Law firms - too good to be true?

Many law firm leaders will be taking a, slightly embarrassed, look at their performance in 2020 and thanking their lucky stars. The shock of lockdown in March and a series of emergency measures - suspension of drawings, cost cutting, capital calls - were followed by a bemusingly strong period driven along by:

• equity and debt fundraising;
• employment law work;
• ongoing, and some new, disputes; and
• surprisingly buoyant M&A.

So, fuelled by mega-stimulus, cash available and very low interest rates, the business of law has been a good place to be through the crisis.

The new year has started busily for firms so maybe the encouraging trend will sustain. But, as we know, only the paranoid survive. What, then, might be top of the To Do List for law firm leaders as 2021 gets going? How can they mitigate the risk, eloquently described by Tom Petty and the Heartbreakers, of things being Too good to be true?

Let’s think about this by way of analogy to a motor car. Without getting into the delicate territory of deciding what make of car a given firm corresponds to (tempting, but no), we can think in terms of the key components and attributes of a car, any car:

• engine;
• chassis and drive train;
• technological edge;
• interior appointments; and
• showroom appeal to customers.

The Engine

So, this is the team. Law firms are people businesses and need to attract, motivate and retain really good lawyers and business service professionals.

Much has been written about the challenges of keeping the team engaged after many months of working from home. Zoom drinks and Friday night quizzes are, well, passé. Three thoughts here:

1. it’s obvious, but make sure that everyone feels valued and no-one gets “lost”. In the 1,000-person firm, Sainz and Wasser, are systems in place to ensure that everyone receives a call from their principal every week, that team meetings take place regularly, that training sessions are well attended, that successes are celebrated, that birthdays are marked and that particular attention is paid to those who live on their own;
2. consider reciprocal mentoring schemes. Firms could offer to clients the opportunity for members of in-house legal teams to be mentored by partners on the basis that senior members of the client in-house teams would mentor associates at the firm. Similar arrangements could be made on the business services side. Schemes like this, particularly in the current environment, could bring welcome new perspectives and, of course, deepen bonds with clients; and
3. ensure that everyone has something to look forward to. Today is more bearable if a treat is in store tomorrow, which is why holiday adverts proliferate in January. We must hope that some kind of normality will return by the Summer so plan team outings to the garden at home, Sandown Park, Lords, Stuttgart.*

Chassis and Drive Train

This is infrastructure - the physical and IT backbone of the operation.

Sainz and Wasser have a lease renewal coming up early next year at their main office which, in non-Covid times, houses 700 people. Market trends would suggest that they should take much less space, to reflect an expected new post-Covid norm of more working from home and the potential for relocating some staff to less expensive locations. Linklaters, for example, will allow all their staff worldwide the option to work remotely 20-50% of the time in the future and Hogan Lovells are apparently planning to take 260,000 square feet in London rather than the 360,000 they were planning to take pre-Covid.

So, space reduction sounds like a sensible economy that reflects the new zeitgeist, but if I were on the management committee at Sainz and Wasser I would tread warily. There will be lots of factors at play but some which suggest caution are:

• post-crisis the firm will want a large part of the team back in the office for the bulk of the week as soon as safe and permitted - to (i) sustain culture and friendship, (ii) teach young team members, (iii) aid creativity and (iv) integrate new joiners;
• social distancing will be with us for some time and so office space will need to be de-densified;
• the firm would hope to grow headcount over the life of the new lease; and
• surely, they will be in a strong bargaining position opposite the landlord.

On the IT side, firms have managed the transition to dispersed working with impressive facility but cyber-security and confidentiality need to be an ongoing obsession. Law firms remain attractive targets to hackers and the more prosaic risk to confidentiality of flatmates from competitor firms working from home extensively needs careful monitoring.

