There are times in my career as a legal pundit where I’ve gone against trend to argue the unpopular view. This is not going to be one of those columns. Instead, this is about speaking up for a truism that is unusual for being largely true and one that law firm leaders themselves frequently cite. I am here to sing the praises for law firms being more specialised in the practices and markets they cover.
Radical stuff, eh? And yet despite how easily the benefits of specialism fit the rhetoric of managing partners, is there much evidence to suggest that the commercial legal profession as a whole is moving in that direction? Far less than commonly believed.
The last decade of results has shown broader service firms consistently outpaced by more focused rivals. The glory days of the one-stop legal shop died with Lehman.
The 100 largest law firms in the UK are dominated by generalists, covering a huge range of sectors, practices areas and geographies. And yet the last decade of financial results has shown broader service firms consistently outpaced by more focused rivals. This is one reason that City mid-tiers have in recent years outperformed larger London rivals. The glory days of the one-stop legal shop died with Lehman.
Ashurst and Simmons & Simmons represent two firms that have shown renewed signs of life in recent years, precisely because they have moved away from also-ran Magic Circle models. Consider other outliers like Mishcon de Reya and Stewarts Law or, in their own way, Macfarlanes, Travers Smith or Fieldfisher.
This call for specialism, focus or a clear strategy – call it what you will – runs through much of the commentary of this issue; our Global 100 analysis illustrates that most of the top performers this year have eschewed broad focus to zero in on chosen markets. Likewise, the lack of debate around how profitable different kinds of law firms should be has led to a sprawling convergence of PEP, however much sense that makes for differing underlying businesses.
And while the advantages of practising in the US economy are obviously a major reason US law firms have outperformed foreign peers, one element of their success is that they are generally much more tightly focused than UK rivals.
The four internationalist members of the Magic Circle retain generalist models based on broad coverage to plc clients (who in some cases do not want to pay their rates). And the group itself is strikingly similar in practice mix and economics (see our news story for evidence of how closely they shadow each other). No wonder it can be difficult to secure competitive advantage.
And consider the people issues. In markets where key talent and clients are rare, it becomes easier to attract and retain such mobile commodities when people know they are talking to a firm whose core business reflects their own interests. There are many reasons Kirkland & Ellis has been an industry phenomenon in recent years, and the huge sums offered to stars is clearly a huge element. But its crystal clear sense of where it is (and isn’t) hunting is an under-appreciated part of the formula. This aspect is part of what attracts the most talented younger partners to the more potent US firms. Only second-raters move just for money.
Consider all these together and the question for many UK law firms should be: why does your firm look so much like half-a-dozen rivals?