The light at the end of the tunnel: Best-practice law-firm management in an uncertain economy

Few would deny that the past year has been a tough one for law firms. Results for the end of the financial year, however, have shown a surprisingly variable performance from firms that are clearly struggling to those that seem to be making a success of the competitive mood. Caroline Poynton talks to managing partners at DLA, Bevan Ashford EPL, Burges Salmon, Pannone & Partners and Halliwell Landau about their experiences of the past year and their plans for the challenges ahead.

The uncertain world economy left a trail of woe as the 2002-2003 financial year came to a close. There are indications that regional firms fared better than many City practices, but the ripples of economic discontent have been felt across the board, from the regional to national and international players.

Among the many examples, City firm Field Fisher Waterhouse managed a three per cent increase in turnover, but profits per equity partner took an eight per cent dive. Turnover at Hammonds was down by two per cent, while Rowe Cohen also had a thin year with turnover up by just under four per cent following a record year in 2001-2002. The once hugely successful Theodore Goddard, which has since merged with Addleshaw Booth & Co, also posted a ten per cent revenue drop for 2002-2003.

Downsizing has sadly become a familiar feature for many firms faced by the realities of a difficult market. The technology slump left Osborne Clarke floundering in the City, losing partners to rival firms Field Fisher Waterhouse, BLP and Richards Butler. Denton Wilde Sapte announced 70 staff cuts and SJ Berwin was forced to let 16 staff go in early May, following a third year of disappointing results. There have also been redundancies at Berwin Leighton Paisner, Nicholson Graham & Jones, Martineau Johnson, Hammonds and Stephenson Harwood, to name but a few. Magic-circle firms are equally facing the music with Clifford Chance implementing an ongoing “headcount-management” strategy.

Thankfully, the success stories are also significant. Halliwell Landau, Pannone & Partners, DLA and Burges Salmon all announced 15 per cent jumps in turnover. Bevan Ashford EPL is also thriving with turnover up by just over 14 per cent and Beachcroft Wansbroughs reporting a triumphant 19.5 per cent leap for the year. For many, the road ahead might seem bleak but the success stories must surely provide encouragement for those looking for some light at the end of the tunnel.

While there is little doubt that the present climate is difficult, both Nigel Knowles, managing partner at DLA, and Guy Stobart, managing partner at Burges Salmon, agree that the market has always been competitive. According to Knowles, it is many years since there has been more work than lawyers and the market has always been aggressive, particularly in London. Stobart agrees and goes further to say that the competition is viewed, from their point of view, as a positive thing. “The old adage of Coca Cola needing Pepsi Cola to keep the companies focused and motivated applies equally to law firms,” he says. “Too little competition is frankly a bad thing.”

It might be naïve to suggest that law firms have ever had it easy, but Paul Thomas, managing partner at Halliwell Landau, believes that the current legal market is especially difficult, particularly in corporate work. Significantly, however, he is optimistic: “The market is showing signs of confidence and recovery, and I believe in the absence of another major catastrophe on the world scene, this confidence will continue to develop.” Simon Rous, managing partner of Bevan Ashford EPL, also veers towards the more positive outlook, admitting that there are fewer “big ticket” private-sector M&A jobs about but there is plenty of work to be found in the public-sector and other specialist fields.

The key to outliving the difficult times and even prospering in the competition must lie in effectively managing the firm’s resources. Of course, what this means in practice varies depending on many factors, including geography, practice area and size. There are, however, some common strands.

Joy Kingsley, managing partner at Pannone & Partners, attributes their success to focusing on keeping the practice strong in all work types, whether the economy is good or bad. They have done this by dedicating additional management and marketing support to under-performing departments, a successful strategy so far with two such areas recovering well.

Rous takes a similar departmental approach, although his strategy is based more on reallocation rather than reinforcement. Hence, he says that they have implemented specialist units to take advantage of the changing business environment and have overcome lower levels of work in certain sectors by reassigning resources, wherever practical, to the busier departments.

Rous also raises the thorny issue of billing and effective cash control, an area that continues to be one of the major bug bears of many a lawyer. Keeping an eye on cash, both to curb expenditure and not allow unpaid bills to runaway, has become a priority for Rous who believes it can make the crucial difference between success and failure, particularly if combined with a competitive pricing structure.

Both Stobart and Knowles point to the importance of devising and sticking to a clear strategy. Indeed, Knowles goes so far as to say that this is an area where other firms have faltered, losing their direction by failing to define where they want to go and how they want to get there. This is all very well and good, but any firm-wide vision and strategic plan would quickly fall apart if it wasn’t understood and supported by the outlook and practice of the firm’s people. Both, however, seem well aware of this. Stobart says: “We have ensured that the partners at Burges Salmon understand and have bought into the firm’s strategy – this consensual approach may involve more effort at the outset of strategy discussions but it is hugely valuable when we come to implement our plans.” Knowles also says that management spends a lot of time dealing with people and as DLA has this year won the top-rated law firm in the Sunday Times’s 100 best companies to work for, there is every reason to believe him.

