Survive or thrive? Growing profits in Scotland during the recession

Martin Darroch reveals how his Scottish commercial law firm increased profits by 70 per cent since the global economic crisis began

Key takeaway points:

1. Firm strategy should be referenced and aligned to all parts and decisions of the business. It should not just be dusted down in difficult times.

2. Communicate your strategy and decisions in an honest and authentic way. People want to understand and be part of what is happening, regardless of whether it is positive or negative.

3. Be the best you can in your chosen sectors and disciplines; do not just follow the crowd.

4. Watch and learn from the world around you for methods of enhancing your business.

In his 2008 book The Future of Management, Gary Hamel wrote: “Sometime over the next decade,
your company will be challenged in a
way for which it has no precedent”.
That event has occurred in the Scottish legal market.

Since the economic downturn began in 2008, the Scottish legal market has been through significant stress. Seventy per cent of the then-largest firms have experienced a decline in revenue, takeover or closure.

In this environment, it has been an interesting journey leading Harper Macleod through a 46 per cent growth in turnover to £21m and a 70 per cent jump in profits to £7.5m. During this period, the firm has received a variety of awards, including four times being named law firm of the year in Scotland.

What has made our journey countercyclical is being deliberately strategic. We are a business with a vision, a purpose and an identity that pulls all of our people and resources in one direction. This strategy is based on retaining and attracting the best talent, which in turn attracts and retains the
best clients, for whom we provide value-based services.

In the summer of 2006, we made a conscious design to adopt a corporate model in relation to our governance, the running of the business and the
managing of our balance sheet. Critical
to a corporate alignment was the change in management dynamics and roles, with my appointment as chief executive (previously finance director); Lorne Crerar’s appointment as chairman (previously managing partner), and the creation of our corporate board.

The first focus for Lorne and I was to introduce the objective of being the employer of choice, working with colleagues of choice, built around our core values as a business, which we launched in early 2007. This led to the business reducing our people turnover rate to 7.8 per cent in a high-demand period for talent.

Investing in people

In the spring of 2008, we made a pivotal decision. It was clear from all of our data and engagement with relevant stakeholders that the recession was not going to be short lived and that several key sectors and disciplines would fall off a cliff. We believe strongly in the power
of our corporate story; if we were to simply exit from key markets and lay
off all of our people within them, where would that leave our ‘employer of choice’ philosophy and why would anyone ever believe us again?

The board accepted our conviction that the business should retrain all affected people and direct them into areas which we believed offered opportunity for growth. As a result, we retrained 20 per cent of our fee earners. This came at a significant cost to business profitability in the short term, but resulted in all of these colleagues stepping up to the challenge and driving the firm on.

This investment in our people five years ago lives with us today. We remain the only large commercial Scottish law firm to have not made redundancies, introduced short working weeks or made pay cuts. This ‘story’ has been critical to our brand, as we have increased our fee-earner numbers by 48 per cent during this period.

Changing client service

We have also developed the way that we interact with and service clients. In 2007, we introduced a new approach to client relationship management, which created a much more intense relationship-building challenge for the most senior people in the business. This provided us with critical insights into the needs of
clients, the innovations they were experiencing in their industries and
how these could be adapted to our methods of servicing them.

From these insights, it became clear to us that a key differentiator for us would be to strive to achieve a reputation as a thought leader within our chosen sectors. In 2009, we targeted renewable energy/natural resources, public sector and insurance work, in addition to the sports and social housing sectors, in which we had already achieved this status. Our emerging target sector is life sciences and healthcare, and we will be launching a series of national conferences bringing together industry leaders from around the world to debate the way forward for this sector in a Scottish context.

Our client successes in these sectors indicate that we are seen as an innovative firm and are making headway in meeting our objective of being perceived as a thought leader. One important barometer in this regard is the number of clients from whom we derive revenue in excess of £100,000 per annum (see Figure 1).

Our approach to our people and clients also impacts on our operating model. We believe in the saying “does it make the boat go faster?” We are obsessed with operational efficiency across all aspects of our business, from marketing and IT to HR. We review all departments to determine whether their fee earning or business support is critical to the success of the firm. To reflect this, eight of our non-lawyers are regarded as ‘partner equivalents’, all of whom have a seat and a vote at the partnership table.

Clearly, financial data is integral through all aspects of the firm and, as such, we believe it can add to our competitive advantage.

Managing costs

We have built a reporting structure that ensures the finance function contributes to and orchestrates the relationship between the board and the executive management to set a basis for the firm
in the planning and review processes
and what gets done at the appropriate time intervals.

We have worked hard to deliver information to fee earners and department heads that is relevant to their decision-making processes and their personal key performance indicators. It is critical that we prevent people from drowning in a
sea of information.

We operate a no-surprises culture, so every fee earner receives a Monday morning report on the performance of the full business. This is divided by department and individual fee earner to ensure there is no hiding place for anyone in the firm.

It is critical that financial information is not just a fee-earner performance management tool but also used to drive operational efficiency that can be reflected in pricing structures for clients. For example, our property strategy and use of space has resulted in the firm having the second-lowest property costs per fee earner within the UK’s top-200 law firms.

This is a key dimension in our response to most organisations’ procurement models. All purchasers, whether public or private, seek best value. That is why, in a strategic sense, we fully align our business to have the lowest cost base possible in order to pass these saving onto clients. There is still a misconception that the lowest price results in lower quality. Rather, it can represent that it is a very well run business which does not make clients pay for inefficiencies.

It is vital to engage with clients to let them understand how your service offering and pricing can be adapted with changes they can make in their behaviours with your firm, such as IT integration to allow seamless data exchange, turnaround times, length of contract and payment terms. It is only when you have a collaborative relationship with clients and an open dialogue that you can deliver best value.

It was this approach which resulted in our firm receiving an award for ‘best value supplier’ to the Department for Work and Pensions in 2012. I view this as a vindication of our overall strategic approach to delivering great results for our clients.

Martin Darroch is chief executive at Scottish law firm Harper Macleod (www.harpermacleod.co.uk)