Noticing the Mood of the Market

There are times when lawyers really don't help themselves.

Anyone who knows me will know that I do not profess to be a marketing person. I like to think, however, that I understand how to judge the mood of my market place. Sadly it would seem that, at least, the legal press either don't understand the mood of the 'ordinary person' (i.e. not a lawyer), or that they have judged the mood of their market (i.e. lawyers) perfectly and it is the lawyers themselves who are out of step. Let's hope it is the later.

I am talking about a headline in "The Lawyer" today (see their full story here):

Perhaps I'm being over-sensitive. To me, however, when I read this I have a mental picture of a money-grabbing lawyer delighting in suffering in order to win large fees from (ideally unnecessary) lawsuits. let me stress that I am sure this is absolutely not the case at Reed Smith or Bakers - however it would be easy to get that impression from the rather delighted tone of the headline.

Perception is an important thing, and these sort of headlines really don't help. 

The Ethical Stance

Isn't it good to be able to report that lawyers are taking an ethical position and fighting, in the courts and pro bono (mostly) for something that they believe in?

The case of Paul Chambers has been reported in many parts of the media. It is a shocking case of over-reaction, incompetence from the CPS, rushed advice to a client and an apparently heavy-handed judge. For those of you unaware of Paul, her was the "Twitter joker' - the case is outlined by the Guardian here. Mr. Chambers was undoubtedly silly - but I suspect that many of us have felt the same way he did, even if we have restrained ourselves from voicing our frustration so publicly.

What I find heartening is the number of lawyers who feel so strongly about this nonsense that they will work, generally for free, to secure Paul's release. "The Lawyer" details the list of those engaged in the project here. I think they should all be congratulated publicly. This is a tremendous demonstration that lawyer are not (all)  money-grabbing, self-centred leaches and that they understand when a law or the application of a law is just plain wrong - and are then willing to do something about it.

Thank you: David Green, Stephen Ferguson, Andrew Sharpe, Tom Cassels, Ted Mercer, Robert Dougans and Joanne Casg - and all the others.

Focus on the Client

There seems to be something wrong - either with law firms or with the way that the industry is reported. I offer as evidence the main news stories (as shown on the front page of the web site) from "The Lawyer" on Sunday 17th January 2010, which I believe is fairly representative:

1. K&L Gates smashes through $1bn turnover mark
2. Former Mayer Brown partner gets seven years for fraud
3. Jackson proposes sweeping reforms to cut litigation costs
4. Simmons named Stonewall's top gay friendly law firm
5. Withers faces Commons investigation over email to MP
6. Eversheds covets commoditised market with South African pilot
7. Fried Frank and Simon Thacher to advise on Virgin Media's £1.5bn bond
8. Ashurst acts on National Express' £350m bond issue
9. Linklaters names next Asia head as Shao departs for JP Morgan
10. Ashurst revamps management board as Sparrow vacates seat
11. White & Case sends London partner to head Singapore arbitration practice
12. Latham scoops Ashurst partner for City corporate push

This from one of the two industry voices. What can we tell from the list: two stories from ten about clients (and both about money); the big news is "look how much money we made last year; two worrying stories (numbers 2 and 5) about the sort of people who may be in the industry; and the rest of the stories very inward looking. Perhaps no client has ever read "The Lawyer", but there certainly doesn't seem to be any interest in them as a group - other than from the point of view about how valuable (in cash terms) they are. Even the stories that don't seem to be about individual earnings often are. "The Lawyer" has a story about legal fees ("Legal costs emerge as defining issue of 2010’s biggest cases"). In all the discussion about high costs in cases, there is no mention of the fact that the high costs come from the high fees charged by the lawyers - i.e. personal earnings.

From reading this news, and from further digging in the web site, it would appear that the industry and the lawyers who make it up are obsessed with their own earnings, their own position within the industry and see clients as "cash cows". This cannot be good.

In case this is normal in any industry, I also examined "Third Sector" on the same day, one of the main "voices" for the charity sector. I'm not going to list the news stories out again, but lets look at the break down:

1. Stories about fraud - or poor practice: 1
2. Stories about training or new developments in the industry: 4
3. News roundup: 1
4. Appeal for funds (for the DEC): 1
5. Industry news: 1

Note, please. No stories about people inside the industry. No stories about personal earnings. No stories about how much charities turned over (and surely that is something that one can be proud about..?)

