Last year was challenging for law firms to say the least. For the vast majority growth rates fell or stagnated. And redundancies were common, from the magic circle to the high street firms. Clients were more demanding, applying extensive scrutiny in seeking real value for money. Add in regulatory change, a growing tax burden, and underfunded public legal services; and the hangover from 2009 arguably makes 2010 an unpalatable prospect for law firm chief executives and their equivalents.

Yet senior and managing partners insist they remain bullish about their roles. Gary Senior, managing partner of Baker & McKenzie’s London office, is pithily clear that to meet such challenges, he must remain strategic, show strong leadership, and communicate in ‘engaging with my partners and all of our people; and talking to as many of our key clients as possible’.

Nabarro senior partner Simon Johnston prefers to focus on key principles – managing costs and maintaining revenue. While the former is within his control, much also depends on the market. Johnston says ‘those two principles will continue to underpin everything we do’ over this year. He stresses that checking the firm’s objectives still remain appropriate is important; both in developing the business into 2012 and beyond, and in making investment decisions. As Johnston says: ‘Cost control is an imperative in a downturn.’ Though so is retaining turnover, he adds.

The same is true for relatively new law firms seeking to innovate. Martin Hosken, a director at Cubism Law, a limited company that recruits senior lawyers with established clients and provides branding and office infrastructure, says his firm treats the recession as any other business would. The focus for clients is ‘as always, money and provision of quality of service’. Hosken notes: ‘As a limited company, we focus on the business as a service provider, which just so happens to be providing legal services’.

Magic circleThe strategic dimension is already firmly fixed at the upper echelon of the magic circle. Linklaters senior partner David Cheyne maintains it is business as usual: ‘The firm is committed to the markets and sectors in which it operates,’ he says. ‘Our strategy has not changed; we continue to focus on complex work for the world’s leading corporations and financial institutions.’

Yet for Cheyne, what has changed is the client environment – changes, he says, that have led the firm to carry out an extensive ‘client listening’ programme to ensure that ‘we understand their concerns and issues and can support them appropriately’.

He adds that, in consequence ‘the ways in which we can best serve them may change too’. Stressing that this trend is not limited to Linklaters, he believes lawyers ‘need to become even more flexible in (their) skill sets and how we deploy them across practices, sectors and geographies, to ensure that we are best placed to meet our clients’ evolving legal needs’.

To that extent, he says, developing efficiencies may mean, for instance, ‘the adoption of more flexible fee approaches, or the use of legal process outsourcing, which has the potential to improve the cost-effectiveness and flexibility with which clients can procure services, enabling clients and law firms alike to focus on their core strengths’.

Johnston points out that such a change in emphasis runs contrary to the previous norm: ‘Client feedback surveys previously tended to list things like the quality of legal services, service delivery, responsiveness and commercial approach as the key drivers to client relationships’, in which ‘costs have tended to be a factor but not a significant one’.

Not any more, he says: ‘In the last 18 months that has certainly changed, and I think will continue over the next year. Clients will be looking for "cost-effective quality" as a priority, when they are buying legal services.’ As Baker & McKenzie’s Senior points out: ‘Client service and delivery is always front of mind, but there is also an increased focus on recognising what it is that clients want and especially their understanding of what value is.’

David Harris, managing partner at Lovells, observes: ‘It is obviously important that jobs are resourced at the right level and clients are less willing to pay perceived high prices for more routine work. They want their lawyers to be creative in reducing costs and we have been working with our clients to match their needs, including the use of managed outsourcing, where it makes commercial and legal sense to do so.’

Middle groundElsewhere, among the national law firms, management renewal has been at the forefront, with John Heaps newly installed as chairman of Eversheds, and John Pickering elected as national managing partner of Irwin Mitchell.

Pickering says he looks forward to bringing continuity to the established senior management team and ‘working with partners on any challenges we may face’.

He adds: ‘We have well-defined and clear business objects which we constantly review and continue to invest in. This allows us to channel our energies and ensure we work collectively towards a common goal.’ While Pickering’s concerns are no different to those of the City or larger corporate firms, he points out that they can be emphasised in certain practice areas: ‘The focus on value is particularly high in litigation, where commercial clients are increasingly looking for fixed-fee quotes and innovative fee solutions.’

David Pester, managing partner of TLT Solicitors, agrees with Cheyne that the search for greater efficiency and consistency is key, and is also ‘listening to clients to understand what value means in their terms’. He says: ‘That involves spending much more time with clients and finding out what they are doing and what they would like to do.’

Like the legendary Linklaters deal-maker, Pester says ‘it’s also an opportunity to improve our service so we know we are contributing real value by investing in the right people and the right ideas’.

This exploration with clients has led him to consider embedding the solution with the client: ‘If capacity is an issue, we may be able to assist through secondments. We currently have about 20 staff, from trainee through to partner level, on secondment with clients.’

Like Pester, Irwin’s Pickering has also taken the opportunity to review major capital spend, and to take advantage of the current property market and look at expansion: ‘We continue to invest in systems that will help us carry on growing our business and, most importantly, continue to deliver the services our clients want. We have recently moved into new premises in London and will open a new office in Bristol this year.’

Richard Baxter, managing partner of Guildford-based Stevens & Bolton, also stresses the importance of communication: ‘In challenging times it is essential to communicate well, so I’m interested in fresh ways to keep partners and other colleagues well-informed about our business. We want to ensure that everyone continues to pull together in the same direction.’

