Watching the watchmen – inside the growing market for legal advisory work

It used to be that law firms were rather more comfortable doling out advice than receiving it, but in an increasingly complex and regulated environment, major law firms can no longer make do bluffing their way through. Given that corporate governance at law firms can often be much less virtuous than the example they preach to their clients, it takes a certain kind of tenacity for the growing band of advisers to the legal industry to influence their clients.

As Iain Miller, regulatory partner at law firm Kingsley Napley, puts it: the professionalisation of risk management over the last five to ten years has been ‘huge’, which has encouraged a fertile breeding ground for advisory firms offering services in the legal sector.

He says a recent spike in sexual misconduct allegations in the workplace – last year alone saw such disclosures impacting Baker McKenzie, Quinn Emanuel Urquhart & Sullivan, Latham & Watkins and Herbert Smith Freehills – has led to more work for advisers.

‘Those cases involve regulatory, employment and reputational dynamics so it’s a cocktail of work. I’m there trying to minimise the fallout of what’s happened.’

The backdrop to the work of professionals like Miller is the more robust stance of the Solicitors Regulation Authority (SRA), which in recent years has levied major fines against a string of large firms, among them Clifford Chance, White & Case and Locke Lord (see ‘Off the leash’, February 2018).

Gus Sellitto, co-founder of Byfield Consultancy, which offers both PR to law firms and litigation PR for law firms’ clients, argues that law firms have become better at taking advice, or at least seeking it out.

And he believes pressure from the #MeToo movement and growing media scrutiny of the industry has only encouraged law firms to be more proactive in managing their reputations.

The consultancy, which in disputes typically works with a company’s legal counsel during litigation, hires legally-qualified staff with one member of the team who has trained at the Bar. ‘With litigation communications, you really need to know how the SRA operates,’ he says.

Other established players in the world of legal PR include Maltin, Kysen and Farrer Kane. Sellitto argues that the sub-sector of communications will expand as reputational threats become more of a priority for firms and client communication becomes more sophisticated.

‘We’ve had more firms coming to us and asking us to look at the PR aspects of historic [non-disclosure agreements (NDAs)] – firms that have either had allegations made against them of a #MeToo nature and have, or haven’t, entered into NDAs, or lawyers who have advised on such agreements.’

He continues: ‘When a merger takes place, firms are now much more likely to look at how the change will affect things from a communications perspective and firms are also becoming much better at planning for cyber security and how their reputation might be affected.’ But, he said, ‘we still tend to get called in at the eleventh hour’.

‘Sexual misconduct cases involve regulatory, employment and reputational dynamics so it’s a cocktail of work. I’m there trying to minimise the fallout of what’s happened.’
Iain Miller, Kingsley Napley

For London employment and partnership specialists CM Murray, continued consolidation and new entrants in the shape of US law firms in the City have been good for business. Throw into the mix law firms considering structural changes to support new models or outside funding and it is a good time to be partnership adviser.

CM Murray is most known for advising international law firms and other professional services firms on partner exits, team moves, restrictive covenants, discrimination and whistleblowing issues – and has developed a niche in handling sexual harassment allegations.

Clare Murray, managing partner and founder of the firm, notes a change in law firms’ attitudes towards dealing with contentious internal matters: ‘[Firms] are now much more likely to bring in an independent investigation into a matter, whereas they used to take a much more commercial approach.’

CM Murray hired Zulon Begum from Addleshaw Goddard in 2018 to join 14 lawyers in the team and head up its non-contentious partnership matters and M&A advisory work.

‘Firms are coming from the US to the UK so I help get their licences set up for them,’ says Begum. ‘I also advise on firms’ international structures and have been giving advice on Brexit because firms are concerned about their ability to provide services in the EU like everybody else.’

Between 15 and 20 law firms in the top 200 use CM Murray’s services, which Murray describes as an ‘immersive experience’. On the whole she says the legal advisory sector is ‘pretty small’ and cites peers offering a ‘360 degree’ range of services to law firms: Addleshaws, the boutique Fox Williams and the local arm of US practice Duane Morris.

Other advisers, like Fox & Partners, focus more on employment issues for law firms but the sector remains relatively fragmented in terms of the players.

Alongside boutiques covering PR and partnership services, the legal industry, of course, attracts some large companies in fields like banking (NatWest and Barclays), auditing (Deloitte in particular but the entire Big Four) and insurance cover.

