Half year review of law firm strategy and finance

Posted on: August 8, 2013

As I absorb most of my news through social media these days, I occasionally go through “the great reading pile” that accumulates in my office.  What’s interesting about this approach is that it is much easier to spot the general trends in law firm strategy and financial performance:

  • Cost cutting – Redundancies of both legal and support staff and cancelled trainee schemes, sometimes as part of a restructuring but usually as part of a cost cutting programme
  • International expansion – Driven by firms seeking faster growth (albeit with added risks) outside their domestic market. And conversely, the impact of non-UK firms entering and succeeding in the UK market
  • Governance and management – Several firms removed the senior partner role and appointed senior non-lawyers and Non-Executive Directors to their management teams

Some of the things that caught my eye (I think in terms of outliers or early warning signals) were:

  • Financial performance – good
    • US firm Quin Emanuel (in London for less than five years) tops the London revenue per lawyer table with $1.88m and jointly leads revenue per partner table with Davis Polk at $5.7m
    • Dechert’s UK revenue is up by 44%
    • DWF posted a turnover rise of 85% to £188m (increasing PEP from £412,000 to £429,000 and increasing net profit by 41%). Yet most of this was fuelled by acquisitions and lateral hires
    • Within the top 25 Pinsent Masons posted a revenue increase of 39.8%, RPC showed a 20.7% increase and Macfarlanes achieved 11.7%. But many of the others showed increases less than 5% (Whilst average growth was 10.3% the median was 5.5% and mode was 1%).
    • Outside the top 50, Kennedys’ revenues increased by 9% to £117m through its international network and lateral hires
  • Financial performance – poor
    • Startup LawVest (backed by DLA Piper) posted a £3.2m loss after 16 months of trading but expects to see income increase as the full £7m investment takes effect
    • Merged Howard Kennedy with Finers Stephens Innocent (FSI) released a combined turnover of £40.6m and PEP (Kennedys) has fallen by 52.4% (from £269,000 to £128,000). However, they have increased equity from 22 to 70.
    • At the bottom end of the London revenue per lawyer is Squire Saunders Hammond ($360,000), K&L Gates ($900,000) and Mayer Brown
    • Manches profit fell 42% to a 10 year low and average PEP has fallen below £200,000 (down 42.6%).
    • The SRA identified 150 firms “experiencing very significant financial difficulty”
  • Aims and strategy
    • Mishcon de Reya  launched a three year growth plan to achieve £100m focusing on litigation, UK intermediaries and international relationships, ABS products and internal engagement
    • Overseas expansion, industry sector focus (the rise and rise of the niche) and service delivery dominate the mid-tier with firms such as Taylor Wessing, Osborne Clarke, Olswang, Bird & Bird and RPC adopting these strategies (these five firms increased revenues by an average of 30% between 2008/09 and 2012/13)
    • Dealing with over-supply and globalisation are amongst the primary focuses although many firms look inwards to efficiency rather than outwards to innovation to tackle the challenges
    • Human resources – Tweaks to graduate recruitment programmes, “Unconscious bias” and diversity training as well as leadership development appear to be in vogue
    • As I have observed recently in various blogs, pricing, project management (there were several articles about firms tackling legal process analysis) and product development are emerging areas of interest. A survey of the top 100 firms showed that 41% were concerned with brand differentiation while 60% of the top 10 said that pricing was their greatest challenge (aren’t the two inextricably linked?). It was interesting to see that Olswang went public on its quest for a pricing expert (albeit with a financial background as opposed to one in economics, psychology or marketing)
  • Business Development – a shift from marketing to selling
    • Business (as usual) development – whilst many understand “sales pipeline management” it was Baker & McKenzie that grabbed attention for boosting revenues with successful implementation whereas others have concentrated effort on referral management and key account programmes. Allen & Overy was noted for its EPIC (Experience Pitches and Contacts) sales support system
    • Much of the other coverage of marketing and business development was either on the challenge of embedding better processes (e.g. CRM, pitching and client listening systems) or making them more efficient. Perhaps the real innovation here is being kept under wraps?
    • Innovative business development – I have written previously about Mishcon de Reya’s programmes on things such as FT collaboration and the use of Jazz FM http://kimtasso.com/case-study-law-firm-marketing-mishcon-de-reya. Other areas mentioned were the shift to on-line and mobile services and the impact of social media on brand and client interactions 
  • Sector changes
    • The number of law firms registered in England and Wales declined by 1% to 10,102 – the lowest since 2007
    • Black, Asian and minority ethnic (BAME) solicitors now make up more than a quarter of admissions – and increase on the 16% in 2002 and 20% in 2007
    • In an interview with a public sector GC, he said that in competitive bids he would expect firms to offer training and secondment opportunities to those young people in its care. Clients clearly expect their lawyers to go way beyond the legal domain now and add value in more creative ways
    • Whilst most of the media attention went on the marketing of big (ABS) brands, there was little comment about the new advertising campaign by Slater & Gordon for employees experiencing difficulties at work


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