Thursday, 17 September 2009

Why search for growth?

Growth - most law firms are at it. I have yet to speak with a law firm of more than six partners which was not focussed on growth - ideally in PEP (Profit per Equity Partner) but most often also in revenue, profit, number of partners, number of offices, etc etc.

Why? My light reading over the last day or so has been the "The Lawyer UK 200 Annual Report 2009" (available as an active PDF here). One of the lead articles is entitled "The Power of 10" and examines the top UK firms in 2009 compared to the first year of "The Lawyer Annual Report" in 1999. As the article states:
"But with all these changes during the decade [mergers, european expansion, referring work to cheaper parts of their organisation], the most astonishing thing about the top 100 in May 1999 is how similar the pecking order is to today's leaderboard. Although most firms have doubled or even tripled in size, they have been running to stand still."
All that trouble, all that expensive growth, and all that has happened is that, so far as this particular ranking is concerned (and see here for some other thoughts about rankings), most firms have stayed still. "The Lawyer" holds Linklaters out as a success story since it managed to claw its way from the bottom of the "Magic Circle" - that it, from the bottom of a group of four. The article does admit to "difficulties" at Linklaters over the decade - with two major restructurings.

What would have happened a firm had decided in 1999 that it was large enough, or that the partners earned enough, or that they saw no need to expand into Germany? It would have fallen down the rankings - that's what. My point here is - so what? I would argue that a group of partners who had agreed on a strategy that did not include growth might well have been more profitable (on a percentage basis) and are likely to have had more contented staff and partners. It's likely too, I think, that clients might well be more content. They will not have lived through a decade in which their legal advisers grew more quickly than they did and so in which they became a smaller and smaller client.

The last decade for law firms has been a little like the decade before for commercial companies - one of expansion followed by contraction. This was matched - as it is now for law firms - by swift hiring and firing of staff, outsourcing followed by insourcing followed by outsourcing. Management along the lines of "if it's done in-house, let's outsource it. If it's done externally, let's bring it in-house...". I can see these cycles repeating themselves now.

Growth for growth's sake is a strange idea - I'm not sure who it benefits. It tends to drive an aggressive culture in a firm and in an industry. I do not pretend that any large firm will read this blog entry and think "he's right, you know, we should be happy as we are...". Partners in smaller firms - this appeal is for you. Think carefully about the strategy you want and consider whether you need to add growth to it. Perhaps a strategy which includes excellence in service to clients, and a fair reward for effort is good enough?

It is more important to be sure of a strategy that all the partners are comfortable with rather than to automatically assume that everyone wants growth.

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