While pundits are queuing up to pronounce the death of the industry’s model, Legal Business canvassed senior figures to devise some practical ideas to make a law firm work better.
You don’t have to look far in the legal profession to find causes for gloom. Battered by a sustained malaise in Western economies, more assertive clients and the threat of legal service liberalisation in the UK, a growing band of observers, general counsel and industry figures have argued that the traditional model of commercial law is fundamentally broken.
Legal Business, unsurprisingly, takes a different view, a conclusion which may be partly due to osmotic assumption of lawyerly attitudes. But this optimism is as least as much because some of the claims regarding the supposed weaknesses of the profession fly in the face of data that demonstrates the profession’s relative resilience. As important to this view is an enduring belief in the many positive qualities of lawyers and the role of partnership and the law firm model. Law firms certainly have plenty of strategic blind-spots and a cultural resistance to change, but the partnership model has delivered performance and high standards to clients and even accommodated more innovation than its critics usually allow.
As such we have turned our minds towards devising a series of practical ideas to reform, renew and update how a law firm works. The scope of our concepts covers a broad range of issues, from partnership to remuneration, client service to innovation.
Our thinking is that, with the profession facing substantial change and the prospect of credible competition from non-law firm providers, conventional law firms will have to keep evolving, apply new ideas and learn to become, well, less conventional.
In drawing up our blueprint for a better law firm for the 21st century, we interviewed a range of senior law firm leaders and established advisers to the profession to stress test and refine our thinking.
That is not to say those interviewed endorse or agree with all our suggestions – though none of these ideas have been included without being thoroughly tested against a sounding board of senior lawyers with at-the-coalface experience of commercial law.
What was crucial for Legal Business – aside from bringing the odd ray of optimism and constructive input to a topic surrounded in fog and gloom – was that, right, wrong or plain barmy, our ideas could be practically applied.
Legal futurism and industry prognostication have become dogged with calls to aspirational action so vague as to not only be grating but often operationally useless; we have tried to apply hard and fast notions that a managing partner could take a view on.
As such we have deliberately avoided suggestions that have obvious broad merit such as calls to improve financial management or to spend more time developing staff in favour of practical models with the potential of economic benefits.
Norton Rose Fulbright chief executive Peter Martyr, for example, was one of several people interviewed for this piece, arguing that law firms should move to clearer leadership models, over the ‘lowest common denominator’ of committee-driven governance. But it is undoubtedly true that such a development, and a clearer separation between the role of partners as owner stakeholders and those charged with running the firm, is happening under its own steam at many firms.
Some of our notions are economically or commercially logical but for entrenched historical reasons have little chance of being implemented in law – at least by a traditional legal practice. Others will not only likely happen but are already being experimented with in certain contexts or implemented in part. As such we have tried to give some view on the likelihood of adoption.
If nothing else, we hope the following 17 ideas present some food for thought and the odd reminder of how the profession can build on its very real strengths, rather than get hung up on the baggage of centuries of history and precedent.
PARTNERSHIP AND FINANCIAL MANAGEMENT
1 – Create a lockstep for the 21st century
Law firms can use lockstep or operate origination-based remuneration models for partners. A cursory glance at the industry over the last 20 years demonstrates that both models can work well if astutely executed and that the binary debate between the opposing approaches is, as DLA Piper co-chair Tony Angel observes, entirely stale.
However, what has been apparent for some time is that the current incarnation of lockstep is an overly restrictive model that was very much a child of its time, having been developed to bind expanding law firms together during the 1960s and ‘70s.
Freshfields Bruckhaus Deringer managing partner Ted Burke notes the context of the model: ‘Freshfields didn’t adopt [lockstep] until the 1970s, so about 230 years after the firm began. It’s still the best remuneration system for us but we fully realise that all of our systems must serve our strategy not vice a versa. For example, should our geographic strategy be driven by client demand or lockstep fit? In reality, it’s a bit of both because lockstep supports and enhances our culture so well.’
The failure to substantively adapt that model for the huge changes that have occurred in the upper end of the legal market since the 1990s has increasingly threatened to shatter a system that still delivers considerable benefits in terms of aligning incentives, forcing firms to concentrate on partnership quality and facilitating team work.
