Feature

posted 10 Feb 2006 in Volume 8 Issue 8

Brave new world: Facing a changing future in legal-service delivery

The future of legal services remains a subject of some debate, although further reform and regulatory change is certain. The right leadership and core values will be essential for surviving change and succeeding in a brave new world.

By Paul Gilbert, chief executive, LBC Wise Counsel

“We live in such a fast-paced competitive world. We have to earn every pound we invoice – sometimes more than every pound – and client loyalty is barely a recognisable characteristic in anything we do these days…”

So said one senior law-firm partner to me recently in the sort of resigned tone usually reserved for describing how one’s teenage children do not tidy their bedrooms or how they rock back and forth plugged into tuneless noise and call it music.

Unfortunately, I did not make him feel any better when I explained that it was going to get worse, a lot worse. Not his children’s taste in music or the wasteland of clothing, computer games and make-up that pass for their sleeping quarters – but the professional-services marketplace where his (still thriving) City practice was establishing an excellent reputation for client-focused service.

You see, while lawyers today are used to competitive forces and talk wisely about the need for differentiation, excellence in service and legal expertise, the competitive forces they experience are relatively benign.

It is benign because competition in today’s terms is predominantly about the same type of people pursuing the same type of work from the same type of client with the same type of product, service-delivery and pricing model…

Not so much competition, therefore, as a game of ‘some we win and some we lose’.

Of course, it is harder to win new business, harder still to win easy, fat-margin work and, even if a great job is done, it is difficult to predict whether the client will stay with the firm.

But the truth of competition in legal services today is that unless you completely screw up, you will win your fair share of new work, and client inertia will mean you retain enough of your existing clients not to precipitate a crisis of confidence.

So far, then, so good; although I think I might describe it as so far, a bit average.

Even in this environment, some firms are struggling to see a predictable growth strategy while others are looking for merger partners. As I was explaining, however, it is going to get worse.

Deregulation is coming and with it a shockwave of ideas, new investment, innovative ways to deliver a service and a host of news stories around those that succeed and those that fail.

The recently published government white paper, ‘The future of legal services: Putting the consumer first’1, is delightfully vague about what might actually happen in the next three to five years, but reading through a number of submissions to the government’s pre-publication consultation gives a clue to some truly radical thinking.

First, the Law Society, that bastion of professional conservatism, has broadly welcomed all of the government’s proposals, including ones that require it to fundamentally change its structures and services. No reactionary response here, just a sense that change might be an opportunity and a reformed profession will need a new kind of Law Society.

It will be no good, therefore, to look to the Law Society as a principled defender of the status quo.

Second, private equity held by non lawyers (in whatever proportions are eventually permitted) heralds the further demise of traditional partnership structures. By implication, it will also hasten the need to adopt truly excellent practices and processes in a number of management disciplines if firms are going to attract investors with their transforming capital.

So, for example, areas affected will include IT; governance around decision making; the execution of ideas and policies; the development of teams and individuals; and delivering an efficient, timely and value-for-money service.

For those firms that are nimble, thoughtful and determined, the opportunities are obvious. Firms must take time in the next three years or so to become as efficient as possible and to court those that can add both financial clout and management excellence to their proposition.

When the legal-services market opens up (when, not if), the unleashed competitive forces will be like nothing seen so far.

To get an idea of this and what it might mean, think about the change you have witnessed in the motorcycle and car industries, textiles, accounting and financial services.

Darwin is sometimes misquoted as saying that the strongest and fittest survive – what he actually said was that the species that survive are those most adaptable to change.

In legal services, there is likely to be a top-to-bottom radical overhaul of the profession – small high-street firms will be particularly vulnerable but not terminally so. Just two decades ago, there were thousands of independent opticians and now there are national chains. It was the same with estate agents too. Businesses may change in terms of brand and marketing, but the work is done by the same people, qualifying in the same way and delivering to the same clients.

Put in this way, the brave new world might not seem such a harsh reality, for the majority at least. For the larger national, regional and City firms, however, there is more at stake.

The model I foresee is one where there will be both a relentless downward pressure on law-firm margins and an upwards pressure for quicker delivery times, more accurate information to justify engagement and better management information during an engagement.

I also believe that clients will become less loyal to firms that do not invest in their own brand or values, especially if those firms instead simply revel in the individualism of their rainmaking partners.