Another aspect of people management lies in the recruitment process. Thomas points to this as a particularly important element in Halliwell Landau’s recent success, saying that they’ve adopted a policy of recruiting market-leading lawyers over the past five years and have welcomed a number of successful lateral hires to the firm. The firm’s board has also supported an investment policy, both in terms of IT systems, and in the recruitment of experienced and effective managers in finance, business development, client care, PR, information services and HR.

Just as effective recruitment can be an essential factor for firm-wide success, for Stobart, it has also been the major challenge of recent times. “It is my experience of this and earlier downturns that quality individuals are either retained by their firms or they are less willing to move. They feel that it is better, they perceive, to stay in what is a known and apparently safe environment than take their chances in a new firm, only to discover that they are ‘last in and first out’.”

Kingsley has met unforeseen challenges in the existing workforce. When the firm’s largest introducer of work lost a contract, it demanded a period of real effort to replace an income stream that had previously been assured. Rous says that Bevan Ashford EPL has faced a similar challenge of making up the income lost from lower levels of work in certain sectors. A current key strategy is to closely monitor work levels in different areas and maintain fee-earner numbers in line with changing demand.

As a firm grows, across offices and countries, there are other challenges to face. DLA has enjoyed a particularly fast-moving few years expanding offices in Belgium, Hong Kong and Singapore; acquiring an office in Madrid; and integrating with J Koh and Co in Bangkok. With so much happening, Knowles says that the main challenge has been to avoid a “one size fits all” approach – to integrate global offices and maintain the firm’s core values and cultural identity while respecting the essential differences between offices in different locations.

Obviously, there is a certain element of chance in the fortunes of any firm based on changing economics, and the natural rise and fall of certain practice areas. However, there are some interesting differentiating factors between firms. For example, both Kingsley and Stobart rate their single-site strategy as a key asset saying that it has enhanced team spirit and the cohesive nature of the firms. Stobart says of the Bristol-based firm: “The local market is not large enough to sustain a firm of our size. That factor and the need to service a client base that is becoming more removed from the west of England encourages a pro-active and keen client-management and retention attitude among our lawyers.” Probably more importantly, given the current economic situation, single sites also reduce overheads, helping those firms to reduce costs and invest more strongly in key functions such as IT.

DLA, Halliwell Landau and Bevan Ashford EPL are clearly not in this bracket and need to work across several offices to maintain profitability. Naturally, this has its own advantages: the geographical breadth and the resources to meet client needs on the spot, to name a few. It also gives them a greater presence in the legal market, something that single-site Burges Salmon is seriously addressing at the current time with the effort and investment that multi-site firms can probably achieve through mere physical presence.

Multi-site firms have their own problems, however, as Knowles alludes to when he talks of the cultural differences between offices, especially when the firm has grown on an international level. From this perspective, Knowles believes the real differentiator in DLA is the firm’s complete commitment to its vision and clients, something that he believes other firms fail to make a priority, sometimes to their downfall. This commitment is surely embodied in the firm’s ambitious goals, implemented through rigorous strategic planning that works on a three-year cyclical basis. The firm is now at the end of the first year of its current three-year strategic plan. The ultimate goal is to become a top-five, European, full-service law firm with a significant presence in Asia. To read between the lines of this formidable outlook, Knowles’s key lesson is surely a caution against becoming too comfortable with the status quo. Thomas would agree. His differentiator is, he says: “To be an extremely commercial law firm with strong management, and a willingness to take measured risks to invest in the future.”

It has been argued that it is difficult to differentiate between law firms because the client services they offer are inherently the same. To a certain extent, this is true, and it is illustrated by the similarities among law-firm websites that all claim to do the same thing. However, the past year has demonstrated some key differences between those firms that are enjoying the competitive mood and those that are labouring to keep up.

Perhaps Stobart puts his finger on it when he describes managing a law firm as being akin to leading a convoy across the Atlantic: “Each ship in the convoy needs to know the common goal or destination but their individual routes across the Atlantic may need to vary and, above all, they need to show initiative when tackling problematic situations. In ensuring that communication is maintained across the convoy, notwithstanding the individuality that is required, everybody can be sure of heading broadly in the right direction.”

Whether small or large, with single-site or multi-site offices, firms will have various strategies for success and what is right for one firm might not be right for another. However, as Stobart so colourfully illustrates, the over-riding factor for success must be a clear strategy and vision that appreciates the importance of people and personal initiatives, but drives the firm as a whole to greater things. Stobart’s analogy also alludes to attributes that are important during recessionary periods: flexibility and a willingness to adapt to the environment, no matter what it might present.

If there’s anything that DLA, Halliwell Landau, Bevan Ashford EPL, Pannone & Partners and Burges Salmon all demonstrate, it’s a keen awareness of who they are, what has made them successful and what they need to do next to get ahead in a difficult business.