Last year more than 1,000 new law firms were formed, the vast majority of them starting with between one and four partners. It is reasonable to ask ‘why?’.
These new principals surely cannot have been following the news. The economic indicators of which many legal sector businesses take heed are ominous as Brexit looms. Public funding for legal advice has fallen by £400m more than the Ministry of Justice dreamed was possible. Good lawyers are hard to come by. The impending end of the Solicitors Indemnity Fund will increase post-retirement risks. And there is competition from non-traditional providers.
In any case, ‘the robots are coming’ to take lawyers’ jobs, apparently. Like Shakespeare’s Richard Gloucester, lawyers might ask: ‘Would you enforce me to a world of care?’ But like Gloucester considering the crown, the past year’s 1,000 new entrants are hardly tremulous. Most, Jon Whittle, market development director at LexisNexis, reflects, are a particular type of new firm – falling into the same category of most of this roundtable’s attendees.
Referencing LexisNexis research, Whittle says: ‘Two-thirds of those firms, by our estimation, are set up by ex-top-tier or larger-firm professionals. Usually one, two, three or four people; usually around one specialism; usually competing either with their old firm or taking one of their old clients with them as their seed driver.’
He adds: ‘They’re very lean, they’re very grown-up, they’re very sophisticated in terms of the sort of law that they do. So the concept of small law being poor law… or second-rate law, is being completely rewritten by these firms.’
Tony Roe, founder of family law-focused Tony Roe Solicitors, fits Whittle’s description. ‘I worked in a medium-sized firm for 10 years – about 150 staff, 25 partners,’ he recalls. ‘The firm decided it wasn’t going to do family law any more so set me adrift, which actually was the best thing that ever happened to me in lots of ways. So coming up to 10 years ago I set up a niche practice. We have three solicitors, two or three support staff, and specialise only in divorce and family law.’
Also at the table is Caroline Field, one of three partners at a specialist partnership and employment firm founded by City innovator Ronnie Fox (now a consultant). She and the other partners had been ‘colleagues for five to 10 years’ before taking over the firm. ‘About 80%-90% of [the work] is contentious,’ she adds.
Two other firms present also focus on contentious work. Hudgell Solicitors’ chief executive Amanda Stevens explains: ‘We’re remaining boutique, in personal injury, clinical negligence and civil liberties.’
Gerald Shamash, senior partner of Steel & Shamash, founded the firm with Elaine Steel in 1981. It is the only firm at the table still handling legal aid cases, which forms about 80% of its work. The remainder is Shamash’s own specialisms of media law (many clients had phone-hacking claims in recent years) and politics (as legal adviser to the Labour party).
Sophie Barrett-Brown is senior partner at London and New York immigration specialists Laura Devine Solicitors. Representing a very different business model, Debbie Tembo is client relationship manager at Obelisk Support: ‘We have a pool of about 1,200-plus lawyers across different practice areas, and we mainly support in-house counsel – and some law firms.’ Clients who take on individuals or teams from Obelisk include investment banks and blue-chip companies. Many Obelisk lawyers are women with a background in commercial law disciplines – it is a sizeable operation but one with a small ‘core’.
‘There’s a slightly interesting mind-shift for some of these small firms which I think the more traditional, large firms are struggling to understand or compete with,’ Whittle suggests. For the group round the table, the agility of their business models is something to be prized.
‘That’s the key – responsiveness and agility,’ Field notes. ‘We frequently say we would struggle to compete on a cost basis, but we can certainly compete and are up there with the biggest firms in the City in terms of giving our clients what they actually want, and being there, sometimes to [our] own detriment, 24/7 if it’s needed.’
Stevens, who previously worked at two large national firms, sees business advantages at smaller independent operations: ‘I think you lose a lot of time in a big firm with structures… trying to keep everybody in the loop and [ensuring] the teams [are] not competing, but are sharing knowledge and clients.’
She adds: ‘If you’re just focused on one area, you all want that area to succeed. You all know pretty much how you’ve got to market it.’ Choices on technology and sources for precedents can be more straightforward too, she notes.