This failure has also led to a questionable mass expansion in salaried partner ranks even at top-tier practices, while the compressed nature of the model has proved poorly suited to working across global markets.
Our suggestion: the range between junior equity and plateau should be substantially stretched from 1:2 to 1:2.5 at present to 1:4 to 1:5. In addition there should be two discretionary gateways dividing the ladder into three sections. The first gate would be largely used to address variations in international markets, so partners in less lucrative jurisdictions start at entry levels, while those in high-cost territories enter equity at the first gate. The second gate would act as top-of-equity for partners in less expensive markets. This second gate would also be used as a discretionary point at which general partners could be held indefinitely, with clear financial criteria being set to allow for promotion to the top third of the track. Aside from the gates, advancement up the ladder remains primarily based on seniority. Management would have the power to demote or exit partners from equity, but this break with lockstep would be capped at no more than 2% of the partnership a year. This would force the firm to remain intensely focused on the quality of partners they are making up (a major weakness of merit-driven systems). Any deeper restructuring could only be undertaken with a wider endorsement of the partnership.
The lockstep would also work with an automatic taper wherever partners sit in the ladder past the age of 50, reducing earnings to a maximum limit of 70% of their plateau. The firm can only override the taper at a discretionary level for 10% of its equity partners.
The goal: a model that retains the alignment and focus on quality of lockstep but with flexibility to cover global differences in markets and deal with major performance issues. The ‘straitjacket’ of a limit on the firm’s ability to demote or remove equity partners forces the firm to take partnership seriously and underwrites the contract between the partnership, its constituent generations and senior management.
Will it happen? Very unlikely. For reasons that are unclear law firms have either pushed down a route of increasingly complex blended contribution-based systems, divisive origination-focused models or soldiered on with a rigid lockstep patched together with an increasingly long list of ad hoc compromises. None of these three models has had a particularly good track record but a viable compromise is perfectively achievable.
2 – End full profit distribution; go (largely) debt free
Commercial law firms generate large amounts of cash and often operate with high profit margins (20% to 45%). However, the full distribution model where all profits are handed to equity partners the following year has been badly exposed since 2008, when it has been proven repeatedly that partnerships are singularly ill-equipped to handle debt and other obligations.
The solution is relatively simple: a move towards retaining a modest fixed amount of profit within the business on an annual basis, say 5% of earnings. Though there are tax complications in that partners are taxed on full earnings, at such modest amounts, these are manageable. In addition firms should adopt a policy of maintaining zero medium-term debt or at least only in the case of specific defined investments. Even then debt should be tied to certain benchmarks, such as stipulating that it cannot exceed certain limits such as 5% of turnover and must be paid down within a defined timeframe, such as three to five years. This policy could be written into a firm’s partnership deed or treasury policy. Failing to meet that target would see a firm retain a higher proportion of earnings to pay down debt more quickly.
The upside is clear: firms benefit from enhanced resilience and arguably better partner retention. Such models could potentially be tied in with long-term incentive plans in corporate structures, a model that several law firms have investigated.
James Tsolakis, head of legal practices at The Royal Bank of Scotland, supports the move from full distribution, arguing that firms need to retain more capital to deal with ‘future investments and Armageddon scenarios’.
Will it happen? To a certain extent it already has, even if not executed in such a prescriptive form. Many firms have moved to cut debt and hold more capital in the business, typically through higher capital contributions or by delaying distributions in response to poor cash collection. Going as far as a mandatory policy of retaining earnings, however, would be further progress, though it would be resisted for fears it would penalise firms on the lateral recruitment market.
3 – A new metric: debt per equity partner
Entirely external to law firms but relatively easy to produce in the age of limited liability partnerships. Such a metric would illustrate the liabilities being loaded against partners and cases in which firms are straining their balance sheets to create the appearance of flattering financial performance. Such a measure could be constructed in several different ways, which scarcely matter as long as the methodology was consistently applied.
On the basis that it is generally agreed that widely adopted metrics can result in law firms engineering their business to appear healthier, if such a measure were to gain currency, it would produce a countervailing incentive for virtue.
Will it happen? Possibly. It would fall to outside observers or the media. Several managing partners and law firm advisers agreed that this goal is achievable.
