in the legal profession.

Penelope Warne: Some of the young guys want flexibility too. We are introducing a policy called ‘time out, no questions asked’, where staff can take a month in any calendar year away from the office. That is ground-breaking.

Alex Novarese: Has anybody found anything particularly effective in terms of retention?

‘A cyber attack is a nightmare but a cope-able nightmare. Losing client data would be a real nightmare.’
Simon Levine, DLA Piper

Declan Black, Mason Hayes & Curran: The most effective thing is to allow women who are mothers to work when they want to. We have people who have made it to the highest levels of the firm who took that option. We never phrase the issue as a gender issue. All of the energy is to make sure we do not lose people permanently to parenthood unless they want to.

Alex Novarese: Are law firms intolerant if a big biller is acting badly?

Lee Ranson: I think so. We revamped our remuneration system for partners eight or so years ago. We had to set the examples of what was the right behaviour and what was not and show that there were consequences to both. If lawyers see that is the culture they quickly either leave or adapt.

Alex Novarese: A lot of law firms have pretty policies; if you get to what happens on the coalface, there is big a gap with reality.

Lee Ranson: You have to show it is real by making it happen.

Simon Beddow: We all completely get it. Over the course of my career the whole agenda has changed. We also employ highly-accomplished HR people. If you were to put us all in the room and say, ‘Solve this’ we would, but clients are saying, ‘You have to do this’, ‘You have to do that’. In the 30% Club, we say to clients: ‘Will you help us to solve it by moving the expectations you have?’

Alex Novarese: Why do you need clients to help you?

Simon Beddow: Because a lot of it is about having to work 48 hours to get a share purchase contract agreed and you depend upon someone else to take care of your kids while you are not there.

‘The future may not be like the past. There is now greater investment needed. We have to get partners thinking about that.’
Lee Ranson, Eversheds Sutherland

Alex Novarese: That is only an issue for clients, surely, because their point of contact becomes unavailable when they need it. So you need team allocation to support flexible working.

Simon Beddow: We have all tried that. When we say to clients in the 30% Club, ‘Will you help us to solve this by helping us with job share?’, the answer is: ‘It is your problem, you solve it.’

Alex Novarese: They are right. It is your problem.

Simon Beddow: It is a societal problem. My wife is a university professor. She collaborates with colleagues in Sweden. For them, everybody getting involved in childcare is the norm. Our society does not accept that. I do not think we should beat ourselves up overly about this because we are marginally worse than the accountants but not any different to the consultants.

Sharon Lewis: I sat at a women’s event a few months ago and wanted to jump up and down. There was a woman GC from a well-known company who was all into, ‘I use agile working with my team’, and, ‘I expect my lawyers to do the same’. In the next breath she said: ‘But if I want to get hold of my lawyer at 6.30am, I expect only two rings and for you to pick up. If I have to go to somebody else to get those two rings at 6.30am, I will consider moving firms.’

David Pester: Partnership structures have got worse. There must be something behind the way the businesses are structured that does not align to all the other things we are trying to achieve.

‘People were very shocked by the Presidents Club. Many male partners told me it was really inappropriate.’
Penelope Warne, CMS UK

Penelope Warne: Sometimes women self-select that they do not like the culture of the City.

Richard Crump, HFW: Clients themselves will assist the process because you are going to see greater representation of women among the clients. Some of the businesses we are in were traditionally incredibly male-dominated – insurance, shipping, construction, etc. We are now seeing many more female clients. It is just going to take time to work through the system.

Alex Novarese: Were you all surprised about the Presidents Club headlines?

Penelope Warne: Many people were very shocked.

Chris Lowe: If what they said happened, happened, it is unacceptable in this day and age.

Penelope Warne: I noticed many of the male partners contacted me and said the dinner was really inappropriate. There are several dinners being led by 30% Club and Mark Carney where City firms and companies are invited to take tables as a protest and to reimburse money to charities. We will be taking a table.

Simon Beddow: I am just astonished anybody thought a male-only dinner of that scale was appropriate.

Lee Ranson: It sounds like a dreadful event, frankly. The world is not like that anymore.

Chris Lowe: Look at the Grammy’s, look at Hollywood, look at sport. I am sorry, it is. It is still very much prevalent and complacency is not acceptable. There should be zero tolerance, although it does potentially create a witch hunt culture. There will be some unfortunate consequences. We, the legal profession, are amongst it.

