New Year, New Start?

The first full day of the working year, and the first article in the legal press about meeting the challenges of the 2010 economy for the legal sector. For example I give you today's lead story from "The Lawyer" ("Law Firms ready to ring in the changes for uncertain 2010"). I will start the year as I left 2009 - slightly incredulous at how late law firms are in making strategic and structural changes to their business model, and shocked at how un-aware firms seem to be at their own failings (being "busier than ever - don't know why" is no response to being told your firm is inefficient or badly run...).

Law firms are in the second difficult year - and most have done all the easy things, or all the things they know how to do, to address the difficulties. They are now stuck - and in a position where well managed firms will thrive at the expense of the poorly managed firms. To quote "The Lawyer":

Some have suggested that the leaner, more demanding marketplace of the future could even spell the end for firms with weak management strategies.

This is not the future however - this is now. Sadly I do not believe that many of the firms making up the 30-100 ranks of the Top 100 firms (or smaller firms) are up to the task. Let's look at the advice from "The Lawyer":

• Charles Martin, senior partner at Macfarlanes:
• "Sharpen efficiency levels"
• "Look at better client service"
• "Improve ways of organising themselves internally"
• Gavriel Hollander (the article's author)
• "Efficiency - whether changes to outsourcing policy, client charging or further rounds of redundancies"
• "Diversify"
• "Merge"
• David Stewart, managing partner at Olswang
• "Strong client relationships"
• etc

So - efficiency seems to be a major theme. Why are law firms focussing on  that only now? Perhaps the large profits, and large revenue increases in the years before 2008 suggested that there was no need? Perhaps firms couldn't be bothered to making structural changes to instill efficiency when the firm's owners were earning plenty? Or perhaps, since the Board and/or the Partners were running the firm part-time, there just wasn't time to make changes?

All of these things are probably true, although I suggest that there is more of the latter reason than any other. Law firms are unusual in that they are generally run part-time by a sub-set of the owners as they continue to engage in the task which "won" them ownership. How many other firms are run in this way. How many firms - and remember that these are multi-million pound, national or multi-national firms which employ hundreds of staff - are run like this in other industries?

I'm all for efficiency but many firms confuse that with "cost-cutting". The two are not the same. Mr. Hollander suggests that there may be more redundancies coming - I agree, there probably are. It is unlikely, however, that these will lead to efficiencies. Unless a firm is really incompetent, it will have got rid of any poorly-performing staff already - so only good staff remain to be made redundant. Mr. Martin sensibly suggests improving customer service. How will that be achieved with fewer (good) staff?

Most commentators suggest that the UK will move out of recession this year (yes, there may be a "double dip" coming, but who can tell) - if that is the case, expensive redundancies will be followed soon after by expesive recruitment, leading to two more years of "one-off HR costs and write-downs".

I'm concerned, too, about mergers - or rather the word "mergers". I imagine the partners saying "wow - we're having real problems generating income and becoming efficient. I know - we'll merge with another firm, become larger and that will be easier!". I do not beleive we will see poorly-performing firms saved through merger - they will be bought out by more efficient and better run firms. Actually it may not be be necessary to buy them out - better firms (particularly those few which have built a reputation for treating all staff reasonably well) can simply get in contact and poach the best people without the need to collect expensive buildings too.

In this new year, I hope to see law firms starting to act more like businesses and less like personal projects. I suspect that, if they are to survive, that's what's necessary.