‘400 lawyers, 25 services, 19 sectors, one ethos.’ So says the mysteriously titled ‘Our Little Book’, which adorns the table in the meeting room greeting Legal Business after the short journey from Fleet Street to Keystone Law’s Chancery Lane office. The very idea of there being an office might raise eyebrows, given the firm’s reputation as a ‘virtual law firm’. The London location is the only physical space owned by the company and, with its abundance of meeting rooms and hot-desking spaces, is not designed to house everyone at once.
A lack of a conventional workspace is only the start. The firm breaks from tradition in all manner of ways, and yet has grown apace in recent years. Revenue rose 27% to £69.6m in the 2021/22 financial year, and scarcely a month passes without a flurry of new recruits announced. After several pandemic-hit years in which people from all walks of life reassessed their working habits, the model is viewed with a good deal less suspicion than it once was.
An increasing number of lawyers have turned to Keystone, tempted by the promised triple boon of less administrative hassle, greater independence and a larger share of billing revenue. Is the Keystone experience all it professes to be?
Creating something beautiful
Established in 2002 as Lawyers Direct by James Knight and Charles Stringer, the firm rebranded as Keystone Law in 2008 to avoid being mistaken for personal injury lawyers. ‘What are we seeking to achieve? It was never money, it was to create something beautiful.’ So speaks a typically buoyant Knight, who has endured as chief executive for those 20 years.
The pitch to prospective recruits is simple. When a lawyer joins Keystone, they set up their own holding company, which then contracts with the firm. There are no billable hours targets, nor any requirement to work at specific times or locations. Keystone will provide back-office support such as marketing, administrative systems and networking opportunities, while lawyers are free to pursue the clients and work as they see fit. There is no salary or equity share per se. Instead, explains Knight: ‘If lawyers simply bring in work, they get 15% [of the fee income]. If they do the work they bring in, they get an additional 60%.’ In short, there is scope for lawyers to take home 75% of the fee income from the work they bring in.
‘Keystone is seen as the darling of the stock market legal sector because we floated at £1.60 and then we were at £9.’
James Knight, Keystone Law
That leaves 25% of fee income for Keystone, less than would be taken at most firms. ‘That seems challenging,’ admits Knight. ‘We’re starting with only 25% for profit and overheads and everything, while the conventional law firm, after salaries are paid, has the ‘30/30/30’ model. But it works. By being lean. We have to be clever and use technology.’
The other compelling aspect of the business structure is its public listing. In November 2017, the firm became the third legal practice to float (after Gateley in May 2015 and Gordon Dadds in Aug 2017), when it launched on AIM.
When pressed on the firm’s listed status, Knight downplays its overall significance: ‘When we floated, it wasn’t for the money or for people to exit, we were just ambitious and wanted to engage with more sophisticated clients. We thought by being the third firm to list it would raise our profile, and we think it’s been enormously successful.’
Clearly, listing is not for every firm. As Knight observes: ‘If you look at the public firms when they floated and where they are now, there are some disappointing firms out there. Keystone is seen as the darling of the stock market legal sector because we floated at £1.60 and then we were at £9.’
In the 15 years since the passage of the Legal Services Act allowed law firms to float, only a handful have done so. Many more have actively considered it before abandoning plans. The highest profile near miss was Mishcon de Reya, which recently shelved plans for ‘the foreseeable future due to market conditions’, while at the same time insisting: ‘We remain an ambitious and bold business with a clear strategy and vision for our future.’
Rod Waldie, chief executive at Gateley, offers his first-mover wisdom: ‘Those law-led professional services businesses who have performed consistently well on the market to date are those who have a clearly defined purpose, strategy and vision. Keystone have proved they are one of those firms.’
While Keystone has made the most of its IPO, there is no reason to suppose it could not have reached prominence without listing. The resounding sentiment among those interviewed for this piece is that floating is only viable for firms already in a strong position. It is not a way to plug a leaking ship.
‘You have to have clients back you to succeed in Keystone, that’s the number one thing.’
Dharmendra Nair, Keystone Law
Today’s buzzword: Flexibility
‘I found I’d got myself institutionalised. You pass through law school, and your ambition is to be a partner. So, you’re not running a business, you’re part of a business.’ says Dharmendra Nair, a shipping disputes partner who joined Keystone in 2018 from Squire Patton Boggs.