My point is this. The law is about clients - serving them as well as possible and serving them as efficiently as possible. The client's wishes should be at the fore-front of the industry. If this was true, it would inevitably be reflected in stories about the industry. "The Lawyer" would be reporting the benefits of cases won  - the benefits to the client that is. There would be stories about pro bon work - and I know that there is a good deal of this done. There would be stories about new practices in the industry which are designed to save costs to the benefit of the client and not to protect or improve PEP.

Focus on the client and the rest of your business will fall into place. Make every decision by saying - what benefit does this have for our clients. Save money so that your firm can charge less or do more pro bono work - not so that PEP can increase.

Follow up: this piece from "Legal Week" seems in line with what I'm saying.

Too Early to Tell?

I read "The Lawyer" this morning. It carried, as its main story on the web site, "Streamlined firms emerge from ashes of annus horribilis". I wasn't initially sure whether I was going to read a good news story or a bad news story, although I was fairly sure that "The Lawyer" would try for some sort of sensational take.

I've read the story a few times now. It is based on a table of "information" about law firms, which I reproduce here:

The table shows partial results for ten firms, although four have no data for the turnover in the first half of this year. Some of the data seems strange. Have Freshfields really only made 4 people redundant? As it turns out no - I quote from the same article:

The total number of partner resignations at Freshfields Bruckhaus Deringer - the only magic circle firm not to have had a substantial redundancy programme - was much lower at 14.

So which is it?

The ten firms show an average reduction in revenue (for those showing data), of about 10% or so. All in line with what the firms have been saying we should expect. My point is this - is this really news? I'm not convinced that this story was ready:

1. Only 60% of the data was available
2. The top 10 UK firms are only really representative of the top 10 firms - they certainly are not representative of the rest of the top 100, never mind the bulk of smaller UK firms
3. The conclusion reached is that firm have performed much as expected
4. Do redundancies equate to streamlining?

So far as the last point is concerned - my view is that the two are rarely the same. If the redundancy round has been a strategic decision rather than a knee-jerk reaction, and if the people chosen for redundancy are the worst performing over a period of time, then this could be thought of as streamlining. I suspect this has been the case in most of the top 10 since I like to think that this huge firms will be reasonably well run. My experience with other firms - both mid-sized and small - is that there was rarely this amount of though given to the process.

I'm not sure, too, that the story showed a pattern of streamlining leading to recovery - which is suggested in the title.

Come on people - we can all do better than this, surely? If it's too early to tell with regard to any recovery, please don't suggest otherwise.

Plumbers' Houses...

When I was about 13, we moved to a new family home in Glasgow. It was a typical Victorian mid terraced house which was wonderful except for one thing. The plumbing was dreadful. There had been a series of botched and hurried jobs done over the years and so a complete overhaul was required. Fortunately we knew a very good plumber - the man who had sold his house to us. It seemed that the myth of "plumbers' houses" wasn't a myth after all. He was embarrassed that his own house had not been given the same level of service he applied to his work for other people - and so it was a matter of pride as much as a commercial piece of work, when he returned in the weeks after the sale, to restore the plumbing in the house to a high standard. He did very good work - he was a very good plumber. It had been too easy for him, however, to focus on the work he did outside his own house and to thing that it was not so important to perform his own work to the same standard.

I though of this story this morning when I read through "Roll on Friday" (required reading, I think). It was carrying a story about Allen & Overy being forced to rehire a German associate following a poor redundancy procedure. There is no doubt at all that A&O know the law with regard to redundancy and there is similarly absolutely no doubt that they are capable of preforming an effective redundancy procedure (goodness knows almost every law firm has, by now, had enough practice at it). This seems to be another case of "plumber's house". Whether one department or one partner did something without checking we will probably never know. The point is that even those organisations at the top of their game can have a blind spot. The important thing for any firm is to know that a blind spot can exist and to look for it.