RECRUITMENT AND TALENT
4 – Make teams and partners accountable for lateral recruitment
The excesses and variable track record of the partner recruitment market have been well documented. Though it is widely accepted that there is a huge cost in getting such decisions wrong, lack of team or individual accountability has allowed poor decision-making to flourish.
One solution is relatively straightforward. Collect and standardise basic data on new partner recruits in four or five metrics, covering areas like billing, retention and business generation, and a qualitative independent assessment of performance against business plan by a partner or assessor unconnected with the original recruitment decision. This data would be used to establish a baseline on performance of laterals as a whole, giving a clearer picture of performance against homegrown partners.
This would arm the firm with additional information on which to make recruitment decisions. In addition, a senior management figure or small body should conduct a brief audit of all laterals every three-to-five years. One top City firm conducted just such an exercise and used the information to establish best practice during recruitment and identify warning signs of bad decisions.
Going further, firms should be ready to deploy bigger carrots to reward teams for making good partner recruitment decisions and, likewise, sticks for bad hires. In merit-driven partnerships this could extend to higher or lower remuneration for department heads or partners backing the hire. In lockstep models, teams with bad track records on recruitment could be ‘benched’, forced to undergo periods when requests for laterals or additional investment will be denied. There is a good case to operate a fixed ceiling on the proportion of laterals that can be made in one year, increasing the chances of good decision-making as firms prioritise the hires with the strongest business cases.
Will it happen? In the rigorous form outlined above, it would be very unlikely though the UK at least is generally regarded to have ushered in more robust monitoring of lateral recruitment since the market turned in 2008. In contrast in the US, there are indications that the pendulum has swung in the other direction as more firms bank on laterals to expand market share, a development that has destabilised some firms built on mobile ‘stars’ with little loyalty. Still, overall, given what is at stake in partnership recruitment, it is surprising that best practice has not advanced faster than it has so far in the UK.
5 – Reform recruiter incentives; pay more for success – less for mobility
One factor encouraging poor partnership decisions is that incentives for recruitment consultants push them towards rapidly moving partners of middling or even poor ability, rather than focusing on the notoriously hard to move stars. Indeed, focusing on transferring top performers can easily cause problems because recruiters operate with volatile cash flows. One obvious solution is to introduce stronger claw-backs in recruitment fees for obviously non-performing partners, beyond the basic three to six month departure clauses sometimes used. In addition, recruiters should be able to share in the upside of an outstandingly successful hire.
This is easier said than done since it would require law firms to be honest in cases of outstanding performance and it faces the complication of recruiters acting for the individual partner but being paid by the recruiting firm.
It would most likely require firms to be ready to pay more overall to recruiters than the general 25% of annual salary going rate as the price of gaining better quality recruits and pushing recruiters towards value-based fees. But such a dynamic would make it easier for the better recruiters to gain a commercial premium over less scrupulous or effective rivals.
Will it happen? Never. Recruiters would fight it tooth and nail and law firms would be fearful of not being offered the best candidates. Jomati Consultants founder Tony Williams comments: ‘A lot of headhunters will bitch and moan and say that law firms themselves cause some of the problems and that’s true to an extent but you get to a point where you say: “Shouldn’t you back your own service?”’
Simpler measures that go some way towards dealing with such issues have included some law firms investing in their in-house recruitment teams or assigning specialist recruitment partners to reduce reliance on outside agents. A move towards evaluating partner recruitment decisions against the entire partner placement track record of the representing recruiter – which is relatively easy to do if using a simple benchmark of partners who remained with the firm – is one potential response.
6 – Lower pay and increase training for junior associates; raise mid-level associate compensation
It is an open secret within the profession that the curious dynamics of the City labour market have seen firms pay more for associates in the newly-qualified to three years PQE range than the firms – and, more to the point, clients – believe they are worth. This happens in part because of the distorting impact of US law firms in London – themselves operating a rigid lockstep associate pay model that works poorly on their home turf – forcing UK firms to lift junior associate pay due to the pressure on recruiting firms to compete on the simple metric of a widely known high starting salary. One consequence has been pressure to charge juniors out at rates that their experience is yet to justify and yet more emphasis on hourly billing.
Firms have also often offset this cost at the expense of the battle-hardened mid-level associates that clients want to handle their work as that labour market is less transparent and in the hope that associates by then have bought into the firm and the prospect of partnership.