Reflecting on his experience of life in a larger full-service firm, Roe adds: ‘There’s not always the cross-fertilisation between the disciplines that there should be… [and] family law teams in a commercial firm have to shout so loud to get marketing spend.’
There is evident pride as attendees recall cases won against better resourced law firms – bringing to court ‘just counsel and a small bag’, as Shamash puts it. But there is no denying the disparity in investment capital available for activities such as marketing. ‘If I gave you lots of money for a marketing budget, do you really think it would make an enormous difference?’ is Shamash’s open question to the table. ‘Yes,’ is Tembo’s succinct reply.
Field, whose firm relies heavily on personal recommendations for instructions, explains: ‘You can have steady, organic growth from doing a great job for your clients, but I think taking it up that next level and growing a business is about investment. You could be the best firm in the world, but if nobody knows you exist…’
In growing a business beyond the arena of personal connections, firms note the importance of their online profile. ‘Some 25% of our work is personal recommendation, which I think is quite high given the number of claims we’ve got,’ Stevens notes. But for the rest, finding the firm online is key.
A website is an investment as a source of ‘validation’, even where a client has come across a firm by other means. And a sophisticated, well-designed website can be expensive.
Whittle suggests, though, that getting the basic messages of a website ‘right’ is not just about the money. A firm with a simple online presence can use judgement and insight to inspire confidence.
‘We did a very interesting piece of work last year,’ he recalls. ‘We gave lawyers a list of 14 attributes and asked them to rate them from a client’s perspective: “What do you think a client values most in a relationship with a lawyer?”.
‘We gave the same list of 14 attributes to clients of lawyers and said, “Rate them”. This is why I think lots of law firms struggle with their websites, because the lawyer’s perception of what they think clients want and what clients actually want, in many cases, is upside down.’
For example, he adds: ‘Second on the list for clients is efficiency… lawyers rate that ninth.’
If efficiency is important to clients, it should also be front-of-mind for the principals of independent law firms. After all, lacking some economies of scale, yet living with the same pressure on fees as larger firms, ‘efficiency’ is key to maintaining and improving profit margins.
‘It’s the client’s measure, not the lawyer’s measure,’ Whittle stresses. ‘For the client perception of efficiency, we describe it as [them being] on a journey from “A” to “B”. At a point in that journey, they have to talk to a lawyer. It’s the speed that they jump over that “lawyer gap” that describes the efficiency. Or the cost.’
If clients think of efficiency in terms of that gap being crossed, inevitably law firm principals will focus on efficiencies that clients do not see, says Whittle: ‘The client’s perception is actually that the service is almost the same, you’re just doing it slightly differently behind the scenes.’
‘We’re on an efficiency drive as one of our strategic objectives,’ Stevens says. ‘It’s really just housekeeping, like making sure that we renew all our contracts, that old relationships don’t take advantage and that [the terms are] the best for both [us] and the client. It’s also looking at how we facilitate better use of time by our people, so we’ve been looking at the speed of being able to access the case management system.’
Barrett-Brown raises the role that technology ‘solutions’ play in achieving efficiency; though as an obvious source of frustration. ‘It’s something we seem to be perpetually disappointed with… I’ve yet to meet a law firm, or any of the boutique, niche practices that we [know], where they say, “Yes. We think our tech’s fabulous and it has really assisted our efficiency.” No one seems to be entirely happy.’
A bad experience led Roe to identify a new supplier for the firm’s operating system. The new supplier’s service levels were good, he relates, but just as importantly they identified the firm’s needs correctly: ‘All we need is accounts and time recording, but there is a case management system that you can have as well. We’ve got a limited case management system because we… only do one area of law, so why have everything?’
Field alludes to aspects of the business that might be referenced as ‘IT-enabled’ rather than ‘IT-dependent’. These are the processes and habits that give its principals control and cashflow, and improve client service.
‘One of the things we focus on is processes,’ she explains. ‘From the outset we have a client information sheet which is then input by our secretarial support… There’s an initial client meeting, billing is done very regularly (once a month) so there’s transparency from a cost perspective. These are processes that are instilled in everybody from the day they join and I think that does lead to efficiencies.’
