Partners v Business Experts - who should run firms?

The issue of the suitability of partners to run a business is one that has been debated for a long time.  It has been brought into sharper focus by the Legal Services Act - indeed one of the 'threats' of the market shake-up often highlighted for traditional law firms is the new competition from businesses run in more efficient and effective ways. 

Traditionally, a trainee qualified, was hopefully taken on by his or her firm, slowly worked their way through their years' PQE, until they had enough years under their belt to be considered for partnership.  Although this is a significant generalisation, if an assistant/associate was good at the job of 'lawyering', they would get accepted into the partnership.  Business acumen, and indeed the basic ability to run a business, were not necessarily factors. 

Things have changed now, in that business development, networking, people-skills and so on are much more relevant in firms both large and small when considering who to take into the partnership.  However, there is no doubt that there are still many law firm partners out there who, though very good at their 'day job' are not naturally suited to running a business (and indeed often would prefer not to). 

This is something that the SRA has recognised and decided to deal with.  The introduction of principle number eight in the new Code of Conduct, which states that that firms and solicitors must: "run [their] business or carry out [their] role in the business effectively and in accordance with proper governance and sound financial and risk management principles", is a significant departure.   This is backed up to an extent by the Chapter 7 outcomes and indicative behaviours on management of the business.  However, there is no doubt that for many law firms there is still a long way to go in terms of running the firm as well as possible.

So, what's the answer?  The last ten years or so (probably extended to 20 years for the larger firms) have seen the rise of the 'Business Director' (or similarly named role) - an external, non-lawyer brought in to run the business.  However, for many firms this hasn't been as successful as hoped, and I think that much of this is down to lawyers' natural assumption that they are more than capable of running the business on their own, and perhaps a little bit of professional snobbery (who are you to tell us how to run our business.....).  For the outsiders'/consultants' view on this, there is an interesting linked-in discussion thread http://www.linkedin.com/groupItem?view=&gid=3572215&type=member&item=54725293&qid=18a5fad3-5aca-4cb2-b665-4b3933127566&trk=group_most_popular-0-b-ttl&goback=%2Egmp_3572215

Jeremy Hand, who set up private equity firm Lyceum Capital in 2008 specifically to look into investment into the legal sector, stated at a conference around that time that law firms have unbelievable profit margins but cannot run themselves.  At the time one got the sense that he was rubbing his hands with glee at the prospect of the money that could be made out of the legal sector. Of course, Lyceum has since directed its focus towards legal process outsourcing, and other private equity houses have been targeting the legal publishing market.  How much of this is down to the difficulties encountered when actively considering investing into a law firm run by lawyers? 

Of course there are many firms that are run fantastically well by their managing partners/governing board/whatever partnership management structure is in place.  This applies across the country and across all size of firm.  However, there is no doubt that the opening up of the market puts this issue into sharper focus and it will be interesting to see how the debate develops and what happens in practice. 

Education and Training up next......

The legal market is certainly not standing still at the moment.  The latest area to hit the headlines over the last few weeks has been legal education and training.  The consultation panel for the 'Review 2020' (as the overall education and training review being carried out by the SRA, Bar Standards Board and ILEX Professional Standards is now being referred to) was of course announced a few weeks ago, and will be led jointly by Sir Mark Potter (a former Court of Appeal judge) and Dame Janey Gaynor (former senior partner of Simmons & Simmons).  In addition to this, the SRA, with all that spare time on its hands, has launched its first review of solicitors' CPD obligations for more than 25 years, which will feed into the Review 2020. 

Meanwhile, various insitutions and firms are announcing new and innovative courses and schemes in the field.  Most newsworthy at the moment is the New College of the Humanities, the private for profit undergraduate college set up by Professor Grayling.  This development has been much discussed both in the mainstream press and the legal press and social media.  The law degree offered by NCH will however be a 'traditional' LLB, with graduates needing to take the usual further steps for full qualification.  Taking a different approach, Northumbria University has recently announced a five-year M Law Full Qualification Degree, a degree which leads to full qualification as a solicitor.  Then you have the College of Law unveiling its plans to launch a two-year law degree (costing £18,000 in total, which corresponds to one year of fees at NCH), and BPP University College last year becoming a private university.  Not quite as recent, but certainly high up in the innovation stakes, York Law School (the law department of York University) is now coming to the end of its third year in action. Its problem-based learning approach distinguishes it from other law degrees. I must declare an interest at this stage as I do some tutoring on the course, but there is no doubt that students coming out of this course have a very different skill set (and in my view superior one in terms of preparing them for practice) than students from more traditional courses.

