February 3, 2014|Kim's Blog, Lawyers, Management Skills, Statistics and trends, Strategy|

In August 2013, I wrote a review of law firm strategy and finance http://kimtasso.com/half-year-review-of-law-firm-strategy-and-finance/.  As it was so popular with clients, students and colleagues I have repeated the process concentrating – using The Lawyer magazine – on developments in the latter half of 2013. Many of the themes and trends identified in that first blog (e.g. cost cutting, consolidation and international expansion) have continued – some of them have intensified.

Mergers and consolidation

– Consolidation continued apace e.g.

  • Blake Lapthorn, Boyes Turner and Morgan Cole in merger talks (2 Dec 2013)
  • Wragge & Co and Lawrence Graham (28 Nov 2013)
  • 50 strong Aviva team from Greenwoods to DWF (28th October 2013)
  • Slater & Gordon bought industrial disease firm John Pickering and Partners (fourth acquisition between August and October 2013). It aims to become one of the UK’s leading consumer law firms (acquired RJ&W in Jan 2012 then Taylor Vinter’s PI practice in Cambridge and Liverpool’s Goodmans and Fentons. In September Pannone voted to sell its consumer business to them (Oct 2013)
  • Penningtons bought Manches in a pre-pack deal (Oct 2013)
  • DWF acquired Scotalnd’s Biggart Baillie, Fishburns and pre-pack Cobbetts
  • Shakespeares and Leicester’s Harvey Ingram
  • Pinsent Masons and McGrigors
  • TLT and Anderson Fyfe
  • Herbert Smith and Freehills (Oct 2012) 

International expansion (and increased protectionism)

– With domestic markets still stagnant and/or suffering heavy competition, firms seek growth in overseas markets – but are sometimes thwarted with protectionism. For example:

New business models and new entrants:

– Athens based construction consultancy gets ABS and opens in London http://www.thelawyer.com/analysis/the-lawyer-management/abs-news-and-analysis/athenian-construction-boutique-granted-abs/3015092.article (21st Jan 2014)

– Bucks County Council and Buckinghamshire and Milton Keynes Fire Authority plans to form an ABS (6 Jan 2014)

– London Boroughs of Barnet and Harrow (merged legal teams called HB Public Law) enter partnership agreement with Bevan Brittan and apply for ABS (25 Nov 2013)

– Jordan Publishing, which produces legal textbooks, has launched an alternative business structure – Jordan Corporate Law Ltd – which will provide legal advice to corporate clients and accountants and act as a legal process outsourcer to law firms (27 Nov 2013)

– Commerce & Industry Group of The Law Society breaks away to form In-house Counsel Worldwide (IHCW) (23 Sep 2013)

– Barrister led ABS (Helphire in Cheshire – Principia) focused on Road Traffic Accidents is a joint venture

– KPMG possible application for an ABS and PWC pondering an application (9 Sep 2013)

– Capita to buy volume Optima and set up legal arm (23 Sep 2013)

– New models such as Axiom, BLP’s “Lawyers on Demand” and Obelisk http://www.thelawyer.com/analysis/opinion/the-end-of-lawyersor-just-the-beginning/3005139.article and http://kimtasso.com/professional-services-client-feedback-thomson-reuters-and-menzies-aviation/

 Leadership and management teams: 

– Need for succession plans in small firms “So, how can the small legal firm survive? Anecdotal advice from my professional contacts: develop a niche or be part of something bigger” http://www.thelawyer.com/analysis/the-lawyer-management/partners-check-the-fire-exits/3014962.article (16 Jan 2014) 

– Management elections There were numerous elections for leadership (although one wonders whether this is the most effective way to select the best person for the job) e.g.

  • Clifford Chance (28 Oct 2013) 16 on management committee
  • Ashurst partners elected a litigator to chairman which cost the senior partner his leadership position (Oct 2013) – then Geffen was ousted (11 Nov 2013)
  • Mishcon held first management elections which resulted in re-electing current post holders (Oct 2013)
  • Wragge’s election (Oct 2013) created a new managing partner instead of global managing partner who had increased turnover by 36% in 2012/13
  • Herbert Smith election for new CEO after joint CEOs retire (30 Sep 2013) 

Strategy 

– New business models and metrics As more firms employ paralegals at home or at an outsourced location there are different business models emerging and these need an alternative set of metrics to monitor profitability.

