Fast forward: Lessons from the recession for law firms

At last the key economic indicators are looking positive for the legal sector. Business confidence is on the rise, clients are more active and the markets are rebounding from one of the longest and deepest global recessions ever experienced. The focus has started to shift from restructuring and costs control to talent acquisition, partner mobility and rising pay scales for associates.

Managing Partner’s recent survey on talent management found that greater competition for legal talent is one of the biggest future challenges facing firms and that this, in turn, is stimulating a rise in legal salaries. These trends are indicative of a return to a more buoyant market for talent now that revenues are growing and activity levels are up.

The signs of recovery are strong and managing partners are cautiously optimistic about the future. What will be interesting to see is whether law firms will now revert to their pre-crisis ways of working, or whether the lessons learnt from the recession have led to sustainable new ways of doing business. Things changed irrevocably after the Great Depression. Will we look back on this period as the Great Recession that changed the legal sector forever?

Never waste a good crisis

The severity of the financial crisis that impacted firms following the collapse of Lehman Brothers in 2008 was unprecedented. For the first time ever, decisions were taken to make large numbers of lawyers redundant, to lay off partners and to cut back trainee numbers.

An era of austerity followed, in which firms were under constant pressure to chase work opportunities, hold onto clients and keep teams motivated, despite minimal pay increases, cutbacks in training and ongoing job insecurity.

However, the very best firms not only took the tough management decisions necessary to sustain their long-term financial health, but they also used the opportunities provided by the recession
to change fundamentally the way that they did business.

Partnering with clients

During the recession, the best firms understood the necessity of sticking with their clients through thick and thin, even if that meant sharing the pain by taking lower fees or offering commercial support with no immediate financial gain. Clients have long memories and are unlikely to forget those firms that were there for them in their hour of need; the firms that offered secondees or know-how to assist on particular matters, or that restructured their fees to support a client in difficulty.

Clients became even more focused on added value from their professional advisors. Successful firms have developed a shared understanding amongst their partners of where the value comes from in each particular practice, and how to maximise that value for each individual client. They have moved away from short-term transactional relationships
to partnering relationships based on a
deep understanding of the business challenges their clients face, with a view
to the longer term.

Flexible resourcing

Changes in ways of working have not been confined to client relationships. The most forward-thinking firms took the opportunities provided by the financial crisis to create more flexible workforces and business structures. By moving away from the traditional pyramid model, which is dominated by permanent full-time associates with high career expectations, these firms are now more able to adapt to the peaks and troughs of client demand without resorting to lay-offs or short-term recruiting campaigns.

The traditional graduate recruitment process for lawyers with its long lead times made it hard to turn the resourcing tap off in the downturn. Consequently, many firms have diversified their resourcing model to include interns, paralegals and legal apprentices, as well as creating pools of on-demand resources from their alumni base or associates on minimum-hours contracts. The firms that have invested in these more flexible resourcing models are in good shape to meet fluctuating client needs, while offering diverse career paths to a wider set of employee groups.

Improved collaboration

When times are tough and work is hard
to find, the risk of work-hogging increases. Partners under pressure and feeling insecure will often try to protect their positions by keeping clients to themselves. As a result, levels of cross-practice or cross-office working start to fall.

The firms that come out of the recession stronger will be those that have taken active steps to counter this phenomenon by encouraging and supporting knowledge sharing and team working. They will have recognised how internal collaboration is vital to developing institutional knowledge, adding value to clients and broadening the skills and experience across the firm.

As firms become bigger and more geographically spread, the need for collaboration between partners, practice areas and offices becomes more challenging. In the new global economy, however, it is vital that siloes in law firms are broken down.

Examples of ways in which firms have addressed this include the introduction of open training programmes where associates learn and network together across practice and geographic boundaries, and performance systems that reward knowledge sharing, cross selling and cross-practice mentoring.

Enlightened firms have recognised collaboration as a way of working and made it a key expectation of their partners and staff. They have reinforced the message in their induction programmes and redesigned bonus schemes to incentivise collaborative behaviour. For these firms, collaboration has become ‘the way we do things around here’ and a vital component for individual and team success.