Then you have the issue of aptitude tests for LPC students, again something that is being heavily debated in the legal press at the moment with recent reports being produced both for the Law Society and the Legal Services Board.

Then you have innovative approaches from law firms such as Leeds-based Gordons.  Gordons has launched an apprenticeship scheme for school leavers that will enable them to become legal practitioners without going to university at all.  The four-year programme, starting this September, is aimed at youngsters who would otherwise find it difficult to enter the profession, and apparently came about as a result of the Managing Partner watching the BBC programme Who Gets the Best Jobs?

There is so much commentary about what the legal market will look like in a few years time with the introduction of ABSs.  What there is no doubt about is the increase in diversity of those offering legal advice to the public, so it seems fitting that methods of entrance into the legal profession are becoming similarly diverse.

Traditional model not yet dead in the water?

Surveys obviously need to be taken with a large dose of care, but a couple of recent ones can give heart to those banging the drum of the traditional legal model.  First, a survey run by legal PR and marketing agency RTS Media has found that just 3% of consumers rate a recognisable brand such as Tesco, the Co-op or the AA as an important factor when choosing a law firm.  Personal recommendation was the most important factor in choosing a lawyer (43%). Being able to call a lawyer directly (5%) and location (4%) also came ahead of "a brand that I recognise".  (Trowers & Hamlins might want to consider that lowly 4% figure in the light of their announcement that they are opening a new office in Birmingham.......)

Meanwhile, research conducted by YouGov on behalf of the Legal Services Board has found that face-to-face advice remains important to clients in several key areas of work, especially family matters and will-writing.  (Thank you as ever to Neil Rose of Legal Futures for his reporting of these developments).  YouGov's qualitative research with dissatisfied clients showed "clearly" that clients felt face-to-face contact at the outset would have prevented the poor service received.  The research also showed "unlike other services such as insurance......choosing a legal service provider is very much down to reputation and past experience."

Of course surveys come out every other week showing something that each side of the 'modernisation' debate can point to, but what I think generally comes out is that law is an area where the personal angle, and the comfort and security generated by leaving your matter in the hands of someone properly qualified, is still so important.  Will this persist? I wonder whether commentators on the opticians market were saying the same thing 20 years ago.......

Speaking of the LSB, Chris Kenny, the Chief Executive, created a bit of a stir last week with his warning that many lawyers are missing the chance to learn from substantial numbers of consumers who make a complaint.  Certainly it seems that law firms can be dismissive and defensive when dealing with client complaints and this is something that could be improved upon, both for the reputation of the profession as a whole and for individual firms wanting to retain genuinely dissatisfied clients.   Of course customer service has always been important to the legal profession - think of all those old detective novels where the old family solicitor has served the family so well for generations......However, what I think has changed now is that there is much more of a culture of expecting good customer service, and being willing to complain if that is not met.  This applies across all industries, and the law can no longer rely on its exalted and professional status to remain immune to this. 

Amidst all the fuss, remember the basics

Whether you see law firm management as an exciting place to be at the moment, or a daunting one, there is no doubt that those involved are being kept busy.  What with the uncertainty over the 6th October date for ABSs, the introduction of OFR, and other market issues such as the extent to which law firms should be outsourcing, using social media and so on, there is a lot to keep law firm management up at night.  However, it is vital that management remain focused on the essentials:

• what type of client do we want?
• what type of work do we want to do for them?
• how can we create value for them?
• where is our competition? and
• how can we carve out a successful position for ouselves?

All things should then flow from this framework.  So, decisions about your firm's structure (do you keep it as it is, do you look to merge, do you look to become an MDP, do you incorporate and look to external investment) should flow from your answers to the above.  Similarly, decisions about your marketing strategy and use of social media; utilisation of on-line legal advice and drafting capabilities; whether to join a national brand; whether to compete on fees or quality; all of this should flow from your answers to the above.

Yes, it is vital to keep on top of market and regulatory developments (one of the most significant of which at the moment is actually the debate over reserved activities, and the possibility that we will end up with activity-based regulation rather than reserving an activity solely to lawyers), but it is equally vital to analyse and consider them in the context of your firm's overall strategy.