A virtuous circle: Retention, brand differentiation and profitability

By Simon Slater

Lose a partner, senior associate and good manager and you’ll obviously see a drop in revenue; not to mention the cost of recruiting replacements and the administrative headache of juggling teams. But have you ever thought about the impact of your firm’s brand on those costs and the difference it could make to your bottom line? Possibly not.

According to analysts, Intangible Business, there is a £500m difference in brand value between the most and least valuable of the ‘global quartet’ of law firms. Three factors are cited by them as key to creating brand value: profitability, differentiation and investment in brand. I would add a fourth – effective retention.

By our calculations, a firm with a good retention record and a strong brand has a significant financial advantage over a firm with poor retention levels when it comes to attracting new people. We estimate that the costs associated with recruiting the partner, associate and manager for a firm with poor retention levels (having to replace them), as compared with the costs for a firm with good retention, can vary by as much as £1m.

If the difference in the cost of recruitment seems extraordinarily high, it is. The truth, however, is that most (at least 75 per cent) of the costs are hidden. Lost revenue, recruitment and replacement time-scales (it takes the weaker firm much longer to recruit), recruitment/locum fees, and the time taken to replace the revenue lost must all be taken into account. Being emotive about it, for a 50 equity partner firm, the difference (saving) equates to £20k per partner.

On the one hand, the strong firm suffers no loss of revenue and, on the other, it takes much less time for it to recruit. The advantage gained not only gives its partners and staff another good reason to remain loyal, but also gives the firm greater financial muscle, either to invest in achieving further competitive advantages or share some of its profits with its people – a virtuous circle.

The majority of law firms still do not put a hard value on retention and replacement. Yes, they have a line or two in the P&L for recruitment fees, but this doesn’t tell half the story. Most firms also fail to make the effort to benchmark their retention levels or recruitment costs against their competitors, but doing so might help them prevent the financially debilitating bear-trap that is unplanned attrition.

Berwin Leighton Paisner, DLA Piper, Macfarlanes, Travers Smith and Walker Morris are five different law firms with two things in common. First, outside of the global quartet of UK-led firms, these are five of the most profitable law firms in the country. Second, they have what I would call brand magnetism.

How have these five firms achieved such levels of magnetism?

There are several answers. Each firm has a solid, unambiguous strategy and a clearly differentiated proposition. And each of them has aligned much of what they do – and the way that they do it – to that strategy. People understand where they are going and are clear about how to get there. This is attractive not only to prospective partners and employees, but also to existing partners and staff. These firms provide clear reasons to potential recruits looking to join and even clearer reasons for those already there to want to stay. Many firms fail to offer a compelling story with which to woo partners from other firms; worse still, they provide too many reasons for existing partners, and others, to jump ship.

There is no doubt in my mind that there is a direct correlation between brand magnetism and sustained, superior profitability. The more profitable, magnetic law firms have an acute sense of who they are and use this self-awareness to define their recruitment strategies. There is also no doubt in my mind that their success has more to do with retention than with attraction, however important that may be.

We are often asked about who it is in a firm that should own the brand agenda. It is, quite simply, an organisational matter – a stewardship thing. HR directors, marketing directors and managing partners are pivotal to leading the transformation process, but unless the wider partnership is united in its mission and, broadly, its behaviour, it will be a lost cause.

It’s been my mantra for some time now, but bears repetition. The secret of law firm success is simple: it’s about building two key assets – your people and your clients. It seems to me that the real challenge is to treat the former more as if they were the latter. Because without committed people you won’t have loyal clients.