The role of the rainmaker

And in this last point there is a significant conundrum: if outside investment is going to be a potential catalyst for internal change and greater efficiency, can change be effective in a culture where the rainmaker is king?

The rainmaker enjoys autonomy, respect (even reverence) from colleagues and significant personal wealth – these are not the people likely to embrace changes that may diminish such personal strengths. These are also the people for whom clients are often heard to say: “We don’t instruct the firm as such but partner X. Partner X is brilliant for us and if partner X should move to another firm we would move with partner X.”

Such firms are horribly vulnerable and who, quite frankly, would invest in them? Would anyone seriously consider a seven-figure investment in a firm where client loyalty was dependent on such flimsy foundations? Of course not.

The answer, at least in part, is for law firms to start acting like their bigger corporate clients. A strong brand, consistent values and excellent service help to cement loyalty, preserve market share and encourage growth.

Brand and values

It is not by chance that brand and values are talked about so much. Indeed, the fact that so many firms do not have the first idea about their own brand and values should scare the pants off managing partners everywhere.

My prediction is that firms that invest now in building their identity internally with their partners, associates and staff, and externally with their clients and potential clients, have a far better chance to survive in a deregulated and ultra competitive environment than those firms that trust to luck. Hope, in this brave new world, is not a strategy.

The question in my mind is whether the ‘corporatisation’ of law firms is possible? What will it mean in reality and how well equipped are law firms to make the necessary judgements today that position them for success tomorrow?

For me, there are two fundamental issues:

Law firms must have outstanding leadership;
There must be consensus for a common purpose.

The question of leadership is less controversial and I will return to this theme a little later.

The common-purpose element, however, is the tough one to get across. It is, in corporate terms, about a sense of brand and values; but as soon as any conversation turns to brand, mission statements, vision statements and values, eyes roll heavenwards and there is barely disguised cynicism for what is largely seen as marketing pap. We need to try to overcome this.

There is an old joke: how does a consultant make you a small fortune? He starts with a big one. And another oft-quoted remark about marketing budgets: half the marketing spend was incredibly valuable and half was not – the trouble is we do not know which half…

The truth of the matter is that it is all too easy to spend hard-earned money on consultants and business gurus, all with an expensive opinion to share about what businesses should do to take advantage of their changing worlds. Scepticism, therefore, has some place, but please suspend your disbelief for the next few paragraphs.

At the risk of talking myself out of work let me break down the issue to make it crystal clear what is important and why.

Three questions drive the imperative for action:

1. Is winning new business getting harder?

2. Does about 20 per cent of your client base provide 80 per cent of your profit?

3. Do you look at some law firms and think of them as natural targets for you to emulate or from whom you can grab more market share?

My expectation is that most firms

will answer ‘yes’ to these three simple questions, as most firms are in this same space. As a result, one conclusion screams out to me; you have limited time to shore up your defences and go on the attack.

That low rumbling sound you can hear is not your tummy telling you that lunch is due but the sound of the legal herd beginning to run and you had better be able to run with them.

So why are values an important ingredient in this mix? Values are important for a number of reasons:

They articulate what the firm stands for in a crisp, understandable and positive way;
They provide a benchmark for expected behaviour;
Values are a means to judge performance in non-technical competencies;
They help everyone in a firm, from the post room to the senior fee earners, understand that they have a contribution to make;
They ensure the firm has a consistent outlook, which means that the client experience is predictable and worthwhile;
Values help to build confidence around cross-selling opportunities;
They highlight poor performance in a non-confrontational way;
They enable decisions to be implemented more simply;
Values provide a common vocabulary for success.

In the past six years, I have worked with forty to fifty major corporate entities and every single one of them has published a statement of values.

I do not think they do this for the benefit of some altruistic job-creation scheme – I suspect they do it because in a competitive world where every second, every inch can make the difference, ensuring their clients and customers have a consistently good experience is essential to establishing value in the brand and, therefore, in the company.

For law firms the journey is just beginning.

Of course, no law firm is going to come up with a set of values that will be revelatory – they should not try to and that is not the point anyway. The point is to have a series of credible, meaningful statements that direct behaviour in a way that is positive, consistent and potentially adds value.

When the statements are devised – and I would personally not recommend plucking words out of thin air – they should resonate with the vast majority of people in the firm.

