The new model of law firm
Innovation is just as important for legal practitioners as it is for consumers of legal services, writes Bhavini Kalaria
With the Panama Papers scandal, the three-way merger of CMS, Nabarro & Olswang confirmed, and Brexit, 2016 was an interesting year.
All of these distinct events have one thing in common: lawyers themselves, whether that’s the type of lawyer, the knowledge of the lawyer, or the importance of retaining good lawyers. This year will no doubt see lawyers, and how lawyers do business, once again in the limelight.
New business structures
In the post-2007 landscape, law firms have explored different business structures to attract outside investment and to enable non-lawyers to be part of the overall management. Firms used the more open regulatory framework to see how to better manage themselves – not just to deliver a more commercial service to their clients. Some of the other responses to the perceived opening up of the legal market are embodied online, in comparison websites, referral sites, find-a-lawyer sites, and legal networking sites. Finally, there is the increased use of fixed fees, retainers, and other commercial options for SME clients. These supply-side responses (along with an increased uptake of technology) rightly help to deliver a better and more accessible service.
However, last year’s ‘Future of Legal Services’ report from the Law Society predicted that the traditional law firm model will decline by 2020. At the same time, the profession is losing talent to accountancy and other professional service providers, having failed to remunerate or innovate in the same way (Olswang’s partner woes were not unique to the firm).
The opportunities that the profession previously afforded (mainly the likelihood of succession into a thriving legal practice) are disappearing. In the past, when partners looked to retire from their firms, younger partners would take their places, arranging a partner loan to purchase the equity. Becoming a salaried partner (where you have all the risk and none of the equity) is of course completely unappealing now, and buying into a practice which cannot guarantee any income (unlike an accountancy practice, for example) leaves people cold.
So, why is any of this important? The loss of talent is important because even if we accept that there will be fewer lawyers over time (as technology replaces some of the more process-driven parts of the work, for example), lawyers will still be be involved in higher-value functions such as commentary, guidance, and advocacy. To attract and keep talent, firms can look for examples outside their normal structures to see how to retain and remunerate lawyers.
Corporate governance and employee-related schemes are certainly good precursors to joining the dots between billing, business development, and remuneration. Mishcon de Reya’s suggested John Lewis-style of ownership, which looks to include and remunerate at every level, is a very good idea.
However, any chosen structure must also sustain a competitive advantage over time – an innovative legal structure cannot simply be an end in and of itself. Firms must therefore continue to meet consumer demands and consider investment, ownership, and remuneration in a way they have not had to before. The structure should be both competitive and help deliver excellent legal services.
There are real benefits to SMEs of outsourcing their legal and HR functions to flexible-working law firms which can help form and deliver more creative legal solutions – and in this regard new firms can also be at the forefront of attracting and developing legal talent, which is more diverse and better equipped to face the challenges of the next decade and more.
The London Law Practice (one of the ‘new law’ breed of firms) has introduced a unique scheme for its freelance network of lawyers which rewards innovation, relationship building, and legal excellence by giving options in the company and offers professional growth with room for excellent lawyers to join the company board. The model is suited to incubating talent and fostering diversity. What this also does is set the firm apart from those freelance models which cannot provide longer-term prospects or security.
Taking heed of the events of last year, setting the stage for the next ten years should be the resolution for law firms in 2017.
Bhavini Kalaria is managing director of the London Law Practice