A better solution for clients, junior lawyers and law firms themselves is to drop starting pay by around 15% to the region of £50,000-£55,000 and substantially hike remuneration for more productive mid-levels to probably over £120,000 at top firms. This would smooth the way for a drop in charge-out rates for the most junior associates and give firms room to increase investment in training in the first two years’ post-qualification.
The result would be better-trained lawyers, happier clients and mid-level associates, who at this stage have fully grasped law firm economics, feeling they are being paid for the value the firm is extracting from them.
Will it happen? Unlikely in the blunt form outlined above as law firms supposedly sure of their prestige and brands remain petrified of being penalised on the milk round. However, there has been some shift in this direction with the steady and effective phasing out of associate lockstep in favour of more flexible models. An additional shift away from hourly billing would nudge the profession further in this direction as it would migrate law away from the pyramid staffing model hardly anyone supports with conviction. But without further flexing in the model, the industry will be forced to respond with the only measures available: continued expansion of para-professionals and outsourcing-style arrangements. However, this is short-sighted and could be overturned if some major firms showed leadership. For one, talented junior lawyers are mobile – a top-notch training and development programme is not, so there is a value in shifting focus to the latter. And losses to junior ranks would likely be offset by better retention and attraction of high-quality mid-levels – the backbone of high-end law firms.
Client relationships: 7 – Internalise hourly rates
The hourly billing versus alternative fee arrangements debate has been well-rehearsed and doesn’t need to be gone through again here. However, a simple move that would bring a new maturity to the dialogue between adviser and client, encourage efficiency and shift the emphasis for advisers towards the value they do (or don’t) provide is to entirely recast hourly billing from unit of value that clients are billed into a strictly internal measure of resource for law firms to use in running their business. Clients could see the hours worked if requested but the measure is removed from the normal billing process.
This would allow external counsel to use their existing time-keeping infrastructure primarily to gain data for staff evaluations and as a means to price effectively. It would also somewhat reduce pressure to over-lawyer and encourage a greater focus on what clients got out of the services purchased as they are no longer being primarily sold hours. Jomati’s Williams comments: ‘With hourly rates we have got ourselves into a position with clients where we are not talking about the value of the work we do. A lot of what we do clients think is just stuff.’
Professor Laura Empson, director of the centre for professional service firms at Cass Business School, picks up the point, arguing that the focus on hours over all else has held back the profession: ‘There is something perverse about living your life in six minute units. That does not help you to evolve.’
Will it happen? Probably, in part because of the slow but steady expansion of billing not solely determined by hours committed and the rising influence of non-law firm providers. Expect such a shift to occur by means of an evolutionary crawl rather than the kind of sharp lurch that still terrifies the profession.
8 – Lower rates for junior associates, raise them for partners
The classic pyramid model is under substantive stress. Like lockstep, it either bends or it will break entirely. A sensible modification is to lower the rates that you expect to recover from junior associates by 15%-20% and raise them by a similar amount for partners. This would lead to more effective allocation of resources by law firms. Currently, clients often say they want and value partner time: this is unsurprising since it is effectively subsidised by the law firm in the form of artificially low rates that are only two to three times that of a junior associate. No-one is convinced that this differential accurately reflects the varying contribution between rookie and rainmaker. The differential should be more like five to one. It would also concentrate minds within a law firm about which partners are worth a premium and migrate more work where it should go: to talented mid-levels (whose pay should be raised, see above).
Will it happen? There has been some gradual shift in this direction but it remains far too bold a shift in general, with partners generally being better at talking about adding value than putting their personal work to a market-based test. An intermediate step would be a shift towards higher partner rates in high-demand strategic areas of transactional and contentious work, which has happened to a modest degree as partner rates have been pushed down for routine work but held up or edged higher in premium matters. A greater range in how individual partners within the same firms are billed out is occurring and is likely to continue.
9 – Ditch ‘value-added’ services; trim resources and cut rates
Secondments, client training, legal development briefings and seminars – what is the point of these grace and favour arrangements? Some of them clients value (subsided or free secondments mainly, to a certain extent training), some of them they don’t. Better to just price them like anything else – according to demand. Giving them away devalues them anyway. If there is no demand, law firms can lose a little fat and offer a better deal on fees for their actual services. If they are needed, they can be purchased like anything else. In the context of clearly defined key client programmes and guaranteed work commitments such arrangements make some sense. Other than that, they just don’t.