Alex Novarese: Let us return to strategic issues. We did a feature recently looking at long-term patterns of performance. A group of firms in the mid-tier were standout performers. Osborne Clarke was one. Watson Farley another. Are there forces driving this? Simon, why are you awesome?

Simon Beswick: Growth is easier when you are smaller. To hit those levels of growth is so much easier than if your firm is four times bigger.

Alex Novarese: But how are you doing it?

Simon Beswick: Focus, largely. We came out of 2008 and thought various things. One was about moving upmarket and then there was a realism that clients want us to do a broad spectrum of work. A lot of firms over the early 2000s had become a lot bigger and more international than us. We were trying to figure out how we compete in this changed world. The conclusion was we had to focus the business. We chose sectors as a way of doing it.

When we split the business in the middle of the 2000s and had a look at it, we had 30 different services all going to market separately. Sectors enabled us to rein that in. It enabled us to have a conductor in an orchestra and play the same tune.

Simon Beswick, Osborne Clarke: Sectors enabled us to have a conductor in an orchestra and play the same tune.

Simon Levine: Would you ever go the whole hog and move from a practice group structure to a sector structure?

Simon Beswick: No, but the big thing was moving the whole of business development to sectors. We moved all marketing budgets and promotion to sectors.

Alex Novarese: How much impact did that have?

Simon Beswick: Massive. Taking some of our best people and making them sector leaders, together with moving all the BD budget to sectors made it change. We had a go at trying to move to a sector-focused way in the late ‘90s and it never worked. When we had a go second time we felt we have to be 100% committed. We made a change overnight. It took everybody 24 months to realise: ‘They are serious and not coming back.’

Alex Novarese: The first 12 months was just moaning, I bet.

Simon Beswick: Yes, and ‘Why can I not do this?’ Then they sort of got into the swing of it. The other benefit is we have always had to fight for growth and clients. It made the firm very flexible.

Alex Novarese: There seems to be a link between simplifying the business of law and sustained growth.

Richard Crump: It is about focus. If you look at OC and ourselves, Watson Farley, all of us went down that industry sector route in seeking to differentiate ourselves. We have had people who have worked in those industries. A lot of that then starts driving an international strategy because those sectors have an international direction. You need to know your sector, your industry and push it.

Alex Novarese: If you look from the late 1980s through to about 2006, the Magic Circle cleans everybody else’s clock. Then it goes flat. They shrink in real terms. Does this not signal a fundamental shift in the industry?

Penelope Warne: You have to have an edge. To be generalist is a dangerous place.

Lee Ranson: I would say virtually everybody around this table has a similar structure in that.

Alex Novarese: The numbers indicate they do not, based on growth rates.

Lee Ranson: A lot of people talk the theory. Getting the business to respond is a very different thing.

David Pester: One advantage I have had is we started with a clean sheet of paper. We did not exist until 2000. Ninety percent of our fee income sits in only five sectors. It is an interesting example of how it can drive where you target your investment. Execution is absolutely key.

Alex Novarese: I often come across this idea of profitability versus revenue growth. There is a strong link between revenue growth and profitability growth. Yet we come back to this notion we can retrench to global domination.

Simon Levine: Why is it US firms continue to do so well? They are growing internationally and have increased profitability.

Alex Novarese: Exactly. They are growing revenue and profitability.

Simon Levine: But there is a danger of assuming it is about structure as opposed to something else.

Alex Novarese: I do not believe the problems of the Magic Circle are that they have not made enough ground in America. That is a big issue, but the bigger problem is they are not growing in Europe.

‘If Deloitte spun out audit you can have a full-service law firm tacked on the side. The banks are pitching the concept.’
Mark Rigotti, Herbert Smith Freehills

Sharon Lewis: They have tried to slim down and become more profitable, like the bride getting ready for their wedding, for a US merger.

Alex Novarese: How’s that working out for them?

Sharon Lewis: They have relied on having, including from publications of your own, this brand which has allowed them to restructure and throw off good profits to make them attractive across the Atlantic. So far, we have not seen the results of that.

Alex Novarese: Let’s put a little nuance on it, I can see how you restructure a law firm over one or two years. I do not see how you can restructure a law firm over a decade continually.

Sharon Lewis: That is what they have done, though.

Alex Novarese: And it is not working. Linklaters was a world-beater in 2007; it is not a world-beater now.

