Pride of place

Philip Hoult looks at the importance of management structures and finds that firms are placing more power with their partners to help achieve business success and maintain motivation

The importance of management structures in law firms was amply demonstrated last month by reports that a significant number of partners in Freshfields Bruckhaus Deringer's German arm had signed a letter calling for changes to the firm's method of selecting its senior partners.

The hugely competitive nature of the legal market, the multi-jurisdictional, multi-national scope of firms' operations, and the sheer size of their businesses all combine to make getting the right management structure in place essential.

It is also a major issue when firms merge - as Addleshaw Booth & Co and Theodore Goddard did last month - and of course when other firms break up, as happened with City firm DJ Freeman recently (see [2003] Gazette, 20 March, 8).

'Increasing competitive pressures and the complexity of the management challenges are factors that require firms to have a management structure that enables decisions to be taken in an effective and timely manner,' says David Temporal, legal management consultant and founder of London-based Temporal Consulting.

'This will require that a high degree of decision-making authority is delegated from the partnership into its organs of management.'

Mr Temporal warns that management by committee often means management at the lowest common denominator.

'Firms that do so tend not to make and execute key decisions within the timeframes required by the more competitive environment in which they operate,' he says.

But settling on the right structure is not an easy task.

Former Bevan Ashford chief executive Nick Jarrett-Kerr, management consultant at Edge International and chairman of the Law Society's law management section, points out that there is no one magic formula.

'What might work for one firm would not necessarily work for another,' he says.

Large firms that have made significant changes to their management structures in recent months include Lovells and Holman Fenwick & Willan.

For Lovells, the principal reason for change was to reflect the global nature of its business and its massive growth overseas.

Since merging with German firm Boesebeck Droste in January 2000, the firm has also secured deals with Dutch and French firms and established a presence in Italy.

Lovells' new structure - implemented last November and including a matrix of an international executive, a partnership council, practice stream leaders and regional managing partners - is intended to recognise this.

It is also intended to hand the decision-makers the power to achieve results, while at the same time retaining checks and balances.

'The structures are designed to recognise both our practice area focus and our international focus,' explains the firm's chief operating officer, Nick Cray.

'On the basis of the first meetings we have had, it seems to be working very effectively.'

Mr Cray adds that one of the key improvements is that partners have moved towards a truly international view of the business.

As a result, there is a broad range of international representation following elections for the various posts.

'Partners are now thinking about the best candidate for a particular role, and that is not necessarily the person sitting in the office next to them,' he says.

The changes at 83-partner Holman Fenwick & Willan, a much smaller City-based operation but with an equal commitment to international work, are also a reflection of the firm's growth and, in their own way, signal as important a shift in its culture as those at Lovells.

The firm's practice groups have been realigned to focus on what it sees as key development areas of energy, trade and corporate, while keeping its core strengths of insurance, shipping and transport central to the practice.

Structural changes include the introduction for the first time of a managing partner, while Holman Fenwick's management committee, which was made up of three partners, has been ditched in favour of a board made up of the managing partner and heads of the new practice groups.

According to partner Marcus Bowman, a consultation with the partnership revealed the feeling that the old management committee did not properly represent the practice areas and that it could not directly influence performance.

'We decided to go over to the new system as we felt that a lot of what needed to be done could be done by just one or two people rather than the management committee,' he says.

'We also wanted the members of the board to be leaders and reflect what was going on in the firm.

They should now know at first hand what is happening in other practice areas.'

In Holman Fenwick's case, the need for change was prompted by the firm's evolution over the years.

But for firms involved in a major strategic step such as a merger, getting the right structure can be essential to avoiding a clash of cultures and delivering the benefits of the tie-up.

According to Mark Jones, managing partner of Addleshaw Goddard, the pre-merger management structure in place at Addleshaw Booth & Co was one of the attractions for the 60 Theodore Goddard partners that came on board.

'They wanted to mutate themselves into a significantly larger business,' he says.

'They were on the cusp of what I personally would say was the traditional way of running a law firm.'

Addleshaws had itself changed its management structure two years before, putting in place a governance board chaired by senior partner Paul Lee and a management committee led by Mr Jones.

The governance board is responsible for strategy and policy, and acts as the partnership's conscience, with the management committee charged with delivering on the strategic plan.

