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.