The Future of the Legal Profession

One of the great things about working with Law firms who “get it” is seeing the day when everything comes together; because there is usually one day when the collective firm has taken in enough information and all the bits suddenly fit together nicely.

One such day happened last Friday.

But before we talk about Friday, let me briefly explain how they got there.

The firm in question had “merged” in late 2008 with a similar sized firm because they could see that the many external forces that had eroded their income were simply not going to go away and merging could at least reduce some of their costs. 

But even since that merger, they had been butting against their overdraft; the partners had already had to put more money into the firm and they had made redundancies and taken pay cuts…and they had almost run out of ideas.  I say “almost” because one of the partners suggested getting some outside help.

That decision was taken about a year ago.

Following an initial consultation and a Strategy day, the firm decided to implement some changes; nothing major, just some basic business changes to make fee earners accountable and make their billing slicker and cash collection more systematised.

That eight month process culminated yesterday in an event attended by everyone in the firm.  And I mean everyone.

The purpose of the event was to outline to everyone in the firm what had happened and more importantly, what was going to happen in the future; but it was also an opportunity for peace and reconciliation and a chance for all staff to not only vent their feelings but to make suggestions.

Although the whole day was uplifting, the best part for me was the Managing Partner’s opening talk.

I only wish we had recorded it because I would be proud to send a copy to every partner in every struggling law firm with the message that “…it can be done”. You can rescue your firm, grow it and have a positive future.

The opening talk set the scene for the day, but it also set the scene for future of their firm. The Managing Partner drew a line under the events of the past; fully explained to everyone how all the partners had felt about the redundancies they had been forced to make and apologised for getting many things wrong.

And it was a genuine apology; not the sort of apology you see politicians making but a real “from the heart” message that they were sorry that they had let things get as bad as they did and sorry that they had handled some things badly but they had now taken action and it was working.  

The apology also carried forward in that they suggested that they may make some mistakes in the future, but at least everyone in the firm could see that they had their best interests at heart; the whole of the firm and not just the partners.

During the coffee break I not only spoke to some of the staff but I also hovered near to clusters of conversations and I never heard one cynical word about the “speech” but I did hear lots of positive ones.

From then on, the positive tone carried forward onto the next group of speakers.  Each departmental partner spoke for 5 minutes on what they did and what they were looking for; not in a dull monotone way, but chatty, humorous and engaging. 

The day was also peppered with inspirational videos clips, short talks, suggestions on improvements as well as short tasks where everyone came up with marketing suggestions and ways to improve the firm. And it wasn’t all about the big stuff.  Suggested improvements included better access to stationery, keeping the free tea and coffee and getting cleaners in more often!

Finally, (and this was only about 2.30pm) they had an awards ceremony.

The awards went out to staff who had “gone the extra mile” or  “who showed a positive attitude” and each one was met with rapturous applause as well as tears from some of the recipients.

But there was an award for everyone as they left.  As they filed out into the sunshine, there were business cards on the table for everyone in the firm.  Every single person got business cards ....and Easter Eggs for them or their kids.

As one exited lady opened her pack up she had tears in her eyes. “I’ve never, ever had anything like this in my life” she said to me.  I asked her for her card.  She laughed and remembered our talk earlier on stage. She wiped the back of her hand across her face and apologised for being silly, then she gently handed me the card with both hands.

The card had her name and all the details of the firm but no title (I knew that was deliberate…but that she didn’t) so I asked her “And what do you do?”

“I work for the best law firm in the North East” she replied.

Enough said.

The news that Irwin Mitchell is considering becoming the first law firm to float has come as no surprise to many of us. Irwin Mitchell has a proven track record in adopting change and has been described as a personal injury powerhouse, carving a path for others to follow.

As traditional practices come under increasing pressure to change their ways or be forced out of business, Irwin Mitchell is aiming to become the leading supplier of commoditised legal products when the Legal Services Act comes into force.

Will this and the arrival of the “brands” change the way many law firms market their services and their practices?

Do you believe that your own brand in your local community has no value?

Are you seen as the trusted advisor but have failed to exploit this relationship with your clients, customers and other professional introducers?

Alternatively, have you advocated your responsibility for the survival of your practice by jumping on the QualitySolicitors bandwagon, building a brand that you do not own?

We have all heard about the estimated 3,000-plus legal practices which are expected to disappear over the next few years, with the impending arrival of the Act and increased competition. I have little doubt that the prediction is correct, particularly as we are still seeing many firms which refuse to face or embrace the substantial changes that are set to arrive in the very near future.

Law firms’ options are unquestionably limited; consolidation in the sector is inevitable and a strategy for survival could be to grow by acquisition or merger. However, this will not change your practice sufficiently unless you adopt a very different approach to packaging and delivering services in a less transactional way.

