New strategies

Business growth is not a new issue, but it is increasingly important, especially under the threat of increased regulation. Many practices are working longer hours for clients without any difference to the bottom line.

With their promise of a heavier-handed approach, the proposed reforms in the Legal Services Bill send chills down the spine. If the legislation goes through, this will mean increasing costs that firms will either have to pass on to their clients or absorb internally. Change is inevitable, but what options are open to practice owners in mid-tier firms?

In the City, law firms are moving towards a more American-style corporate approach. But is that an effective option if your company is not as large or as culturally commercial as the giants? As business coaches to law firms, we believe that there is an alternative solution that offers practical returns. But it does mean recognising that the traditional partnership structure has to change.

Partnerships hold back business

We believe that partnerships do not work in most businesses, either culturally or commercially.

Why is that the case? In functional terms, the more people who become partners, the less efficient the collaborative process is. This emerges in many ways: we all know the joke about it taking 35 partners to decide on the office coffee machine: but it could be costing your business thousands of pounds. Take recovery and discounting. Traditionally, this is left to the discretion of each partner and the decision-making process is entirely arbitrary and dependent on that individual. For a mid-tier law firm, this could lead to a fluctuating approach to income recovery. For example, one of our law clients discovered that it was leaching 20 per cent of its fees each year. How many businesses can afford to do that in today's marketplace?

Partnerships experience problems with issues of succession. Some partners, frustrated at the inefficiencies within their existing practice, strike out alone and set up a rival firm, taking their equity and some clients with them. As the fledging firm grows, they end up repeating the cycle.

There is a new generation of graduates emerging with a different set of values, for whom company loyalty is a low priority. So the traditional path of rising up the ranks to become a partner might not be the glittering prize it was once was. How will practice owners be able to harness these newcomers and safeguard their firms' futures?

Streamlining for control

While the fundamental approach to equity holding does not need to change, the functional side of the business can be streamlined to improve efficiencies. For the majority of mid-tier law firms, a team of three taking on these responsibilities is enough to drive the business effectively. This team consists of a general or practice manager, who runs back-office and business support, an operations manager to oversee revenue generation functions and a chief executive to co-ordinate the two.

Defining those roles according to your needs, and finding the people to step into those shoes is a cornerstone of the strategy. While many firms already have some kind of management team in place, much of what they do in the traditional structure is focused on back-office work at the expense of the strategic work.

The leaner team of three shifts the balance of power back to the interests of the company and out of individuals' hands. Via the CEO, the trio would still be answerable to a board, which represents shareholders' interests. But the decision-making process and day-to-day running of the business becomes faster and more transparent.

This results in a board that is free to be more strategic in its thinking and allows team leaders to concentrate their efforts on what they do best. One firm working with us conducted research among its team leaders after going through this process. It found the more efficient structure released 63 hours for the team leaders per month or, in fee terms, more than £150,000.

Take time for strategy

Making such a strategic change to your business takes time and also commitment from your people. This commitment pays dividends and, in our experience, it is a snowball effect. Most of our mid-tier clients, depending on size and culture, begin to see the business benefits after only 12 months. While completely overhauling their business, one of them has met revenue targets for the first time in five years. Another partner, freed up to look at client base management, believes he can generate an additional £1m from his new role as opposed to his old job of running part of the practice.

Culturally, it is also challenging. When you are used to working in an industry that equates success with being a partner and generating fees on an individual basis, it requires courage. It also needs new ways of thinking to change those old sensibilities to the collective interests of the company. It has to be a transition, and it works when a company tailors the process to a language and culture that its people recognise and value.

A simple exercise in establishing where your cultural compass points, is to ask yourself whether you are a part of a firm of great lawyers or a firm of great business owners. In our book, it's the business owners who are embracing change.

Case study
Brooke North LLP is a mid-level commercial law firm serving a number of owner-managed businesses mostly based in West Yorkshire. Prior to its involvement with us, Brooke North had already decided to reorganise its ownership. This has resulted in an improvement in the ratio of fee-earner to partners and also enabled the firm's career path to be clarified.

Managing partner Hugh Middlemass explains: 'After the re-organisation, we were keen to pursue a number of objectives and believed this could be achieved more quickly with help from Shirlaws.'

As a first step we audited the firm before implementation started 18 months ago. The three partners responsible for managing the re-organisation worked with the coach to set about creating clear business functions across the firm. The management of the back-office was brought into the managing partner's function and re-structured to improve efficiency and better support the legal teams. We also worked with the leaders of each of the fee-earning teams to help them manage the commercial and financial objectives of the firm and communicate their business objectives.

The firm's in-house training programme has been rewritten and there is now a clear written career path for all legal staff.

More soft skills and management training are being included in the training programme to clarify the individual's functions and the firm's objectives.

Shirlaws is working with partners to help them shift their professional outlook from lawyer to business owner. Middlemass adds: 'As lawyers, we tend to stay focused on the exercise of our professional skills. It has been important for us to give time to direct the culture of the firm and how we wish to be perceived, both internally and externally. Similarly, it has been important for us to develop our strategic, commercial and management skills. We are now starting to maximise the valuable resources we have in our staff, and the full commercial potential of the firm.'

As for results, Brooke North has just completed its best year ever.

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