For many firms (and I'm no longer picking on A&O here) the blind spot can be in the administration, management or marketing of their firm. Lawyers are almost never the right people to be doing this work - and yet most lawyers seem to think that they can do it. For example: "The Lawyer" (I don't only read the tabloid internet) reported on Monday that the Magic Circle firms had slashed their client rates to seek work (see here for the story). I'm sure that, in the short term, this will attract some new clients interested in the "big boys" charging £450. There are, however, some problems with this strategy (was it really a strategic decision I wonder...?) which may have been in the blind spot:

1. Imagine that you are a large corporate client who has been using A&O for some time. As a good client, you have not been paying the headline rates of , say, £700 but have negotiated rates down to £500. You've probably been feeling pretty good about this. Suddenly you see in the press that the same firm are charging £450 to smaller operations who have no history of loyalty. I'm sure you can imagine the telephone call...
2. Imagine that you are a smaller mid-market business. Suddenly you have two of the magic circle firms offering their services at the same rates you have been paying. This is great, surely? Well not always. Perhaps I'm too cynical, but I would expect that in two years or so, when the market has recovered, that my magic circle firm will dump me as a client since I'll be too small to bother with. That or hike the price straight back above £700 and let me walk. Either way I would not expect this to be a long term relationship.
3. Speaking of price hikes - it can be difficult to get a price back up. Look at it from the magic circle firm's point of view. You have been charging a client £650. They read the press, shout and scream and you agree to give them the £450 rate "on a temporary basis". Eight months later, you try to get the price back up to £650. "Don't be ridiculous", says the client, "that's a 44% increase!". The firm will be luck to get anywhere close to 10%. Even at at 10% annual increase, it will take four years to return to just over £650. The firm will have to get and keep an awful lot of new business to make up for that.
4. There is a danger that it sounds like panic measures. I can understand big clients beating their lawyers up at the moment on price - but I'm amazed that the firms did not include a privacy statement in the agreement. They should at least have tried to keep it quiet!

Every firm will have a blind spot - or more than one. The important thing is to know that they exist somewhere and to be aware of the need for careful thought in making decisions that can have a long term impact on the firm.

The point of my earlier story is that the magic circle firms, in particular, and most firms in general know that they need to be careful with their own employment procedures and they know that they shouldn't make snap decisions. Like plumbers' houses, however, sometimes they can be focusses slightly outside their own walls. Take the time and make sure your own plumbing is up to scratch.

Do what you do best

Regular readers of this blog will know that I have been reading the "UK Annual Report 2009" from "The Lawyer" (available here). I have already commented on a number of things featured in the report (see here and here), but would like to use a quote from the article entitled "Crow Bar". Talking about managing and growing Quadrant Chambers, the new Chief Executive Tim Gerrard is quoted as saying:

"'Why would you give a barrister responsibility for HR or IT?', he queries. He suggests that barristers should be getting on with what they do best and leaving management to others."

To any reader who hasn't worked in management with (or of) lawyers, this will seem blindingly obvious and is something that most commercial enterprises discovered some decades ago. In most law firms, however, this could almost be thought of as heresy. One feature of the downturn - especially in mid-sized firms - has been the reduction in the number of senior support directors with their roles often being taken on (part time) by partners, with the day-to-day tasks given to more junior staff.

Even if the partner in question has an intimate understanding and knowledge of the role, the idea that they should spend time in the administration of the post rather than in acting as a partner in the firm is incredible. It can't end well. If the partner is dedicated to the support job they have taken on, they will inevitably reduce the hours spent working on client matters - and so reduce their revenue to the firm. If they do not reduce their client hours and so maintain their billing levels, they will not be able to dedicate the time required to their support job. There was a reason, after all, that the now-redundant director worked full time.

My impression is that the Bar has been better at this. Barristers have a track record of leaving the administration of their practice to their clerks, and so it is not a difficult step to install a professional management layer in larger chambers. Barristers are, of course, specialists themselves and so perhaps have a better understanding that they cannot be masters of all tasks. Solicitors, who have not had the same separation between the practice and administration of law, tend to find it more difficult to admit that they should leave the administration to a professional.

I shall be paraphrasing and quoting Tim Gerrard to those firms I work with. Engage professional managers and let the partners get on with what they do best - managing their clients, finding new work and cross selling the firm's services.

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.