The question of what ‘type’ of lawyer would join Keystone is a topic of much debate.
Jeremy Davis, corporate partner at the firm since 2020, notes an unfavourable – and he insists incorrect – stereotype: that it is a place for aging practitioners.
Says Davis: ‘Ten years ago, it might have been seen as a place where you sort of go off to retire quietly and do a few hours. But that’s certainly not the case now. This is a firm that’s going places.’
The firm’s website proudly proclaims that fee-earners average 22 years’ post-qualification experience, putting them, to put it tactfully, on the mature side. That doesn’t necessarily make it a retirement gig though.
It’s certainly not the impression given by the personalities of commercial specialist Carolyn Bane, Nair and Davis. They have a positive, energised manner, apt for partners who are the UK’s happiest, according to the RollOnFriday Firm of the Year 2021 survey.
‘My practice has flourished since arriving, in terms of not only bringing clients with me, but winning new business,’ says a contented Davis.
Another common perception, that the firm offers a refuge for people frustrated or demoralised by a traditional law firm structure, perhaps carries more weight. Nair can relate: ‘There were some push factors. In the larger global law firms, there were three or four international meetings in a year. I dreaded them.
‘You have to prove yourself all the time, because ultimately you have a window to do well and then you get your appraisal by management, and they decide what you get. In that sense, you’re institutionalised to think that is your self-worth. I got tired of it and I decided that at some point, you’ve got to be bold and stand up. Ultimately what matters is your client feedback.’
Indeed, the inner workings of City law would perplex many unfamiliar with the sector. Long hours, billing targets and the equity structure all make it distinct from most professions, and progressing at a traditional firm has esoteric pros and cons. For many, the drawbacks outweigh the benefits.
Once, the only alternative would have been to go in-house, but Keystone and places like it can now offer a solution.
The view of Bane, who was previously head of commercial and regulatory law at Ocado, backs this up: ‘I was a little bit hesitant going back into private practice, but I have absolutely no regrets and it’s just been the best thing I’ve ever done.’
Flexibility was a recurring theme, and not only remote working. Davis says: ‘You’ve got flexibility in who you work with, which you just don’t necessarily have in more traditional firms. We’ve got flexibility on pricing; if you want to go for a loss leader in order to win a client, you don’t need to persuade management that it’s a good idea.’
The sentiment is echoed by Nair: ‘You can afford to take six, seven weeks out to go to the Galapagos. The only thing one has to worry about is delegating work to others, and there are enough people with the expertise there to look after things in your absence. And the model incentivises them to do the work, unlike in a traditional firm. If I go on holiday for eight weeks in a traditional firm, somebody else is burdened with my files. For what? What’s the gain? Nothing.
‘I was at Squires, I was at DLA, I was at Reed Smith. They all have great aspects, but this is the only place I enjoy myself and that is because of the mindset.’
The merits of the proposition are hard to ignore. ‘While Keystone is in our listed peer group it’s a completely different offering. I would describe it as more of a facilities business with the lawyers using its technology-backed network to deliver client services. I think it has worked really well for them,’ says Waldie.
Though the attraction of such flexibility is easy to see, it is not a luxury every lawyer could afford. For it to work, a lawyer really needs an established client base when they get through the door. In that sense, it is a better fit for older practitioners with years to foster client relationships. ‘You have to have clients back you to succeed in Keystone, that’s the number one thing,’ emphasises Nair.
The nature of a lawyer’s practice may be a better indicator of a ‘Keystone lawyer’ than age or lifestyle choice. Scott Gibson, director of legal recruiter Edwards Gibson, gives his view: ‘Let’s say you’ve got a practice of £800,000, which is not a particularly large practice by City law firm standards, but at somewhere like Keystone you can probably earn £500,000 or more, depending on how much of it you’re keeping yourself or referring to other partners. If you’re able to do that, the chances of getting that kind of money in a conventional law firm is close to zero.’
The client perspective
Of course, these upsides count for little if clients are not on board. Given the growth in revenue the firm has seen in recent years, it is clear that an increasing number of clients are seeing the draw of Keystone’s model.
