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.

There are currently some 11,000 law firms in the UK and these can be split into five very unequal categories.

Firstly, we have the magic and silver circle City firms, which account for approximately 50% of the estimated £26 billion spent on legal services each year.

Secondly, we have a number of financially-strong national and regional practices already embracing change and who are prepared to adopt and deliver services in a very different way. Some are using technology to drive pressure on costs – and these firms are placing downward pressure on all the firms in the mid-tier sector on commoditised services.

Thirdly, we have the large number of “new age” law firms – the virtual firms that have in some cases been formulated following redundancy. Often created in a back bedroom with few overheads and using the Internet as their marketing tool, these firms have a core following to challenge the current established practices.

In fourth place we have the firms who are in the assigned risk pool or have such horrendous professional indemnity insurance premiums that it is almost impossible for them to merge with other practices. A growth in numbers of these firms has been triggered by key events such as indemnity renewal, tax demands at the end of January, the Legal Services Commission running out of cash in February and March, and the banks viewing the legal profession with the same concern they expressed over builders some years ago.

Many of the firms we are asked to visit would have been closed down had they not been law firms and operating in a traditionally revered sector. Gearings and borrowings are out of control in these practices, yet the banks seem to have a reluctance to crystallise those debts on their balance sheets. It is, after all, a very messy process to wind up a partnership and the insolvencies we have seen have been predominately limited liability partnerships.

Finally we have the remainder – approximately 75% of the legal market – of one-to-five partner firms who are not under any financial pressure, although many have an ageing ownership that has not addressed the fundamental issues facing this profession.

On a recent visit to conduct a strategic planning day with a law firm in the north-east, it was noticeable that among the row of 20 Georgian properties in which the firm was located, nine were occupied by other law firms.

During discussions with the firm I was visiting, it became apparent that turnover had been dropping along with profitability. When I asked if any discussions had taken place with neighbouring law firms to explore consolidation, I was told: “We don’t discuss that sort of thing.” Some of the other law firms were renting premises and it was logical for merger discussions to take place when my client owned their premises and had surplus space available.

This typifies the attitude of much of the profession – all nine practices are seeing falling turnover and reduced profits but their personal reputation has stood in the way of a common sense approach to potential consolidation. (Incidentally we are now in discussions with two of the firms about potential mergers.)

I have personally conducted nine strategic planning days with law firms in this sector in the first two months of this year and demand is increasing. Many firms just seem to have realised that we are in 2011 and the Legal Services Act will be fully implemented in October – and they are now thinking they need to have a strategy of what to do!

These firms have reached a crossroads and need clarity on which direction to take. I believe commoditised legal services will come under increasing price pressure and, if practices are to compete for this work, having clarity both on who will be a client and who will deliver the work will be crucial. Fixed-price legal services are fast becoming more commonplace and this type of work will have to be delivered by a different resource.

Law firms currently buy hours from their partners and fee-earners and sell those hours to their clients and customers; but in many of these firms the partners are the people delivering the work. Providing ‘client-led services’ to a fixed-price customer will result in a loss-making exercise on every file that is opened. That cannot be a solution for these firms.

The only way forward is not to compete on price but emphasise the fact that they are solicitors and have the necessary qualifications, compliance and insurance to differentiate themselves from other suppliers of legal services. Solicitors need to promote themselves sufficiently and remember that the plethora of new entrants delivering legal services will not carry the same gravitas.

Many of the new entrants into the sector offering legal services will be drawn into a price war. I strongly suggest that solicitors should focus on quality and not quantity.

This price war scenario may well mean a reduction in the numbers of fully regulated solicitors’ practices operating, and growing numbers of paralegals will be able to deliver a proportion of the work required.

We currently have far too many law firms and too many partners within those firms; we also have aging partnerships, with the average age of an equity partner now 59. This section of the legal market has to consolidate and so we have to begin the painful process of having conversations with other practices.

Whilst I am not advocating merger for merger’s sake, and remain convinced that big is not always beautiful, we have to recognise that many firms will need to start kissing a few frogs in order to find the right match in this time of consolidation.

This article first appeared in http://www.legalfutures.co.uk/blog/kissing-the-frogs and was written by Viv Williams ceo of 360 Legal Group