If possible, they should be derived from people in the firm through surveys and discussions and (dare I say) focus groups. In this way, there is a real chance to not only find the words that will attract people in the firm but also to accurately reflect what the firms stands for in practice. The hard effort then begins.

Simply publishing the statements on an intranet or in the firm’s brochures is not good enough. Here, they become mere platitudes, a remembrance of some fun in a workshop or a moderately interesting strategy weekend. In reality, however, at this level, values quickly become a meaningless list of corporate mouthwash.

What has to happen is that the law firm must embed its values into behaviours throughout the firm.

To start with, firms should look to develop and enhance their training, recruitment, induction and appraisal processes. The values should also be reflected in formal and informal reward mechanisms, and they need to be seen to be enforceable, so that even the crustiest old timer does not get away with studied non conformity.

All of this will take many months of hard and deliberate work – but, if successfully achieved, the potential rewards are significant:

The client experience across the firm will improve and, as a result, there will be more and better opportunities to cross-sell;
The firm will build value into its brand (valuable in itself in a share-owning society), but will also have better lines of external and internal communication and be more able to execute its decisions effectively;
Law firms will be able to collate and distribute better management information because values drive behaviours that measure and support efficiency;
The brand will help clients to stick to the law firm, even when significant individuals move on;
The values support a more cohesive management structure that will be more attractive to external capital.

Leadership

My second theme is about the quality of leadership that is required in today’s law firms.

If your vision of leadership is Churchill, Thatcher or Genghis Khan, you may be disappointed in even the most able management teams in law firms.

For me, leadership has to encapsulate the following characteristics (let’s call them leadership values):

Clarity of purpose;
Consistency of message;
Consistency in reward and punishment mechanisms;
Excellence in executing decisions.

None of this is easy but neither does it require a tub-thumping orator, a benign or malevolent dictatorship or an ego the size of the QEII.

Great leaders, especially in professional services, are often modest and thoughtful people, but they are never underestimated and combine my four characteristics most effectively.

Non-lawyer managers

I am sometimes asked if non-lawyer managers add very much to law firms beyond their technical expertise. In my view, the employment of truly excellent professional managers in finance, IT, HR and marketing is essential.

I believe firms should employ the best people they can recruit and integrate them fully into the fabric of the firm’s culture and business; law firms can and should learn from the wider experiences of other forms of business.

It is also my view, however, that provided the dominant line of business is the expertise of individual lawyers, working in unison on behalf of the firm’s clients, then the only true leader of a law firm should be a lawyer.

The talent pool in nearly every law firm is significant and once lawyers get their head around what true leadership means, they are more likely to succeed than anyone else in the role. No one will know their business better – its people and politics and how to influence behaviour. In a word, they have credibility.

My four leadership values should be apparent in all managing partners but if they are not, they should be developed quickly. I have worked with truly charismatic leaders but also leaders who were relatively shy and undemanding, and leaders of every shape and size in between.

The difference, however, between the leaders who were effective and those who were not did not depend on the size of their ego or their ability to either scare or enthral. The difference was really very straightforward: good leaders are clear about what is needed, consistent in requesting performance to meet this and they are very good at getting people to do it.

The next generation

In my judgement, the next generation of leaders in our best law firms will share these leadership values – they will deploy their talents differently but at the heart of their achievements will be a credibility built on these foundations.

In the next few years, the profession is going to undergo a seismic shift in its own outlook, performance and expectation of what success means; competitive forces will be so harsh that many firms will have to merge to survive as this will be their only strategic option.

Those firms, however, that use the next three years wisely, who build sustainable businesses based on a common purpose, expertly articulated and delivered, will also build value in themselves and become the most likely not just to survive, but thrive.

These firms will be the ones that challenge established thinking and their leaders will be respected inside and outside their firms for their thoughtful, articulate and consistent application of values that have made the firm successful.

Back to where I began and to my partner friend resigned to an ever-more competitive world. It is not so bad, you have time to prepare, you have the intelligence and talent to get things done, and a track record of success. Start now in earnest – the best is yet to come.

Reference:

1. ‘The future of legal services: Putting the consumer first’, published by the Department for Constitutional Affairs, October 2005

Paul Gilbert is chief executive of LBC Wise Counsel. He can be contacted at pg@lbcwisecounsel.com