Boutique basics: Developing a new performance management system

Managing partner David Simon discusses how he developed a customised '¨approach to performance management at niche firm Robin Simon

Key takeaway points:

1.   Beware a one-size-fits-all approach to management theories.'¨

2.   Adapt management and ownership structures that work for the size of your business – if it is not in the book, invent it!'¨

3.   A small business requires fewer rules and regulations – very short members’ agreements, for instance.'¨ 

4.   Leadership of a smaller firm requires persuasion and collaboration towards goals that should be easy to identify.'¨

5.   Leadership promotes ethos, which is at the heart of the brand.'¨

6.   Branding is vital to a small firm – stakeholders need to identify with it and promote it. '¨This includes lawyers who are five to '¨seven years qualified; they have something valuable to impart.'¨

7.   Small businesses are more responsive '¨to small-scale measures to improve financial performance.'¨

8.   In a small business, there is less cover for poor performers – profits are dependent on contributions from all.'¨

9.   Be inventive with your bank – aim for a '¨long-term arrangement.

 

I didn’t plan on a career as a managing partner. Perhaps not many managing partners of law firms do. Before forming Robin Simon in 2003, my entire career had been spent in large firms and so I had always been used to the ‘big firm’ culture. I was therefore somewhat unprepared for some of the issues involved in running a niche practice.

By way of background, Robin Simon specialises in the defence of professional indemnity claims. Although we have grown since we were founded in 2003, on average we keep about 40 lawyers occupied in this very specialist area, including between ten and 15 partners. We consider ourselves to be a national English firm despite our size, with offices in London, Leeds, Manchester and Birmingham.

Creating an ethos

One of the first things the management of a new law firm has to do is to create an ethos and determine what makes the firm special. It is emphatically not determined simply by size. There has to be something special which unites everyone and makes them feel that they are in a business that is different from others.

Right from the start, therefore, we sought to make it clear that we were not a full-service firm, but that we could be relied upon as the trusted adviser of numerous professional service firms, many of them much bigger law firms than ourselves. I think that has driven most of our growth and our recruitment.
The freedom from internal conflict and other issues afflicting full-service firms has been a major attraction to refugees from larger law firms who have been trying to run professional indemnity practices in that sort of environment. Being part of a ‘one department’ firm is a massive relief after the internecine strife of the average large corporate law firm.
Ethos is important because, at the end of the day, being in a small firm can give rise to a sort of paranoia that the firm is going to be swamped by much bigger firms and that those with bigger buying power will be able get into a much better position with clients. The only way to counter that is to believe that your firm is doing something special – and to create among all the professional staff a huge sense '¨of self-belief.

Growing talent

Operating in an area as we do, where the market is dominated by large firms and there are very few niche practices like ours, does make it a bit of a uphill struggle at times, but I think we have buy-in from all of our lawyers. One of the ways that we do that is to encourage young lawyers at the start of their careers.

I am conscious that lawyers assume that there is some almost automatic element of career progression leading to the ultimate ‘holy grail’ of becoming a partner in a firm. Often when they get there, they have no idea what being a partner involves, and are frustrated and disappointed when it doesn’t turn out to be what they had in mind.

I have recently started an experiment creating a special forum arrangement with the five years plus solicitors. My objective is to create a cadre of young lawyers who have been well schooled in the shape of the firm and its history and modus operandi. That way they will have had some training in what it is to be a partner and how the firm works.

I have placed a lot of stock in creating this forum for the senior solicitors, on the basis that it is not merely an opportunity for them to learn about the firm but it also gives me a chance to hear their views on the firm’s business and future development.

This is obviously massively easier in a small firm where all of the lawyers are doing the same type of work. So far it has proved to be an enlightening experience – for me if not for them.

Developing structures

When we set up Robin Simon, we had to do so in something of a hurry and we therefore adopted big firm structures, including a lockstep arrangement for partner remuneration and a complex LLP agreement with lots of different voting rights, percentages and checks and balances.

Experience has shown this to have been totally unwieldy and far too clumsy for a small firm. Over the years, we have dropped most of these big firm structures and adopted our own.

Of course, being a small partnership where most of the partners have worked together for 15 to 20 years does make it quite easy to anticipate what decisions have to be made. But, in nine years, we have had hardly any votes: we try and achieve everything by consensus.