 

---

Top ten lessons from the recession

1. Partner with clients for the long term

2. Develop a flexible resourcing model

3. Foster internal and external collaboration

4. Encourage and support innovation

5. Create and sustain a high performance culture

6. Demonstrate honest transparent leadership

7. Engage with people across the firm

8. Practice good management discipline

9. Prioritise ruthlessly and be constantly adaptable

10. Build internal resilience at all levels

 

---

 

Focus on innovation

In times of economic uncertainty, investing in innovation can be considered risky. The natural tendency is to batten down the hatches and keep focused on the day-to-day until the crisis has passed. Those firms that have continued to ‘think outside the box’ and come up with new legal insights for their clients, innovative ways of delivering client services and groundbreaking new business support structures are the
ones that will emerge stronger from
the recession.

These are the firms that actively support lawyers to think creatively and not be afraid of failure, and seek out and reward new ideas. This approach invariably leads to a more entrepreneurial culture that provides both a stimulating working environment for partners and staff and competitive advantage in the market.

High performance culture

A firm’s culture is put under extreme strain in an economic downturn, especially when difficult decisions need to be taken, such as office closures, staff redundancies or restructuring of the equity partnership. The result is often acrimonious internal divisions, dysfunctional behaviour and
poor performance.

Those firms however that have invested in their culture throughout the recession, supporting and nurturing it through difficult times, have strengthened both their external reputation and their internal resilience. If partners feel that ‘we‘ve pulled through this together’ and retain a sense of shared values and goals, the firm is in good shape to capitalise on market opportunities as they arise.

A high performance culture focuses on relentless quality and service; it is client orientated, embraces new ideas and is open and adaptable to change. Deepening and strengthening the firm’s culture during a downturn is equivalent to fixing the roof while the sun shines.

Leadership strength

A new breed of law firm leaders has emerged from the recession. These are the leaders who have recognised that trust and confidence is built through an open, honest approach to communication. The most respected leaders are those who have shared information on the firm’s difficulties and business challenges not just with partners but also with associates and business services staff, and have involved them in decision making.

By taking a transparent approach and creating dialogue rather than having a traditional top-down approach to communication, leaders have been rewarded with new levels of respect from their peers and new levels of engagement with partners and staff. High expectations have now been set, however, and the communication style and approach of each firm will no doubt be closely scrutinised by potential recruits.

Management discipline

In good times, the management of a law firm is seen by partners as, at best, a necessary evil and, at worst, a bureaucracy that gets in the way of busy legal practitioners. In difficult times, however, the value of a strong management team with a clear understanding of the strengths and weaknesses of the business and a critical eye on the finances and cash management comes into its own.

A recession forces management to focus on the priorities for the sustainability of the firm; the urgent short-term actions and the longer term investment decisions that are crucial for survival. The best management teams have won respect for steering their firms through difficult times and been given a strong mandate to continue to take decisions in the best interests of the firm.

Building resilience

Coping with such a prolonged period of economic downturn has required organisations as well as the teams and individuals within them to be highly resilient. Resilience comes from experience and from learning techniques to deal with setbacks, challenges and crises in a constructive, calm manner. By focusing on the need for organisational resilience during the recession, some firms have become more able to deal successfully with whatever the future might hold.

Stress management training at the individual level has given partners and staff tools and techniques to deal effectively with the particular situations that put them under personal stress. Teambuilding activities have helped to provide a sense of community and collective support that enhance performance in the face of the most challenging client or market issues.

Changing priorities

A recent consumer survey by Mintel, British Lifestyles 2014, found that, as a nation, we have emerged from the recession kinder, calmer and more optimistic about our lives. The nation’s mood has started to lift after years of struggle and insecurity.

Interestingly, the survey predicts no headlong rush to uncork the champagne bottles and hit the shops now that the good times are back. Instead, the top priorities chosen by consumers include spending more time with family, getting household finances in order and having a better balance between work and home. It seems that the recession has had a salutary effect and shifted our perspective on what is important in life.

It’s too early to tell whether a sustainable shift of perspective has occurred in the legal sector as a result of the recession. What we do know is that any period of difficulty builds individual and organisational character. The successful firms of the future will be those that have not only had a ‘good recession’ with disciplined management and strong stewardship, but those that have also
taken the opportunity to be more client centred and people focused, to embrace flexibility, change and innovation and to sustain a strong culture of collaboration
and teamwork.

Jill King is a consultant and the former global HR director at Linklaters
(www.jkinsights.co.uk)