Will it happen? No, more’s the pity for the maturity of the relationship between adviser and client.
10 – Slash production of legal development content in favour of high-impact analysis
Corporate law firms spend very considerable amounts of time and money producing writing on legal developments and industry trends. Much of it is either unappreciated by clients (see above) or lost in a flood of similar material by rival firms, rendering it useless commercially.
Major advisers should conduct a basic audit of how much is being produced and its cost. A good rule of thumb would be to slash output drastically, say half or two thirds and redirect resources either towards larger high-impact pieces of research in core industry areas, or towards creating new communication tools or information products for clients.
This would free up firms to produce reference tools or agenda-setting reports that would positively brand the firm or be used to bring in business – a classic McKinsey-style approach that positions a legal firm as a knowledge leader rather than a narrow technical supplier.
Such reports can be used to generate revenue directly, via networking. Alternatively a law firm could just save the time and trouble by producing less material and raise the quality of what it does produce, more tightly focused on its core areas of business. When you struggle to stand out amid the avalanche of law firm briefing material, less (produced better) is most definitely more.
Will it happen? There is a move in this direction, with top London firms becoming more adept at topic or industry-driven set-piece content but progress is modest.
BUSINESS GENERATION, PRODUCT DEVELOPMENT AND THE BUSINESS OF LAW
11 – Create a genuine sales operation
Despite the expansion and relative increase in sophistication of law firm business development (BD), such teams, with a handful of notable exceptions, remain inward-facing and essentially in a support role to partners. As such there remains a fundamental difference between outward-facing sales professionals that are deployed in many other industries.
Legal Business argues that there will be a role for genuine sales professionals in many types of 21st century law firm, a development that would free up partner time for strategic legal matters.
Developing such sales teams would certainly take time and experimentation – sales in law would probably function as much as a side-by-side relationship with partners rather than replacing them. Success would likely involve using some limited pilots in key target industry areas before the formula is refined. Identifying the right individuals for such a bespoke sales operation would be key – some of the better legal recruiters, many of whom have legal backgrounds and experience of operating in a sales-driven environment, may be one potential recruiting ground.
While the concept of a fully-fledged sales function will be radical for some, Empson agrees that firms can do much better in this regard.
‘There is definitely scope for a grown-up sales force. If a law firm got this right you could potentially exponentially grow the business.’
Success would come from relatively small teams of senior, experienced and well-paid sales professionals, adapting established techniques in institutional sales to the profession. A sales function should come under the leadership of a senior professional reporting to the senior management team, allowing for a strategic view on the firm’s record on cross-selling and BD.
Will it happen? In the age of the 1,200-partner law firm it is hard to see how the Rubicon won’t be crossed eventually, however strongly resisted by law firms. DLA Piper, for example, has experimented recently with ushering in account managers for major clients, though not in a sales capacity. Client-facing sales seems to be part of the end game for some global law firms.
12 – Create an R&D team: process innovation and legal tech
Though many large companies spend between 3% and 14% of turnover on research and development (R&D) depending on industry, law has avoided this approach. While the economics and business of a law firm obviously don’t call for anything like the investment cycle of pharmaceutical or information technology companies, there is a perfectly good case for modest and targeted research functions once you get into the realm of £500m law firms.
One model is for a centralised team focusing on big picture ideas, wider trends, the business model and what can generally be viewed as process innovation in the delivery of law. This would not have to be large – most likely it would consist of a smaller core group, drawing on regular secondments and cross-team working. One aim of such a group would be to liaise with other teams likely to be working with innovation, most crucially technology and knowledge management teams. This R&D team would be ideally placed to evaluate potential game-changers like artificial intelligence (AI), technology that has major implications in law in using algorithms to sort and process document-heavy tasks like e-discovery, due diligence and contract review.
A second function of this R&D team would be to focus on actual product innovation: how developments in law could be put together and marketed to clients and how to come up with ideas in how services could be packaged more effectively.
This sub-team would need strong lines of communication with groups focused on sales and industry analysis. To work, the team would have to be sponsored by a partner of considerable standing.