This does not mean that we sit around in a group and debate things until we are all entirely happy with an outcome. I think one of the main shocks for people becoming a partner is that it is not a democracy: partners don’t have a say in everything. That is equally true in a small firm as it is in a big one.

Generally, our partners are happy for the executive management (managing partner plus senior partner) to steer the firm in a particular direction: the most important thing is for the management team to then communicate what it is doing and why it is doing it.

At the same time, you don’t want the partners to feel that they are isolated from the decision-making process. We therefore try to have quarterly partners meetings which review the decisions of various smaller committees taking place in the meantime. The purpose of the full partners meetings is to ensure the partners are informed about ‘big picture’ matters and have a chance to comment on the way the executive is progressing the firm.

So, if part of management’s responsibility in a professional firm is to debunk the myth of a partnership run by the partners as a body, then the next aspect is to run the business in a smooth way on a daily basis. This involves the executive working together with a team of non-lawyer administrators (finance, administration and marketing), backed up by a small caucus of partners. The essence of managing is not so much in the taking of decisions but rather in communicating the reasons for those decisions and motivating non-lawyer staff who manage the day-to-day business.

The question of roles has come into sharper focus as a result of the new outcomes-focused regulation imposed by the Solicitors Regulation Authority. The introduction of the concept of compliance officers (for finance administration and for legal practice) and the creation of these roles has made us focus on the tasks which they can and should be undertaking, as well as the division of labour between the people undertaking them.

As partners, we have developed our structure so as to provide for some of the compliance and regulatory work to be done through a regulated corporate member of the LLP, albeit that the services are provided by members who are solicitors.

The limited company which is a corporate member was developed with very much the alternative business structures regime in mind, although that regime change has taken a lot longer to come to fruition than we had expected.

I am a firm believer in utilising a corporate structure as part of the overall business of the law firm. It doesn’t provide frontline services, but it is a very useful aspect of the business, providing back up and support and all of the aspects of a law firm that fall short of providing legal advice to clients.

Determining remuneration

No part of a professional practice is more fraught with difficulty and issues than partner remuneration, irrespective of the size of the firm. As I mentioned, we started out with an inflexible lockstep situation inherited from big law firms we had worked at before. However, we fairly rapidly abandoned that and have subsequently been trying to work out our own way of providing fair rewards.

The theory is easy: you select a level of basic remuneration, add in factors such as particular roles of responsibility or particular qualities or meritorious activities, and then create a means of assessing that on a regular basis. The difficulty with the latter is that, even in a small cohesive partnership, taking a view as to the relevant merits of four or five of one’s colleagues can be difficult and divisive.

One of the advantages of operating in a specialist area and in a small firm is that we are freed from the vanity of the league tables and the constant comparisons of profits per equity partner. There is nothing more odious than this comparison of the very uneven qualities of partner reward in different firm structures.

In the current regime of high personal taxation, the obscene annual round of PEP comparisons becomes even more absurd. I can only think that it is a major inhibitor to innovation and bold decision making in law firms. It is much better to have a flatter structure and concentrate on all of the lawyers providing collective expertise in their specialist fields than to provide high rewards for one or two partners who have managed by hook or by crook to get to the top of the tree.

The basic remuneration structure referred to above should allow a level of remuneration that is virtually guaranteed for all of the partners, irrespective of seniority. After all, it is the younger partners who by and large have mortgages and small children, so why should the high earnings be concentrated on those who are past that stage, merely because they happen to have been in the firm for umpteen years and have progressed up the lockstep?

Tackling financing

One innovation that we put in place at a fairly early stage was in relation to the firm’s financing. Again, as with many things, we started the business using the traditional partner capital model. But, after a few years of observing that virtually all of the partners’ own capital was being provided by one particular bank, we approached that bank and suggested that it make a long-term loan to the business.

The result is that we now have the security of a ten-year loan and a much more flexible arrangement for managing it between the partners. Instead of a particular partner having to go off and borrow money and then borrow some more money as his stake in the firm gets bigger, we now have a situation in which we simply rearrange the guarantees given by each partner of his or her share of the entity loan.

The interest on the borrowings is of course still tax allowable and it means that we have a much more businesslike approach in our dealings with the bank. This is just another example of what you can do if you have the freedom to challenge the entrenched way of doing things.

david.simon@robinsimonllp.com