– The Lawyer launched a new online benchmarking tool to help the larger firms with financial comparisons (UK 200) http://www.thelawyer.com/news/editors-picks/a-festival-of-financials/3011333.article 

Financial management:

– Cash flow New methods to help firms with cash flow management http://www.thelawyer.com/analysis/the-lawyer-management/kain-knight-and-vfs-legal-form-a-strategic-alliance-to-provide-cash-flow-funding-to-law-firms/3014847.article (16 Jan 2014)

– Investment As the cost of investment increases while revenues remain stagnant, more firms are asking their partners or others to put their hands in their pockets e.g.

  • DAC in £10 million cash call (25 Nov 2013)
  • Withers cash call – 5,000 per point (Oct 2013)
  • Hill Dickinson £2.8 million cash call after heavy investment – £f1,000 per equity point – Monaco launch and overheads increase (12 August 2013)

or looking to external investors to help e.g.

  • External investors JZ International and Souter Investments take 60% stake in insurance firm Winn Group (9 Sep 2013)

–  Cost cutting and efficiency reviews The cost cutting and redundancies continue (e.g. Wragges loses 26 support staff in outsourcing (Oct 2013)). Clifford Chance won a management award for lean and six sigma techniques to analyse each step in the legal process and either simplify or improve it. Also has a continuous improvement programme for 40 projects and resource managers to manage allocation of associates and offshore non-secretarial business services in India

– Professional Indemnity insurers (PII) pulling out (9 Sep 2013) – 150 firms unable to take on new business as no insurance (4 Nov 2013) – affecting those with less than 10 partners worse

– WIP management Firms reporting a greater need to balance reduction in WIP with client relationship management

– Regulation e.g. HMRC winding up order for Follett Stock for VAT/tax debts (30 Sep 2013)

See the PWC law firm survey 2013 http://www.pwc.co.uk/business-services/law-firms/overview-2013-annual-law-firms-survey.jhtml

Human resources:

– Weightmans and Gateley have ABS licences to bring non partners into their partnerships

– Flight of talent Top players defecting to private equity (e.g. Freshfields Chris Brown to private equity house CVC 2 Dec 2013)

– Trainee market – After LETR failed to limit the number entering the profession (23 Sep 2013) there are now14,000 students chasing 5,000 places (25 Nov 2013). Yet David Polk breaks London trainee market with £100,000 salary for newly qualifieds

– Training Innovative approaches to developing lawyers e.g.

  • Reed Smith MBAs and MAs for lawyers to enhance commercial knowledge (Oct 2013) as well as secondments
  • Culture day at Noerr (12 Aug 2013) – workshops and survey with a focus on diversity and females

– Stress Hogan Lovells reassesses stress in Feb 2013.

– Career changes (12 Aug 2013) former Blur drummer, former A&E nurse, ENO administrator and fashion editor become lawyers

– Partnership structures They are changing: Bircham Dyson Bell goes all equity (12 Aug 2013)

– Laterals Research indicates that expensive lateral hires are often not working so requiring firms to manage more careful monitoring of their original business plans (16 Sep 2013)

– Regulation While regulation continues to wreak havoc in the external markets, the focus is increasingly on the firms themselves (e.g. HMRC preventing NIC avoidance in LLPs (9 Sep 2013))

Marketing, business development, products and pricing:

– Major ad campaigns – Slater & Gordon – £1 million TV ad campaign for personal injury, employment and family. Separate campaigns for its Claims Direct business. 80% unprompted recognition in Australia.