He, too, is focused on balancing continuing financial discipline with longer-term investment and growth, and, like Pickering, his firm has made some major strategic investments: ‘We have taken on a number of high-quality senior hires, improved IT infrastructure and are shortly moving to new premises.’ This, he says, will be very positive: ‘We will be able to keep everyone under one roof in a perfect location close to London, while keeping our cost base significantly lower than our City peers.’

High street bluesIn other parts of the profession the challenges ahead are no less numerous and varied, according to Nigel Haddon, managing partner of north-west solicitors SAS Daniels and chair of the Law Society’s Law Management Section (LMS): ‘It is a harsh, tough, environment, other than perhaps for those involved in insurance litigation, to a greater or lesser degree.’

Haddon adds that his firm has seen decreases in transactional income, both for corporate work or residential property. He observes that ‘the cake itself is smaller, and will stay smaller, but we must seek a bigger slice of it’, adding that this ‘is true for many members of the LMS also’. Haddon’s firm has also made management changes to adapt to current circumstances, so ‘we can take quick decisions, and make ourselves leaner and speedier’.

Edward Nally, senior partner at Bolton-based Fieldings Porter, and a former president of the Law Society, is less pessimistic, welcoming evidence that ‘those famous "green shoots of recovery" do seem evident within our own client base’ as ‘activity levels are higher, and business seems to be regaining confidence’.

Nally is also clear on the need for fee-earners to keep on top of their monthly billing targets, saying ‘debtor and disbursements control is singularly important, because we can certainly observe some areas where clients are slower to pay for legal work done’.

Business fundamentals are key, with Nally ensuring that Fieldings Porter’s fee-earners ‘are aware that interim bills have to be paid, and that we must put a break on ongoing work until these are up-to-date’.

Haddon stresses the importance of following up with clients across the firm: ‘What may have been good enough in busy times before may well not now be good enough in chasing down, winning and doing our best work.’ He suggests that the buoyancy of the market pre-recession over the last 15 years, with work subsequently ‘pouring in’, might have led to complacency setting in.

Yet like Cheyne, Senior, Pester, and their ilk, Haddon agrees that ‘what counts is having the deep expertise that clients want in their business sector, and to be able to empathise with their problems, and to work together on them’.

Haddon says this depth of understanding was not previously required to the same extent. The firm is ‘changing to adapt to the requirements of their sectors and businesses and re-examining how we do things’, by commissioning external client service research.

Help from Chancery LaneSo are the profession’s management needs being taken into account by the Law Society? Haddon says the needs of managing partners are not lost on him: ‘The LMS has certainly reacted to the needs of our members. We have made extra efforts to ensure that members in the regions can attend our seminars and events.’

He points out that events have been held in his home region of the north-west, the north-east, the south-east and elsewhere, so members can attend without travelling far, saying: ‘The management events we hold have been varied so that they are shorter, less expensive, and at more convenient times.’ He hopes members will see ‘there is much to help make a difference in their management.’

Within the City firms and elsewhere, there is also a focus on what is happening at the Solicitors Regulation Authority, with almost universal awareness of the challenges the new regime of alternative business structures will present, and the changing relationship between the Society, the Legal Services Board and the SRA.

Yet there is recognition, too, of the changes in the way the City has been regulated previously, with moves to ‘outcomes-focused’ regulation welcome, and the adoption of new conduct rules.

Cheyne welcomes these changes which, he says, take a less prescriptive approach and focus on the benefit to the client: ‘In principle, we see this as a positive move – it’s a more mature style of regulation, which allows greater flexibility in ensuring the right approach for different clients.’

In managing the consequences of recession, it seems, there are also ‘green shoots’ of recovery in the relationship between the regulator and the regulated as far as the City is concerned.

The TLT advantage

South-west firm TLT has been recognised for its innovation at the FT Innovative Lawyers Awards, and managing partner David Pester is clear that innovation is something that is integral to managing his firm’s response to the recession. ‘It's important to maintain the capacity to adjust, according to how you see the legal services market moving,’ he says.

One example is TLT’s involvement in the UK legal industry's first shared library service. The deal involved a multi-year agreement for a shared library service with Integreon, a well-established provider of knowledge and legal support services, to deliver enhanced services and additional cost-efficiencies to his firm’s clients.

The roles of staff were included too. ‘It was important to us to include in the agreement that the firm's existing library employees will have guaranteed roles with Integreon,’ he says.

He continues: ‘While we take a measured, long-term approach to our strategic decision-making, for any law firm the downturn will also have presented real opportunities.’

One of those opportunities was property investment. For him, this meant being able to invest in new premises in the City – premises, he says, that would not have been cost-effective two years ago. A move to 20 Gresham Street has doubled capacity in London.

‘Through timely investment we have been able to reduce the firm's cost-base in London and develop the capacity to grow in niche practice areas,’ Pester says. ‘We can now offer a superb working space in London, and ultimately this will help support our talent recruitment and retention ambitions.’

Pester says the challenge of dealing with economic turbulence ‘requires you to pause and test where your market is and where you are in it’. He believes in taking a longer-term view and building the business in a sustainable way. ‘If you focus on sustainability then you can not only survive in difficult times but actually develop and invest in new areas,’ he concludes.

Ben Rigby is a freelance legal journalist. Anastasia Hancock also contributed