‘It’s a pretty competitive market with a handful of players with a great deal of sector experience,’ says Rowan Williams, head of professional services at tax and audit consultancy RSM, which focuses on providing financial advice. She says competition is increasingly coming from consultancies outside the mainstream.

‘We often come up against the smaller players like IT consultancies or HR consultancies and some smaller regional firms as well.’

The professionalisation of risk management has moved firms to seek out specialist providers giving advice on complex and far-reaching issues like cyber security. ‘There’s been a realisation that there are specialist providers out there,’ comments Miller.

‘Cyber is a big risk, as well as employee wellbeing, which is a continuing issue because of the increasing globalisation of large law firms and their clients across multiple domains, jurisdictions and compliances,’ reflects Giles Bentley, managing director of AON Risk Solutions, a professional services firm.

While providing banking and insurance services to law are well-trodden paths, recent interest in law firms attracting outside capital has generated fresh opportunities.

‘The number of companies that have come into the market over the last three years show there’s growing investor [understanding and] appetite for law firms and professional services firms more generally,’ comments David Foreman, director of corporate finance at Cantor Fitzgerald, an American financial services firm.

Cantor notably advised on the pioneering float of Gateley in 2015, while Arden Partners handled Gordon Dadds’ IPO in 2017. Others to take financial advisory roles include Panmure Gordon for Keystone Law in 2017, Numis Securities for Knights in 2018, while US investment house Jefferies this year advised on DWF’s much-touted admission to the London Stock Exchange, which valued the firm at £360m.

Foreman cites Keystone Law as an interesting case. The mid-market challenger – which employs partners operating in a ‘quasi-chamber’ platform – was granted an alternative business structure licence in 2013, raised £15m from its initial public offering in 2017. Beyond generating work, Keystone is now aiming to establish itself as a one-stop shop for law firms seeking external advice with its law firm support team.

Adds Foreman: ‘The wider legal landscape is changing rapidly. There are challenger firms such as Keystone, increasing consolidation, both internationally and domestic, but also new firms entering the market, such as the increasing presence of the Big Four.’

‘You have to be pretty tough to advise law firms. Litigators and barristers are trained to argue with you.’
Rowan Williams, RSM

Do lawyers know it all?

But advising senior lawyers is no easy money, given their record as detail-orientated and demanding clients. ‘We understand how law firms work and you have to be at their elbow because it’s about building trust and it can be lost in a nano second,’ notes Murray.

‘You have to be pretty tough to advise law firms,’ agrees Williams. ‘Litigators and barristers for instance are trained to argue with you and that’s often what they do. You need to understand the psychology of lawyers, what makes them buy into things and how they work.’

‘If there’s a hole in your advice, they’ll spot it,’ agrees Miller. ‘Law firm culture is one thing that fascinates me. The culture changes depending on whether it’s a City firm, an American firm or a regional firm and that affects the dynamics when you’re working with them.’

Murray says that law firms’ grasp on the commercial complexity of running business services is ‘sophisticated’. She adds: ‘If you give them a range of legal and strategic options they are equipped to make decisions quickly. Lawyers are emotionally intelligent and have the same time pressures as any other company.’

Above all, firms are spending more on external advice for a reason, stresses Foreman: ‘They want your expertise on a matter. In my experience, it’s positive.’

Despite high competency levels among lawyers he said it would be a mistake to assume that lawyers are knowledgeable about financial matters.

Begum, who drafts partnership agreements for firms, adds: ‘Firms have general counsel departments but they’re not necessarily experts in partnership law and drafting partnership agreements that reflect modern issues.’

In any case, law firms do not only use external advisers to draw upon expertise, says Aster Crawshaw, a professional services partner at Addleshaws, noting that many prefer to take external advice to free up fee-earners’ time and allow them to focus more on clients. ‘Law firms have the same need for legal support as accounting firms or financial services businesses – the only difference is that law firms can resource more of that support internally if they wish to.’

On whether the market for advisory work could slow, Sellitto reflects: ‘You’ll always need a lawyer – the market is resilient but from a proactive approach, the uncertainty of Brexit has definitely meant that law firms are taking more time to consider how to invest in PR and for which areas of their business.’

‘One big theme is the expansion of law firms’ in-house legal teams,’ notes Crawshaw. ‘They now have teams of 50 lawyers or more at the big firms, and like any business sometimes they go external for their advice and sometimes they handle it in-house. Law firms are fundamentally just sophisticated professional services businesses.’ LB

anna.cole-bailey@legalease.co.uk

Additional reporting Thomas Alan