Technological edge

Car manufacturers have a technological mountain to climb. 14 countries around the world have announced a ban on the sale of new passenger vehicles powered by fossil fuel in the not-too-distant future. In the UK that future is 2030 and in Norway (where the ban extends to the use of existing vehicles) it is 2025. This is, as we know, a mega-challenge for car manufacturers and it also drives the bonkers valuation of Tesla - now worth $835 billion.

Law firm leaders should be grateful that they do not face this kind of existential crisis. As Richard Tromans, founder of Artificial Lawyer, explains in a piece on the website this month, legal tech is not bringing major disruption of the Netflix v Blockbuster variety to law firms but “*hybrid disruption, where one part of a legal process is quite significantly changed by tech, but a large amount of good old-fashioned manual labour remains firmly entrenched*.”   But this certainly does not mean that law firm leaders can relax. Clients will increasingly look for the economies which AI tools such as contract generation, document management and predictive analytics products can bring and turn more and more to alternative legal service providers (such as Axiom, Obelisk and QuisLex*) for more process-driven work. Strong law firm profitability in 2020 will surely add to the pressure on firms.

Against this backdrop Sainz and Wasser might consider:

• bringing in a savvy client-focussed consultant to brainstorm their 3-year planning around the acquisition and deployment of legal tech tools;
• challenging their Head of Innovation to come up with one Big Idea for 2021; and
• sharpening up their thinking around alternative billing strategies because surely, although this has been currency for many years, the billable hour will be under threat from clients increasingly focussed on value-add.

Interior appointments

Is the cabin of the car a nice place to be? Does it convey what the car is all about? Is it a rugged, “let’s cross a ploughed field” type of environment (Land Rover Defender), a cosseting, drawing room kind of place (Mercedes S Class) or a jaunty skateboard (Fiat 500)?

So, this brings us to purpose.

The crisis has been a wake-up call for the importance of purpose in business and has underlined the point made by Larry Fink of Blackrock in early 2018 that, if business is to sustain, it needs a “purpose beyond profit”. This theme combines with the lessons from the Black Lives Matter movement to reinforce the need for more diversity in business organisations.

All of this matters to law firms because:

• they are businesses;
• it will matter increasingly to their clients; and
• it matters to team members and recruits - and it’s right.

It follows that big firms like Sainz and Wasser need to focus on two important questions:

1. what is our purpose and how does it drive our strategy? We are about much more than doing great work for clients and making profits but what is that “much more” and how can we articulate it authentically in a way which will motivate - excite even - our team and our clients. I like the NatWest purpose - “to champion the potential of people, families and businesses” - and really like those words “champion” and “potential”; and
2. why can’t we do better when it comes to diversity? This is not an easy question to answer but do we really think hard enough about why women end up being the default carers for children and why we can’t recruit, and keep, more young people from ethnic minorities?

A real understanding of purpose will also help firms think more meaningfully about ESG. At NatWest, for example, its drives into a focus on Enterprise (start-ups), Learning (enhancing skills) and Climate (targeting carbon positive own operations by 2025).

Showroom appeal to customers

Law firms, like car manufacturers, need to make their product attractive to customers.

In today’s world, where many clients have seen their business models stretched to breaking point whilst many law firms seem to have done well, I think that this means:

• law firms should stretch to see if they can do a better job of really getting under the skin of client businesses and understanding the challenges they face. I have mentioned this before but corporates do tell me that it is rare for their lawyers to ring up the GC and say - “We have been doing some work on what may be the top three regulatory challenges which you will face this year so should we have a Zoom to brainstorm them with you? There’ll be no charge of course.”;
• firms should be particularly open to alternative billing structures (as mentioned above), emphasising that the job in hand is to add value, not accumulate hours; and
• a clear exposition in three points (three being the magic number) of why the firm is genuinely differentiated from the competition. This would be assisted by a sharply distilled exposition of purpose and, whisper it, by a comparison to an appropriate motor car.

Christopher Saul

Christopher Saul provides independent trusted advice to senior executives and key stakeholders within publicly quoted and privately owned businesses and professional service firms. His areas of focus are governance, succession and the moderation of differences.

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