If there is transparency in process and billing, then what about targets? Shamash reminds the group that in a professional firm, the traditional ratio is that on average each fee-earner needs to bring in at least three times their earnings. But should targets be individual or team-based? And should people know how others are doing? Such things can alter fee-earners’ behaviour and a firm’s ‘culture’.
Field’s firm is trying to achieve a careful balance here. ‘We’re looking at being a bit more transparent about what people are doing,’ she says. ‘Not because we want to change a culture which already exists in the firm, or the collegiality. But just being clear as to how the firm’s doing; how that translates to what an individual’s doing and what the expectation is, so that we can all work towards a common goal.’
At Laura Devine Solicitors, Barrett-Brown relates, a different approach obtains. The overall ratio for billing is three-and-a-half times salary but, she adds: ‘We expect different returns [from] different types of fee-earner.’
Some fee-earners, she notes, ‘may have skill in knowledge sharing. I don’t want to discourage that because it is critical to us being at the top of our game. That knowledge is being brought into the business and is disseminated’.
In this instance, given the wrong target, fee-earners would ‘start behaving in a way to meet the target, but not do something else that is terribly important’. Billable time is added up on a weekly basis, though not used to generate weekly bills, as most of the firm’s work is fixed-fee. That level of detail, however, creates ‘momentum’.
Also relating to efficiency is judging the correct balance between investment in ‘bricks’ and ‘clicks’ – offices and website. Roe recalls the advice of a surveyor: ‘Clients will want the comfort of knowing that they can come and see you and sit in a nice chair and have a chat.’ That was especially important, Roe now believes, as the firm was ‘looking [for] more complex divorce and financial stuff, and high-net‑worth individuals’ as clients.
However, bringing to bear her experience of a previous career in the NHS, Stevens notes that online-only is not always second-best. ‘The NHS is starting to roll out online counselling for people who need it to get… over [the] trauma of accidents. Now, at first blush, you think that’s never going to work, because it’s counselling and you want that personal relationship. But there’s a whole cohort of people who, according to the preliminary research, are showing that they respond a lot better to someone online, because they have in their mind the sort of person they want to talk to. If they walk in the room and meet you, you can’t do anything about it. They may have wanted more of a “granny” figure.’
Some people, she says, respond better to the ability to ‘tap in and out’ that an online service makes possible: ‘They’re comfortable in their own home, they can have a cup of coffee and they feel much more in control.’
There is a lesson for lawyers here, Stevens argues: ‘It’s about us thinking, “They will want a certain type of person.” We can all be guilty of putting too much about ourselves on our website.’
Potential clients ‘want to know about the clients we’ve helped’, not ‘how you organise your law firm’, she argues. ‘We passionately believe in our values, but when you put them on the website, you think, well, that doesn’t really differentiate us. That’s what we believe in, but actually, every lawyer would want that. So in a crowded marketplace… it is quite hard to project what makes you special – why they should come to you.’
Whittle says his own research confirms Stevens’ view that values are seldom a differentiator.
‘We took [firms’] mission statements, took the branding off them and asked [people] to identify their own mission statement. Half of them couldn’t, because they all look the same. They all say [things like]… “Committed to service”, “we listen”, “we’ve been here for 20 years”, and “we value you”.’
Shamash notes that committing to a marketing budget can be difficult when the flow of income to a firm is volatile. In the case of his own firm, that can be down to the Legal Aid Agency, but it is a challenge many smaller firms face even if they only accept private work.
In his case, though, high-profile cases can lead to further instructions – examples include phone-hacking claims and advice related to child-abuse inquiries.
In other words, ‘PR’, Tembo notes: ‘Obelisk was really started to reactivate women back into law,’ she says. ‘A lot of our talent pool of lawyers are women that now want to come back into law, but work differently.’ Hence, the firm’s founder Dana Denis-Smith is a leading figure in the ‘First 100 Years’ project, which marks a century of women in the law – supporting and speaking at events and writing articles.
