Structurally Obsessed

Structurally Obsessed

It has always been rightly said that structure should  follow strategy and not drive it.  And yet with the current rash of liberalisation in law firm models – such as the UK’s Legal Services Act 2007 – we are seeing many firms contemplating alternative business structures without first considering what strategy they are trying to pursue.  In this newsletter, I look at how to avoid the temptation to prefer form over substance, and I propose three elements which investors of all types want to see when assessing a law firm.

 

As always, I welcome your comments and feedback.

Structurally obsessed – the lure of the make-over

 

There is something irresistible about changing or enhancing appearances. We live in an age of make-over in which new houses, cars, fashions, hairstyles, face-lifts – and even new body shapes – all have instant appeal to many.  Law firms are not exempt from the temptation to titivate.  Thirty years ago, it seemed very modern and up to date to form a management committee, for no better reason than to follow fashion.  Having computers on everyone’s desks was the next craze – undoubtedly a good thing in the long run but an expensive mistake unless supported by training and the refinement of processes.  A few years on, the fad was then to change from a general partnership to a limited liability partnership which many firms seemed to embrace just to follow the crowd or because it seemed a good thing to do.  In more recent times – but before the recession – it became an imperative for some firms to move to smart new (and expensive) premises.

Please don’t think that I’m suggesting that these changes and investments were just cosmetic or wrong per se. My proposition is, however, that firms should be clear about their strategic options, their positioning and their overall client propositions and then try to figure out what structure and infrastructure is best suited to assist in the fulfillment of such strategies.

In the UK, I have talked to scores of law firms and lawyers about their plans following deregulation and the possibilities of Alternative Business Structures heralded by the Legal Services Act in October this year.  There are some interesting and innovative ideas out there, some of which, in the right hands and with the right strategies, might do well.  But in the wrong hands, disaster awaits.   For example, many firms in the UK are focusing on what structure might be best for them in order to attract external investors – not necessarily now but in the future.  A better exercise is to consider on a holistic basis what overall attributes an investor might look for in law firm.  It seems almost a truism to suggest that an investor essentially wants to see firms being run as progressively managed businesses and it is vital to drill deeper to see exactly what this means.   It also follows that if an investor might want to see a law firm run as a business, this is a requirement that law firms ought to espouse for their own benefit,  whether or not they are likely to want to seek external investment at any time in the future.   It is also worth remembering the fairly obvious point that law firm partners, present and future, are all investors in their firms.

 

Running a firm as a business requires essentially three elements.  Although these elements are all fairly obvious, they are worth repeating if only because many firms seem to have lost sight of them in the pursuit of style over substance.

 

1. A compelling strategy and a plan for profitable growth

 

It has often been said that the pursuit of profit is not in itself a strategy.  I prefer to see profitability as one of the most important – indeed critical – success factors that enable firms to measure their progress and accomplishments.  It is worth dusting off your firm’s strategic plan and check whether or not it is focused on profitable success and whether or not it is defined in terms of coherent and simple long term goals which are both aligned to the right choice of business model and also which factor in any threatening competitive pressures which the firm is likely to face.  A compelling strategy also understands and harnesses its core capabilities and seeks to develop deeper and strategically important capabilities and elements of intellectual capital that are competitive in the firm’s chosen markets.  An investor will also want to see abundant evidence that the firm’s strategic plans are being competently executed.

 

 

2. A track record in managing cash and profit growth over a long period

 

The next requirement of investors is that the firm should be able to evidence a good track record in managing its growth (in substance rather than just size) and its cash over a long period.  It is important to be able to demonstrate the achievement of sustained financial performance that is stable, predictable, and (allowing for the recession) capable of further growth.  This requires three elements.  First of all, the firm needs a strong and balanced portfolio of clients and referrers to give comfort that the firm will continue to enjoy a sustained flow of work.  Panel appointments help also to show continuity of instructions.   A structure and discipline of pipeline management and business development competence are also vital.  Perhaps most important of all, an investor will want to be convinced that the firm is competitively positioned (both now and in the future), enjoys a good reputation and displays a meaningful brand.

 

3. A structure and culture of progressive management

 

Finally we come to structure and the need (if at all) for a make-over.  What an investor wants to see is that the firm’s structure is intelligible, and that it is coherently arranged in terms of the firm’s management and governance in order for the firm to be best organised for and aligned to the pursuit of the firm’s strategic and economic goals.  Any firm which wants to be run as a business also needs a discipline and structure for proper and professionally run performance management.  The firm also needs to display consistency of service and operations – a complete firm and not just a set of silos.  An outside investor would want to see an element of external or non-executive presence on the firm’s management board or committee.  Many firms are now seeing the benefit of appointing non-executive members to their boards – as a mild plug for my services, I am often used as a ‘corporate coach’ on a retainer for similar purposes.

 

These factors go much deeper than a superficial or cosmetic make-over and avoid the wastage of large sums of money in pursing structural diversifications and distractions.  These are also long term projects on which law firms of all shapes, sizes and jurisdictions would do well to work, even if they have no requirement for external investment.