Sharon Lewis: But you still call them Magic Circle.

Alex Novarese: Magic Circle means the top of London.

Lisa Mayhew: It does not have the same connotation if you go to America. It does not have the same royalty tag that we grew up revering.

Alex Novarese: Is the Magic Circle on borrowed time? They are great firms but are they calling their strategy wrong?

David Patient: There are all kinds of models that can be very successful. The Magic Circle is a model that continues to be very successful. We have not gone for a sector approach; we have gone for a very simple and focused approach with flexibility to turn and focus on those parts of the market that are very profitable.

Lisa Mayhew: There has been a wake-up call in the Magic Circle. There was an arrogance and complacency in lots of firms. Perhaps there is a moment of waking up to where clients have moved.

Richard Crump: They are quite arrogant but are run in a completely ruthless way. I would hesitate to bet against them but the Americans are coming. That would seem their bigger challenge.

Alex Novarese: Let us look at opportunities and the future. What are the reasons for concern… and optimism?

Simon Levine: There is not just the B word, but political and economic uncertainty. It is what happens if North Korea fires a missile over Japan. It is a very, very unstable world economically.

Penelope Warne: Cyber is a big threat for all of us.

Simon Levine: We have more than made up any lost ground [after the firm was hit by a cyber attack in June 2017] and we will be at our budget this year. But the saving grace was not how quickly we got back online, it was that we lost no data. I would love to say it was all brilliantly planned, but it was not like that; it was my idea to use independent cyber experts, at PwC, and to have them in pretty much from the beginning, helping us shut the system down and monitoring our restoration process. Then when clients came to us and said, ‘We do believe you but have you got any independent validation?’, we were able to get an independent body to sign off on it. That validation proved crucial.

A cyber attack is a nightmare but a cope-able nightmare. You shut your systems down. People find a workaround. Lots of people, including firms around this table, were incredibly supportive. But losing client data would be a real nightmare.

Lee Ranson: My concern is the future may not be like the past. There is now greater investment money needed. We have to get our partners thinking about that.

Alex Novarese: By retaining profits?

Lee Ranson: Maybe. In developing tech, you cannot plan it like you used to and start on 1 May and say: ‘These are the two projects we want to get done by next year.’ It is more business critical now. We have to start having that discussion openly with partners.

Lisa Mayhew: We have all grown up seeing some great partners. It is teaching and explaining those skills to the next generation. That is a real challenge.

Mark Rigotti: The talent proposition is so much more complex. Technology is taking away jobs and not everyone wants to be a partner. Some want to work in an agile way. What does your talent pool look like? That is enormously complex.

We talk about how we want someone to be a lawyer-plus-plus. The ‘plus’ is the extra bit that is probably around technology. The ‘plus-plus’ is the bit we do not know. That sounds very Donald Rumsfeld. Partners of the future are going to have to be really, really adaptable for things we do not know are coming. The key challenge of the future is about adaptable talent.

Bill Drummond, Brodies: This brings us back full circle to the chat at the start, which is management being more bothered than partners about what is going on. I am not surprised there is lots of economic activity. The balance sheets of corporates are full of cash. The Eurozone is on the up. Even from a Scottish perspective, we see lots of opportunities. What about inward investment into the UK?

Chris Lowe: We see the growth outside the UK, definitely.

Simon Beswick: We have three sales offices in the States. They are trying to target young US businesses going either to Asia or to Europe for the first time. We were fearful of the Brexit effect, but we see through those offices that clients are generally opening up somewhere in the EU and somewhere in the UK. The UK is still going to be very, very important to those clients but they are hedging their bets.

Simon Beddow: The real challenge is making sure there are people who want to come and work in our firms. I am sure all of us have spent 25 to 30 years working like dogs doing this job. I am not sure that today I would make the same choice.

We are 200 years old in 2022. How do we make sure there are people who want to carry on for the next 200 years? That worries me far more than the accountants, technology and American law firms because those challenges have always been there. It is about how we get them through the door, give them great careers and make them want to stay.

Lisa Mayhew: There are reasons to be optimistic, though. The profession is intellectually stimulating. There are amazing relationships you can have with clients and colleagues. There are high levels of autonomy. Not every industry is able to offer some pretty fundamental positive attributes to the profession.

Alex Novarese: Thank you for your time. LB

alex.novarese@legalease.co.uk