Several law firm leaders at major firms cited the role of such a team in being able to experiment with new technology. One managing partner at a top ten London firm comments: ‘AI is the huge wild-card. This raises the possibility that in ten years it won’t be a debate about if you are doing a certain kind of work in Mumbai or London it will be whether you can handle this with an algorithm.’
Much of the issue turns on how much a firm is willing to spend. Interviews for this piece ranged from a call for 0.25% of revenue for a central R&D team to a much more substantive commitment. Legal Business argues that a £500m law firm should start small but be willing to build towards a commitment of £2m to £5m annually.
Will it happen? In the spirit of honesty, it is worth mentioning that DLA Piper’s Tony Angel, rightly regarded as a pioneer of law firm leadership, strongly disagrees with Legal Business’ model of a central R&D function.
But there are some steps being taken in this direction, for example Allen & Overy (A&O)’s ‘innovation panel’, which is overseen by partner Jonathan Brayne. The biggest challenge in law firms is not that there are not increasing amounts of sporadic experimentation going on – there are – the challenge is to more effectively foster it, co-ordinate it and deploy it commercially.
13- Create an R&D team: industry analysis
While the R&D team outlined above would function largely as a centralised hub, a second group of smaller teams could focus on industry analysis aligned with primary sector teams of the sponsoring firm. Dubbing this team as R&D is debatable as they would focus as much as an intelligence unit but the value comes in having additional resource to feed into key client programmes, pitches and product development ideas. The largest law firms also have an increasing opportunity to leverage their global network to market cross-border industry insight. As with building a sales function – the best chances of success would involve small teams and experimentation.
Will it happen? As mentioned above, law firms do already produce substantial amounts of industry research and reports – the above approach is about concentrating the concept and taking it to the next level. It is also about recasting the teams into hardened industry analysts, who could inform a law firm’s service and industry credibility. Law firms have made more ground in industry focus than some observers allow – pulling together and aggressively deploying that knowledge would yield results. While Tony Angel remained doubtful of a centralised R&D function, arguing that innovation comes from working with clients, he does believe law firms could learn from outfits like McKinsey and Accenture in their ability to push knowledge around the business to the people who need it. He comments: ‘Some of these things are simple. It’s about establishing a database of experience and expertise, so you can work out where you have the people who can contribute to the problem and so can make introductions or connections for the benefit of the client.’
14 – Create an internal venture capital fund
Another way to foster innovation would be for law firms to create fresh means to back new ideas. One route would be to create a modest internal investment fund that individuals or teams could bid to gain funding from. Such a fund would be overseen by several internal trustees or investment officers and subject to normal expectations of rates of return.
This could function as both a means of backing new ideas, or even putting in additional investment into promising initiatives that are receiving existing budgetary commitments. Firms could start by committing the equivalent of 0.1% of revenue annually to the fund, rising to as much as 0.5% if it works successfully beyond a pilot.
A more radical approach that has gained ground in R&D and academic circles would be to offer internal prizes to encourage solutions to defined technical or commercial problems. The financial rewards on offer would have to be relatively substantial, say £10,000 to £500,000 depending on the nature of the challenge, but it would be an interesting way of supporting new ideas. Bruce MacEwen, founder of legal consultancy Adam Smith, Esq, comments: ‘I am a big fan of having prizes – you don’t tell people what to do, you tell them that you’ll give them $1m if they put the proverbial man in space.’
Will it happen? To be honest, no, but that doesn’t mean it’s a bad idea.
15 – Build a pricing team and a wider business of law data team
If there was one topic that united the law firm leaders and industry observers interviewed for this piece, it was the need for better information on profitability and pricing – primarily in the area of types of matter but also the profitability of specific clients. As RBS’ James Tsolakis comments: ‘A lot of law firms are not good at understanding the profitability of their own businesses. In many cases, partners just don’t understand the profitability dynamics.’
While considerable ground has been made over the last ten years at UK-based firms in terms of building a better ‘dashboard’ for senior management, everyone agrees that granular pricing knowledge is patchy at best even at major law firms.
Better information would support the expansion of value-driven billing, steer firms towards profitable work and allow for more effective allocation of resources. The data should also feed into team evaluation and BD and bolster financial management.