–  Alternative Fee Arrangements (AFAs) Clients continue to demand more certainty and flexibility and rage against the hourly rate (e.g. fixed fees in damages based agreements (DBA) means costs management as a result of Jackson Reforms requires project management (23 Sep 2013))

– Market and specialist expertise pressures The Legal Aid reforms continue to have a traumatic impact on some legal markets such as personal injury and family (e.g. Criminal bar under pressure as authorities try to save £220 million per year until 2018/19 from the Legal Aid budget of £1 billion – 9th Sep 2013)

– Pricing Taylor Wessing fixed fee service for tech SMEs (6 Jan 2014) – “Tech & the Beanstalk” – also Kemp Little and Wiggin. Also pricing of litigation (9th Dec 2013) – whereas the Global Litigation Top 50 saw a14% increase in fees since 2011 (some growth driven by the increase in financial crisis litigation and Russian oligarchs) there is much greater use of new pricing mechanisms such as  AFAs and collars and proportionality. Clients don’t mind paying top prices for best litigators but not for juniors. Flexibility and skills from outside the legal profession are being used – process mappers, software designers, resource managers, LPO houses. Project fees being agreed by milestones.

– Positioning Trouble balancing regional clients when firm’s focus moves to London (2 Dec 2013) – an opportunity for those still in the regions? More lawyers in London http://www.thelawyer.com/analysis/the-lawyer-management/law-firm-office-take-up-in-central-london-more-than-60-higher-than-in-2012/3014853.article (16 Jan 2014)

– Client service Marketing teams measuring client satisfaction and becoming more involved in service delivery – e.g. Mundays (18 Nov 2013) which includes mystery shopping

– Private client changes Private client lawyers focusing on commercial interests – e.g. those with an entrepreneurial, techy slant (4 Nov 2013)

– New roles for example, Mishcon de Reya won an award for the creative work of a new Intermediaries BD Manager (Oct 2013)

– Third party litigation funding (9 Sep 2013)

– Regulation – Revised Markets in Financial Instruments Directive (Mifid II) affects every adviser working with High Net Worth individuals

– Opportunities As squatting in residential properties is outlawed, there’s an increase of squatting in commercial properties (30th Sep 2013)

Other issues

– Technology risks – Data security (28th Oct 2013) identified as a major risk for law firms – from criminals, spies from Russia/China and ‘hacktivists’. Also – Cyber Bullying (12th Aug 2013) – Who’s dealing with risk and compliance? Who’s managing information and devices as opposed to central systems?

Market statistics

– Global legal market valued at $820 billion – by 2020 global market revenues will be around $1.3 billion. US market share from 48% to 42%, Western Europe’s from 21% to 15% and largest growth in Asia Pacific from 13% to 20%. Latin America increases from 12% to 17%.

– Review of 2013 (16 Dec 2013)

– 48 UK firms involved in mergers – two involved distressed assets – none of equals

– Four firms collapsed

– Four US firms launched in London

– Four firms replenished with cash calls

– Three of four of the Magic Circle posted revenue rises (A&O, Freshfields and Linklaters)

– 46 formal panel reviews

– 26% of in-house lawyers surveyed believed staffing levels would increase

– 144 ABS licences issued – up 112% from 2012

– Three insurers showed acquisitive interest

– 141 firms on the SRA danger list

– 10 firms opened in Beijing

– 8 firms launched apprenticeships

– Top 10 firms cut NQ places by 12%

– Predictions about the future (2 Sep 2013)

– Global elite of six firms – A&O, Linklaters, Freshfields, Clifford Chance, Skadden and Latham) emerging markets make up 20% of their revenues

– Regulatory regimes recognises different rules needed for sophisticated business clients from consumers and small business clients

– 20% of partners in global elite firms are women

– 65% of Magic Circle’s revenues are outside the UK

– Emergence of litigation boutiques – shared risk, litigation funds

– Sweet Sixteen (over £1 million PEP) biggest firms then international business law tier and boutiques

– Large UK independents will survive but mid-tier firms will merge with international incomers

– Clients will require professional project managers as the service norm

– Polarised between high end and commoditised work

– Increased specialisation of in-house teams – and larger as a result of more specialisation and a head of legal on every Board

– Insurance law triangle – geography, client sector or legal practice area

And see the later article: http://www.thelawyer.com/home/insight/crystal-ball-will-the-future-of-the-legal-profession-be-heavenly-or-hellish/3010560.article  (27th Nov 2013)

– UK 200 (comparable growth rates)

– Total revenue increased by 5.2% to £15.91 billion in top 50

– Total revenue increased by 4.7% to £17.69 billion in top 100

– Total revenue increased by 4.4% t0 £19.45 billion in top 200

– Turnover at 22 million for top 100 and £7.5 million for top 200

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