The direct cost of profile-raising in this way is not high, Barrett-Brown notes, but it is still a significant investment. ‘We don’t have a marketing budget… we speak at lots and lots of events, which on the one hand is very effective, but it is also extraordinarily time-consuming. The cost to the business of having people out all the time is actually absolutely enormous. So, we’re often thinking, “Are we being sufficiently selective?” It’s quite hard to measure the effectiveness.’
Where it is deemed effective, though, several note that they have one advantage over much larger firms in that they can offer strong opinion. A big firm – whether because of conflicts or a need to be politically circumspect – can struggle to be interesting. That can apply to quotes, articles, blogs or even Twitter.
Out the other side
There is a tension evident in the way firms must be run. Much management information remains time-based, while forward-looking principals know that a closer focus on the ‘value’ they add for clients makes demand for their services less price-sensitive.
Roe gives an illustration: ‘We were approached by somebody who wanted a prenuptial agreement. I know that some firms will do pre-nups for a few hundred pounds, but because we looked outside the box we realised that as soon as this guy was going to remarry, he would be statute-barred from ever resolving financial and property matters with his wife. He was going into the remarriage trap, but only because we looked around it beyond the pre-nup did we see this. We could resolve the issues there and ensure they were done before he then got remarried.’
Lawyers who can focus on such value and communicate it are in a strong position, Whittle suggests: ‘Professor John Flood, an academic who works in the legal environment, has this statement that lawyers are obsessed with inputs and clients are obsessed with outputs. One of the things that my business has worked on a lot is the technology to help lawyers to get to the output more effectively.’
Lawyers can be in no doubt that clients are becoming ever more demanding. In Shamash’s media law work, the speed at which journalists and editors work in an online world has shortened time frames to respond. It also increases the importance of information on fees. Matters move fast and ‘you can easily find yourself running behind’, he says, as clients fail to appreciate what had to be done to meet their urgent deadline.
Field’s practice is also contentious: ‘In litigation work it’s particularly difficult because of all the cost pressures that now exist, all the changes in the regime and what you can expect to recover, and then the client’s expectation of recovery versus what they have to pay you. In theory, fixed costs are great, but generally speaking that doesn’t represent the costs of a piece of litigation, no matter how efficient you are at the processes of disclosure.’
Stevens notes that client expectations can conflict with the duty a principal has to their staff: ‘A common [attitude] is, “I’m the most important person in the world. I’ve brought my problem to you, you’re going to solve it the way I’d like you to.”
‘I think,’ she reflects, ‘sometimes we have to protect our staff from that because they can become overwhelmed with it.’
She suggests: ‘Have somebody available in the practice actually to be quite firm with clients. Very politely saying, “These will be the boundaries because this is what we can do, and if actually that’s not the way you want it then we’re probably not the people for you.”’ However, ‘it doesn’t happen too often that we get to that point,’ she adds.
Also affecting some of those present is the attitude of politicians and the media to lawyers and the role they play in society. Barrett-Brown says: ‘We are seeing a… distrust of lawyers from government, which I find extraordinary. In small ways, such as certain types of [immigration] application, for example.
‘Previously, a lawyer could certify a document as being a true and accurate copy. There are circumstances in my field where that’s not acceptable, they have to have the original because they don’t trust that a document certified by a lawyer is going to be a true and accurate copy.’
She adds: ‘If they think there are concerns with particular firms then there’s a regulatory framework to deal with that. I’ve participated in a lot of discussions with the Home Office but there are often comments that suggest there’s a distrust of certain parts of the profession.’
That distrust is on show in the way a decision by the government to grant legal aid to Grenfell Tower residents was ‘championed as a great gesture’, rather than a right, Shamash observes.
Roe ends by reflecting that government reluctance to fund the court service has an impact on clients of all means.
‘The court service – experiencing this as a family lawyer – is in chaos,’ he says. Referencing a cancelled financial directions hearing, reinstated after his protest, he lays down a challenge to the Ministry of Justice and Treasury, whose cuts make delays more likely: ‘How much more would my clients have had to spend? How much longer would their lives have to be on hold?’
That is the sort of ‘output’ lawyers and clients both understand.
This roundtable was kindly sponsored and hosted by LexisNexis. Its second market research report for 2017 Bellwether Report: The Race to Evolve has just been published.