The alternative is to become a specialised niche player, drastically reducing overheads and delivering a web-based solution, thus joining the large number of new entrants into the sector following redundancy.

We have seen 1,126 new firms being formed in the last 12 months, whilst 484 have simply closed. This is a net gain of 642, the vast majority of which are limited companies.

We are already seeing numerous practices being absorbed by larger firms whilst mergers of medium-sized firms are also, I believe, set to increase, as partners seek to create larger stronger regional practices.

Larger firms have become the predators and many are looking to grow by acquisition. As a contact at one newly merged firm told me: “Merger? We just merged into the background!”

Hence a word of caution. If you are considering buying, selling or merging your own practice, don’t attempt to go it alone and negotiate your own deal.

Although an element of compromise is essential in every negotiation, having a professional on your side will help achieve the best possible outcome – and your survival.

Sadly, lawyers who don’t want to be part of a radically changing profession are unable to simply “shut up shop” because of the provision of run-off cover – the insurance that must continue to run after a law firm ceases to trade.

We are already seeing firms merging on the simple premise that there is no capital value whatsoever in their practices, but their run-off cover can simply be absorbed into the larger firm’s professional indemnity premium. The best that partners can hope for in such cases is to achieve a salaried partner position or a consulting agreement for a limited period.

The other alternative is to grow by stealth, finding innovative ways to both deliver and package your services. Deciding on who your clients actually are is crucial before you decide what types of services you will offer – commoditised or restricted?

Many partners, principals and directors of legal practices are not only juggling the day-to-day challenges of running a business covering everything from financial management to compliance issues to personnel (whilst, in many cases, fee-earning in their own right!), but having to also make time to consider the strategic options for their practices in the short, medium and long term.

Owners of law firms that want to survive the tough years ahead have to adopt innovative thinking in order to take their practices forward, understand and consider what is required to keep their business financially viable and plan to continually build on existing success.

Creating value in a current practice will also make that firm a more attractive merger or acquisition proposition than other less progressive practices, if this becomes the preferred option.

As time progresses and we see a growing number of practices choosing to sell or merge, we will see less value placed on them. Therefore preparing yourself now for a possible opportunity is essential if you are thinking of selling or merging.

It is vitally important that there are specific policies, procedures and controls in place to ensure that the practice is not only a financially viable proposition, but to allow a degree of compatibility with future potential partners or investors.

The management and structure of the business, its finance, personnel, technology, clients, risk management and marketing all need to be considered carefully – and without delay.

For lawyers who envisaged an enjoyable career and then a comfortable retirement, this is no doubt uncomfortable reading. But the current situation will not pass – it will simply become more acute.

Every single law firm needs to take a decision now on where it wants to be in the next five years and how it’s going to get there. Putting this decision off is not a realistic alternative – it simply makes matters worse and reduces the options available.

The good news is that for firms prepared to rise to the fundamental and inevitable challenges ahead, there will be opportunities. The market for legal services in England and Wales is an astonishing £26 billion and this is likely to increase in the foreseeable future.

Will opportunity be knocking on your door? Or will that door be closed for business?






This article first appeared in Legal Futures and is reprinted with the kind permission of Viv Williams.  (Actually, it was his proxy, Brian who sent me a text agreeing to allow me to reproduce it here!)

Charles Barnett, professional services partner with PKF, said: “What we are continuing to see is that the legal sector is being hit as hard as the wider economy.

“There has been a considerable shift in the way legal practices operate with diversification, commoditisation and specialisation seen as the key means to develop firms faced with the continued downturn in corporate work.

“The traditional income streams from banks and other corporate sources remain slow and this means that most firms affected need to ensure they have appropriate strategies in place to remain active in this new market.”

Mr Barnett also said there was growing evidence that the Scottish legal services marketplace is overcrowded.

He said: “There will be a degree of shrinkage in the coming years to match the diminished demand. It is vital therefore that firms look at potential mergers and acquisitions, whilst they are in a financial position to do so, which enhance and expand their market to encourage growth in the future.

“The firms which are already emerging from the recession are those with the most diverse portfolio of services, that are effectively managed and who have a clear strategic vision of how to develop their business in such difficult times.”

He added: “Considering growth at such a time may seem problematic, but it is the firms which can grasp the thistle and recognise that in adversity there is opportunity.

“Diversifying portfolios, commoditising services, maintaining quality staffing, enhancing management, and managing cash flow will be the key factors in ensuring that the best Scottish firms not only survive this period, but also come out the other side, stronger, fitter and more able to tackle a legal marketplace which has never been tougher.

“It is undoubtedly a difficult time, but for the ambitious it is also a period of great opportunity.”

(With thanks to Scottish Legal News for that article, first published in their )