A related need in a law firm is to build better infrastructure to support business of law data, notably around more reliable information on the performance of key client programmes and industry sector groups.
Will it happen? Yes – it already is starting to happen with Baker & McKenzie, for example, in recent years moving to develop an internal pricing personnel, while a small community of pricing specialists has already emerged in the US. A&O senior partner David Morley says that his firm has worked on improving its data in this regard via its core finance team. By consensus, law firms could achieve a lot even with relatively simple standardised measures and small specialist teams.
The business model: 16 – Create separately branded divisions
Many large law firms are evolving into professional services groups, which strongly suggests a more flexible business model will be needed rather than just entirely relying on partnership.
One logical development of that process is for law firms to launch separately branded divisions offering services partly or entirely outside their core trainee-to-partnership track. In many cases they will be offering legal services, backed by technology and para-professionals, or other cases offering the increasingly popular high-end ‘locum’ model developed by Axiom and, of course, Berwin Leighton Paisner with Lawyers On Demand (LOD). Firms should be willing to use other brands for divisions and, if necessary, bring in outside partners for a minority stake to create fresh thinking and raise additional investment.
Will it happen? Yes. It is already happening, with Eversheds launching a business of law consulting arm as well as Agile, a similar locum law firm proposition to LOD. The advent of alternative business structures has also given such moves a boost with a handful of major law firms looking at a range of related ventures.
Peter Martyr argues that top law firms will in future have to more seriously consider working beyond their current model, commenting: ‘Lawyers always resist commoditisation. They always find a way to pretend that something that is actually commoditised isn’t.’
A tangential but related development has seen the adoption of LPO-style support models that have seen northshoring at firms including A&O, Herbert Smith Freehills and, most recently, Ashurst, with the launch this year of a support office in Glasgow.
This one has legs.
17 – Embrace ‘accordion’ staffing models
There is a growing consensus that major law firms will have to embrace ‘accordion’ staffing models that see the trainee-to-partnership track as a smaller fixed core around which a larger, flexible group of skilled staff can be deployed. Not a new idea, but one that is rapidly gaining ground through both mid-market and top-tier law firms. A&O’s Morley comments: ‘Law firms will move towards a resourcing model that can respond better to peaks and troughs in demand. At the moment, it’s too fixed, you need more flex.’
Ted Burke takes a similar stance, citing Freshfields’ experiments with the FreshWorks network of alumni. ‘In the past, a lot of law firms seemed to staff for peak demand. That made no sense and was bad for the law firm and bad for those people who, inevitably, were let go after the peak. So firms need either to resist the temptation to take on all work on offer or find a more flexible way to provide “peaking capacity”.’
Will it happen? Again, yes, as witnessed through tied virtual or locum lawyer businesses, and experimentations with alumni networks.
Squeezing the pyramid – the shape of the modern law firm
The ideas above represent an attempt to contribute something useful to an increasingly intense dialogue in the legal industry regarding how it should change to meet the post-Lehman global economy. But ultimately more important will be how the profession responds as it enters a period in which it can no longer count on a law firm being the dominant means of providing legal services.
The UK was already the most innovative and sophisticated national legal market in terms of adopting new ideas. Now, the perfect storm facing London’s legal market of credible foreign entrants from the US, turbulent trading conditions and the Legal Services Act, is set to push the profession even further onto the cutting edge of the law business.
That is to the good. The more creative mood that has been evident in the profession in the last five years will stand it in good stead if it wants to avoid being disrupted out of its leading position by Skadden Arps or maybe Rocket Lawyer.
One theme that unites many of the ideas above is an increasing belief that the traditional pyramid model by which large numbers of junior associates drive a billing model with a small number of partners at the top will be fundamentally challenged in the years ahead. The pyramid of solicitors looks likely to endure, but it will be less broad at the base, less central in driving law firm profits and less dominant on how legal businesses provide services.
While that could be taken as a message of gloom we prefer to see the bright side in a profession becoming more welcoming of free thinking. Departing from some of these established models may be unnerving but it should also loosen the strictures of living against the clock and make room for the many intelligent and thoughtful people working in the industry to experiment.
For all the conservatism of lawyers, major UK law firms have for years shown willingness to rapidly appropriate effective innovations when it really matters.
It certainly matters now. LB