Informing the HR agenda: Thought-leadership study 2004

Acritas and First Counsel recently undertook research into HR issues at law firms large and small. Here, Lisa Hart, director at Acritas, and Tim Skipper, director at First Counsel, explain the implications of the findings for law firms looking to improve their people-management strategies.

We’re at that time of year again. The legal trade magazines are publishing the league tables, the 2005 directories are in the public domain and various law firms are in the process of electing managing partners who are busily preparing their manifestos to take their particular firm forwards. Of course, many of the key determinants of law-firm success remain the same: enhanced revenues; better profits per partner; improved utilisation and realisation rates; and more efficient support-staff to fee-earner ratios. The list goes on.

Over the past few years, the information at the fingertips of the finance directors has improved to the point where much is available at the press of a button. Perhaps this is one reason why, in some instances, the FDs are put on a different plane to other heads of non-fee-earning departments. It is not uncommon for a law firm to have a management board comprising various (partner) heads of department, with the sole non-lawyer representative being the FD.

However, it seems this situation is beginning to change. Increasingly, external research companies are being asked to provide both qualitative and quantitative data to the ‘other’ functions that are integral to the running of any professional-services firm. Most commonly, this may relate to client-service reviews, internal staff attitudes, the law firm’s approach to succession planning or recruitment and retention. Almost always, however, there is one common thread to all of this, which relates to the most important asset of the firm – its people.

Internal research is a real growth area as firms are more aware of the importance of understanding employees’ perceptions and using this information to inform really important decisions such as recruitment, remuneration and employee development.

In September 2004, legal recruiter First Counsel commissioned Acritas to talk to leading law firms about some of the key strategic HR issues facing their firm. As you might imagine, the scope of the study was extensive covering identification, recruitment, retention, attrition, lateral hires, the recruitment of non-legal managers, managing business and cultural issues, performance review and people development, flexible working and diversity, the role of benchmarking information, internal communications, and using alumni networks. HR impacts on all aspects of a successful business strategy and the findings have highlighted and reinforce the role of the HR function at the top of a law firm’s strategic agenda.

To kick this exercise off, a total of five telephone-depth qualitative interviews were conducted to establish some of the most pertinent issues facing senior HR professionals today. This was followed by 50 quantitative telephone interviews, which were conducted over a one-month period. The base of 55 interviews forms a strong representation in a relatively small market – the sample included a number of global law firms (including the magic circle), city firms, regional firms and some smaller boutique practices.

To start with, the respondents were asked their perception of the most important issues they faced in their capacity as senior HR professionals in the next 12 months. Some of the results are discussed below.

Managing career aspirations and progression

Effective management of career progression and personal development is clearly a concern. “We have nothing in place really at the moment – we know we need it,” said one HR director, with another adding: “We are investing in developing skills of partners with leadership responsibilities at practice level or at team level.”

Looking at some of the detail, 62 per cent of respondent law firms manage career aspirations through appraisals, with other forms including career-planning programmes. A quarter of respondents, however, believe that more needs to be done to manage career aspirations.

Certainly the costs of not getting this right are now being measured – over 50 per cent of respondents claim to measure attrition costs, the most popular methods being through the measurement of replacement costs and training fees. Looking at this point more closely, respondents estimated that it costs between £75,000 and £149,000 to train one trainee over two years – with one to ten being the most likely number of trainees recruited per year. When one quarter of these firms lose a third of their trainees within three years of them joining the firm, it is abundantly clear that the cost of this attrition soon adds up.

The recruitment process – getting the right people in place

Looking after and developing existing people is only part of the equation, however, as effective recruitment in what continues to be a very competitive market for quality fee earners remains a crucial objective of any HR department. Many of the respondents highlighted the challenge to secure sufficiently high-calibre lawyers in adequately high numbers to keep pace with the gradual improvement in market conditions. One HR director in a City practice said: “There is a fight for quality talent at the moment and whether or not we bring it into the business from lateral hires or develop up through the firm, we have to get and hold onto those good people.”

There is little doubt that many of these firms can recruit better people through adopting a consistent and efficient process. This will usually involve establishing a close (not necessarily exclusive) relationship with recruiters who will take the time to learn about the more intricate details of the firm they are recruiting for – everyone can access the key financial data or the spread of practice groups, but what is this particular firm actually like? The firm can only be represented effectively by a third party if they invest the time with the recruiter. Ask any leading legal recruiter to list their top ten clients and in almost all cases, the common thread in that list will be the closeness of the relationship that allows them to effectively present the benefits of one particular firm against those of another.

This perhaps ties in with the whole issue of how successful firms believe their lateral hires have been – 46 per cent of firms say that these hires have been “very successful” but 20 per cent say that their lateral hires have only been “quite successful”, suggesting that there is room for improvement in this department. Better relationships with their preferred agencies (still a major source of quality talent for almost all law firms) can perhaps help here.

Corporate-management practices and recruitment

Many law firms are investing heavily in the recruitment of senior business-support professionals across the main disciplines of finance, HR, marketing, risk and IT. Perhaps this is reflects the acceptance by most firms that they need to manage their businesses more like the companies they service themselves. Anecdotal evidence certainly suggests this. “We recently revised how the firm is managed and we are moving to a more corporate style because of that,” said one respondent. Another referred to the advent of LLP status as a major trigger, saying that, while there is still a partnership structure in place, the firm has invested heavily in the recruitment of high-calibre, senior-support directors to look after its core departments.

Looking at the survey results, 74 per cent of respondents feel that their firm is adopting more of a corporate style of management, although there is a perception that it can be a slow process. For instance, one respondent said: “While the management strategies to put this in place are clearly defined, things are moving slowly...” When looking at making ‘non lawyer’ appointments, a preference for professional-services experience prevails, as does a perception that people with previous partnership experience are more likely to succeed. While only eight per cent of respondents say they recruit from outside of professional services, some statistics provided by First Counsel suggest otherwise.

Looking at 56 senior business-development placements in the last 18 months, 27 per cent of these have been from outside the law firm/professional-services market. Perhaps more important than the sector background of the candidate is the relevance of their qualifications, with 92 per cent of respondents looking for non-legal qualifications. 70 per cent require CIPD for HR professionals, with over 50 per cent requiring CIM for marketers.

The case for strategic information

In summary, it seems that it is sometimes the lack of detailed, objective management information or the ability to benchmark that is preventing HR professionals from sitting at the top table in a law firm. Comparative data on firms’ retention rates and salary benchmarks would enable firms to have a much better view on people-performance issues and how attractive they are as a firm to the talent pool in the marketplace. Perhaps when the 2006 issues of the directories are being compiled, the information gatherers may consider adding information on each firm’s retention rates, its investment in training, succession planning, remuneration and employee communications to the traditional list of financial levers.

Indeed, one hopes that the managing partners of the future will have an effective HR strategy at the heart of their manifesto for office. What is beyond doubt is that the most successful firms will be those with an effective HR strategy, whether this relates to the attraction of new talent (lawyers and non lawyers) or the retention of existing high-quality people. To be effective in these areas is only possible if one has a handle on the facts. The legal business is a people business where clients still buy and work with people not firms. This must present one of the best possible cases for recruiting, retaining and developing people within the framework of a clear HR strategy.

Lisa Hart is director of Acritas. She can be contacted at lhart@acritas.com. Tim Skipper is a director at First Counsel. He can be contacted at tim.skipper@first-counsel.co.uk