'You could have argued until a year ago that we had a structure that was over-engineered,' Mr Jones says.

'The structure is more analogous to those in place at the larger City and US firms.'

'Most partners would acknowledge that the business is better structured and better run than it was before,' he adds.

'It is one of the contributing factors that have helped the strong business performance we have had over the last two years.'

Significantly, in all these changes there is an absence of the corporate jargon that dominated much of the debate on law firm management structures during the late 1980s and throughout the 1990s.

In this period, many firms flirted with adopting a management structure more akin to running a multi-million pound company rather than a professional services firm.

Out went the senior and managing partner roles; in came the chairman and chief executive.

The changes were meant to imply a streamlined, efficiently run business - a handful of firms went further and chose to hire non-lawyer chief executives for the day-to-day running of business.

This was not an experiment that worked or went down well at several firms, although they do still exist at some, usually smaller, practices.

DJ Freeman was one of the first firms to adopt a corporate style, appointing a chief executive instead of managing partner back in the late 1980s and restructuring along industry lines to a greater extent than most of its rivals.

But when the firm split at the end of April this year, it presented an opportunity for the 21 partners forming the new insurance, corporate and litigation-focused practice, Kendall Freeman, to rethink their approach and decide what was best for a smaller firm.

Notably, Laurence Harris, chief executive of the old DJ Freeman, became managing partner of the new firm.

The change in title was an important one, he says.

'In the late 1980s, it was thought to be the forward-thinking way of designating the role,' he says.

'But it tended to connote someone who was not a lawyer.'

Mr Harris says the change back to managing partner reflects the fact that it will now definitely be a lawyer in the role and that he will be doing more fee-earning than previously.

Many observers now agree that it is a mistake to try and impose a corporate style onto a professional partnership.

'To adopt wholesale the corporate model through centralising power into the hands of the few, and taking away all the decision rights of the partners, destroys the key motivational drive of the partnership,' says Mr Temporal.

'Why destroy one of the major assets you have? It is critical that the partnership continues to be involved in the key strategic decisions at the appropriate level if the sense of ownership and the motivational benefits that flow are to be harnessed.'

Even in the largest law firms there is still plenty of evidence of this need among partners to have a sense of ownership and influence over the practice's direction.

Recent examples include the Freshfields Bruckhaus Deringer letter and also the successful approach adopted by global giant Clifford Chance's senior partner, Peter Cornell, who prior to his election campaigned on a stance of 'giving the partnership back to the partners'.

This helps explain the increasing trend for setting up a partnership council (Lovells) or governance board (Addleshaw Goddard), which is principally charged with responsibility for partnership and other constitutional issues and for acting as the conscience of the firm, to sit alongside an executive board or management board that handles the day-to-day operations.

Of course, the debate over the best structure of a firm can be irrelevant if the wrong people are chosen for a particular role or if they adopt an inappropriate style of management.

Nor will it make too much difference if the firm's strategy is misguided, according to Mr Jarrett-Kerr.

'I am a great believer in the old adage about strategy before structure,' he says.

'What can happen is that you get people who are very keen on putting structure before strategy.'

Nevertheless, with firms continuing to develop, most growing further but some downsizing, the challenge is on to ensure that their management structures stay aligned.

In tough business conditions, they still need to create an atmosphere of trust among partners in their management.

Without that trust, there could be trouble ahead.

As Addleshaw Goddard's Mr Jones says: 'The challenge for management in any partnership is, on the one hand, to run the firm as a business but, on the other hand, to leave partners with the degree of autonomy they need to motivate them to develop the business.'

Philip Hoult is a freelance journalist

Lovells' new structure

International executive - responsibility for business-driving issues and has a key role in developing Lovells' strategy across its practice areas and regions.

Chaired by the managing partner.

Its members comprise the firm's practice stream leaders and its regional managing partners, together with an elected outside member.

Partnership council - responsibility for inter-partner issues, focusing on important partnership and other constitutional matters.

Comprises three ex-officio members (the senior partner, deputy senior partner and the managing partner) and ten members elected by the partners across the firm.

Practice stream leaders - lead the corporate, finance, commerce, litigation, projects, energy and property teams.

They are intended to be at the heart of the firm's decision-making process.

Regional managing partners - managing Lovells in Asia, eastern Europe, Germany, London, the US, and western Europe.