One oft-cited criticism is that, as lawyers are effectively self-employed, there is no guarantee of consistent levels of service across practices. Waldie echoes the sentiment: ‘Our approach is built around offering a wide range of legal and complementary business services delivered where necessary by a cross-discipline team, many of whom have a long history of working together across various client mandates. For example, when we work with a long-established client that requires a variety of different services, they know that they will have not only a partner-led approach but that their lawyer will bring in other team members they already know well and that will work with them seamlessly on other parts of the mandate. That is really appealing to our clients. I would guess that approach might be harder to guarantee in the Keystone model.’
And at least the firm has self-awareness on this point. Bane recalls a certain client expressing confusion over how Keystone operated. The centralised marketing team responded by quickly compiling an information brochure explaining all.
‘I was a little bit hesitant going back into private practice, but I have absolutely no regrets and it’s just been the best thing I’ve ever done.’
Carolyn Bane, Keystone Law
And, anecdotally at least, the product appears to tick the boxes for in-house counsel. Jamie Bishop, deputy GC at Allegheny Technologies Incorporated and a long-term client, is satisfied: ‘I wouldn’t say there are big differences. I wouldn’t have known that it was a different model than a traditional firm. The deal that we worked on had so many different complex issues and there were experts for every issue at Keystone, which isn’t necessarily the case at all firms. In the past, there have been cases where Jeremy [Davis] has to go outside of the law firm to find the experts that we need.’
Bishop responds to the widely-held criticism that the model struggles to develop young talent: ‘Developing junior lawyers is really important to the law firm and not so important to the clients. Clients don’t want to pay for that development. But Jeremy did have a junior lawyer that did appropriate junior-level work, so I wasn’t paying for partners to do junior-level work.’
That clients are guaranteed an experienced partner is made plain in the firm’s branding, and that resonates. ‘We changed our set up from a partnership to a corporate a while back. It was a few thousand pounds worth of work, so not anything too massive, but what was good about Keystone was that if you got a partner, you actually got that partner, and didn’t have to worry about getting an associate,’ says Gibson.
Looking at the mandates, the product is arguably less suited to deals that require a significant amount of associate-level grunt work than for partner-led specialist projects, but that is something that GCs can weigh up for themselves.
Knight points to the firm’s pod system, which is intended to make Keystone competitive where a traditional law firm might have the edge: ‘This is how we can now attract teams of lawyers – traditional law firm sector teams. Our lawyers are self-employed, they set up their own service company that we contract. That company can have one person in it, or it can take a lease on an office, and hire its own paralegal. Or they need an associate, or a trainee. Or two lawyers join us, or three or four, who were partners at a certain firm and want to bring their associates and secretaries. We still contract the one entity, and they can pay their people whatever they want.
‘Before, a corporate lawyer could bring the matter in, then maybe work with one other lawyer. But now with that core specialist team bringing in relationships, it’s less risky. All the senior partner in the pod needs to do is take out a lease, and the rest is plug-and-play.’
Knight explains that 80 people are members of pods, substantial given the latest headcount of 481 lawyers, but still the exception.
Michael Estill, partner at law firm development adviser Kindleworth, says: ‘The pod thing is new – the core model is taking very experienced partners near retirement with good books of business, and making it all plug-and-play for them.’
Rising the ranks
The pod system also provides a training ground for junior lawyers. Says Knight: ‘We have an academy for the junior lawyers. We’ve put in place things so they can interact with each other and gain conventional law firm benefits. They’re working in a single office most of the time, learning by being around their seniors. But they can have interaction with other junior members of the firm and they’re invited to all our events. And they have their own events. As we get bigger, there’s a whole ecosystem of junior lawyers interacting.’
Asking Davis, Nair and Bane whether they would have liked to have been at Keystone earlier in their careers or developed elsewhere, they exchange glances and smile. ‘Good question!’ they chime.
Davis says: ‘I trained in a Magic Circle firm as part of a big intake. Some of the people I’m working with now, I know from that time. I’m not sure I would necessarily want to swap that. So I think I’ve timed it about right.’
‘Maybe I could have jumped a year or two earlier than I did,’ adds Bane. ‘But you’ve got to get to that point where you feel that it’s right for you and for your personal choice. And I feel that the experience I have had has held me in good stead.’
