Jeremy Dutton looks at the opportunities presented by reforms allowing the admission of other professionals to partner level of law firms and considers what barriers a practice might face

Just as hundreds of firms are getting comfortable with limited liability partnership (LLP), so their decision-making abilities will be tested by whether a Clementi-style alternative business structure (ABS) that permits the admission of other professionals to a firm's owning class would suit their style. What firms might see a competitive advantage in the legal structures and social systems offered by a combination of LLP and ABS?


The UK legal services market is crowded. Competitive advantage will be mainly determined by the perceived value of delivery, not choice of market position alone. Management guru David Maister describes a value spectrum (from the client's perspective) of professional services that moves inexorably downwards through three Es: expertise, experience and efficiency. Arguably, where a service becomes a commodity, there is a fourth E: extinction.


Legal structures permitting those with well-known brands and the capital and skills to invest in systems will accelerate the pull towards efficiency. Firms aiming to keep or improve a market position of higher-value services will have to adapt quickly.


Simultaneously firms face a productivity challenge. PricewaterhouseCoopers reports on the difficulty of increasing utilisation, partly because this generation is less willing to work crazy hours. They stress the importance of retaining the best all-round lawyers because their loss can have a big impact on net profit.


Some larger firms have recently achieved impressive levels of growth but maintain partner profits by tightly limiting equity participation. Encouraging retention through the hope of joining the equity is likely to become harder. No wonder recruiters say the lateral hire market is buoyant.




A question of culture


How firms organise themselves and collaborate internally to adapt to their competitive environment will become crucial to profitable survival. Decision-making about necessary change is a process of learning which requires a willingness openly to question existing capability.


To maintain or improve a firm's market position on the three Es, those with power, who are expected to lead, should foster a culture that encourages questioning and listening. Jim Collins (author of Built to Last) identified the two distinguishing features of the 'level 5 leader' as professional will and humility to question the appropriateness of an organisation's or one's own know-how.


And yet 'leadership' is more often associated in organisations, including law firms, with the use of political muscle: a demonstration that those with power (usually a command over high-billing client relationships) are unquestionably right.


An authoritarian or parental approach to leadership breeds a culture where importance and status are placed not on openness to questions but on being seen (even if pretending) to be competent in those areas that have currency in a firm. Proposals to respond to competition by changing tack - for example, promoting the firm differently or delegating legal work and other professional responsibilities - can induce, in typically low-risk professionals who enjoy positions of status and control, a strong fear of being seen to fail and, therefore, lose status. A stifling un-adaptive win/lose culture then ironically rules its creators and depresses their own income as delegation and retention prove more problematic.




Shared identity


How, then, could the combination of limited liability and the admission as owners of a range of professionals help?


The key will be to use the structures on offer to create a wider sense of shared identity by blurring traditional social boundaries between the different status groups (in-groups and, conversely, out-groups), to reduce the all too prevalent win/lose competition that tries to preserve status at the expense of adapting.


Shared in-group status offers the potential to create trust, an essential quality for a culture that supports learning and experimentation which, in turn, are necessary to improve the delegation of legal work and other professional responsibilities to the best available people. Assuming other fundamental conditions are met - particularly the development of sufficient business - delegating improves profitability, as we all know.


An LLP makes it more feasible to offer ownership to more lawyers of a safer vehicle through which to deliver services than a traditional partnership. Profit shares could still reflect market and performance differences.


Conversion to LLP can throw some social boundaries into starker relief: members versus salaried partners (technically a misnomer), not to mention the out-group of 'non-fee- earners' (as other professionals are sometimes pejoratively termed).


Wider membership would not be a cure-all step. Other necessary complementary measures must be in place, too, for example open dialogue about career progression and inclusion in the running of the business.




A powerful signal


The admission of other professionals such as heads of human resources or finance to the same owners' in-group would be a powerful signal that the lawyer-owners did not put their own status above a willingness to share the opportunity to influence strategy and implementation, or to heed ideas that help the firm to make better decisions, delegate more productively and be more profitable. It could also strengthen a sense of belonging and aid retention.


Creating an adaptive environment need not be expensive: it is more a matter of demonstrating the necessary professional will and humility to learn. There is huge creative energy in law firms. We will have to wait and see which firms will match their growth with bold choices of legal structures to create a more fitting social system that can tap into that energy.


Jeremy Dutton is chief executive of London law firm Campbell Hooper