One limitation of developing talent is that it comes out of a partner’s pocket. ‘We hire young lawyers, and they are part of our team. We look after all the work, we supervise, we train them, we pay them from the income that we get,’ as Nair puts it.
There is the danger of partners shying away from such investment, since a selling point is that they retain a greater percentage of what they bill. Unlike at a traditional firm, there is less incentive to nurture talent for the sake of the long-term future of the practice.
Then there is the remote-working impact on development. Though Knight insists that many juniors work in the same space as their elders, that’s not the case for everyone. ‘We’re not sitting in the same room, but [my junior] sits in on calls,’ admits Davis.
While the pandemic has made some level of home working ubiquitous, the consensus remains – there is no substitute for in-person dealings. A conventional office environment must be better suited to that.
Onwards and upwards?
There is no lack of ambition at Keystone. Since 2018, its number of rankings in The Legal 500 UK has doubled both nationally (from 21 to 42) and in London (from 14 to 28). The 2022 edition also saw the firm achieve four top-tier rankings, including for residential property and mid-market commercial litigation, showing its developing prowess for the most sophisticated work.
Says Knight: ‘We’re seeking to build a firm which is the absolute pinnacle of the mid-sector. We could have 2,000 lawyers but we’re not going to compete with Clifford Chance. It’s a different world. But we do compete with firms like Charles Russell Speechlys and Farrers and Macfarlanes. That’s where we seek to build and compete.’
The firm’s recent work would seem to prove Knight’s point. Representing Nest Investments in reportedly the largest fraud claim ever pursued in the courts of the Dubai International Financial Centre is demonstrative of its growing contentious expertise, while its role advising the selling shareholders on Altair’s $100m acquisition of World Programming shows how far the corporate practice has come.
‘You’ve got flexibility in who you work with, which you just don’t necessarily have in more traditional firms.’
Jeremy Davis, Keystone Law
The response to some extent counters the view that some clients will always stick with the elite. However, Gibson notes: ‘I remember speaking to someone who had Carlyle as a client. He said that he couldn’t go to them with a straight face with Keystone. He said: “It would be much easier to join Keystone but I can’t do that because it would be a brand pollutant for me.’”
As the firm grows, it may also become harder to guarantee the right quality. Jonathan Jones, European managing partner of Squire Patton Boggs, which advised on Keystone’s IPO, says: ‘When it’s worked, it’s worked really well. They just bring people in and the work gets done. Where it hasn’t, it’s been because the person who’s been pulled off the bench hasn’t got either the expertise or the access to the documentation that you need to produce for private equity deals.’
Knight is alive to the challenges: ’We are rigorous in who we take on, possibly more than conventional law firms. Keystone is responsible for the work and we have to protect the brand and integrity of the firm.’
Hacking also notes: ‘The biggest concerns are around barriers to entry. It’s very easy to set up a platform firm like that. What’s stopping another firm offering a similar model?’
Indeed, Fisher Broyles and Temple Bright already offer similar structures, though without matching Keystone’s brand recognition. Says Gibson: ‘I use Keystone almost as a generic term for alternative law firms. It’s like how everyone calls vacuum cleaners Hoover.’
Hacking also believes conflicts could be a hurdle: ‘If you are in a traditional model firm then you will expect management and the conflicts team to find the right way to make decisions, and you know it will generally at least be in the context of firm strategy. At Keystone, someone who’s been with them between five and ten years might point at a client and say: “I was here first”, but it might be a very modest amount of work, which could cause issues if someone new comes in who does loads of work for that client.’
Davis defends the position: ‘At a lot of firms, you put in a conflict check and it’ll come back and say you’ve got 27 hits, and you need to go and speak to 27 people and work through those. Here, they’ll just quietly do it for you.’
Keystone is not going to fundamentally shake up the legal sector and neither is it seeking to. ‘Is it a threat to big law? I don’t think it is. I don’t think that is what it’s trying to do,’ says Gibson.
There will always be clients that would be more comfortable working with a more traditional firm, just as there will always be lawyers that prefer working for one. The key point is diversity. Law firms, for all their benefits, make specific demands on their lawyers, which may not be for everybody, and alternative providers that manage to both keep clients happy and provide a different avenue for lawyers should be viewed with intrigue, not scepticism.
As Nair concludes: ‘There is space for all of us to operate.’ LB