Change Management for Law Firms CAROLINE POYNTON

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1 Change Management for Law Firms CAROLINE POYNTON PUBLISHED BY IN ASSOCIATION WITH

2 Change Management for Law Firms is published by Ark Group UK/EUROPE OFFICE Ark Conferences Ltd Paulton House 8 Shepherdess Walk London N1 7LB United Kingdom Tel +44 (0) Fax +44 (0) publishing@ark-group.com NORTH AMERICA OFFICE Ark Group Inc N. Rockwood Drive Suite 150 Peoria IL United States Tel Fax publishingna@ark-group.com ASIA/PACIFIC OFFICE Ark Group Australia Pty Ltd Main Level 83 Walker Street North Sydney 2060 NSW, Australia Tel Fax aga@arkgroupasia.com Managing director Jennifer Guy jguy@ark-group.com Head of content Anna Shaw ashaw@ark-group.com Editor Stephanie Ramasamy sramasamy@ark-group.com UK/Europe marketing enquiries Robyn Macé rmace@ark-group.com US marketing enquiries Daniel Smallwood dsmallwood@ark-group.com Asia/Pacific marketing enquiries Steve Oesterreich aga@arkgroupasia.com ISBN: (hard copy) ISBN: (PDF) Copyright The copyright of all material appearing within this publication is reserved by the author and Ark Conferences It may not be reproduced, duplicated or copied by any means without the prior written consent of the publisher.

3 Contents Executive summary... V Part One: Change is Happening Chapter 1: Change management Again?... 3 ABSs and the need for change management... 3 Economic influences on change... 6 The problem of capitalisation... 7 Short rations from banks?...9 The perfect storm ABSs for US firms A new approach Outlook for Chapter 2: New business structures The new legal business The beginning of a new era? Chapter 3: Internal cost structuring and change The rise of the AFA New opportunities for legal services outsourcing Chapter 4: Resourcing the 21 st century law firm The bottom-up engagement challenge The top-down resourcing question Law firm responses Merit-based remuneration The change challenge Chapter 5: Navigating the changing landscape Part Two: Case Studies and Expert Analyses Expert analysis 1: Hedley Consulting A new approach for a new world Leadership and management Strategy and direction...43 Convergence around a limited number of strategic positions III

4 Contents Creating a global brand experience Mergers but not as we have known them Fixed fees Routes to profit Flexible resourcing Change, change and more change Expert analysis 2: Addleshaw Goddard Adapting to the changing legal landscape Case study 1: Baker Donelson Building a successful client service team Step one Prepare...51 Step two Process Step three Planning...52 Step four People Step five Persistence Step six Patience Step seven Profit Case study 2: Berwin Leighton Paisner Out of the recessionary doldrums Background and development A win-win situation Implementation Going it alone? Case study 3: Bevan Brittan LLP PEP and the health of a law firm Case study 4: Bird & Bird A merit-based approach Case study 5: Simmons & Simmons The role of technology in business transformation Case study 6: Radiant.law Daring to change Case study 7: Kent County Council Survival of the fittest Powers and restrictions on the local authority lawyer Kent County Council s response Implementing the model and future structuring Index IV

5 Executive summary WITH 2011 speeding ever forwards, many a law firm might be wishing for something of a reprieve from the momentous swings and roundabouts of recent years. The stable boom years of may now seem like another era, as the years since have been long and tumultuous as firms have attempted to navigate the waters of a crashing global economy that remains fragile today. To now talk about further change may seem like adding salt to an open wound, but the inescapable fact is that the legal profession will not now return to normal. Change was on the cards before the recession hit, and the downturn appears to have only accelerated that shift as firms have found themselves dramatically restructuring and/or reviewing their costs for the long-haul. Akin to previous recessions, firms have likely hoped that widespread redundancies were a temporary measure, implemented to forestall short-term disaster. Now that the economy is showing signs of recovery, they expect the war for talent to return and no doubt it will. But beneath that fairly normalsounding recruitment cycle, the fundamentals are changing. The partnership model has never been under such stress both from a tightening equity structure, but also from a wave of younger lawyers who no longer want to become partners. At the same time, the Legal Services Act 2007 offers a radically new proposition to the UK legal profession to seek investment and ownership from third parties such as corporates. Legal disciplinary partnerships are already opening up possibilities in terms of non-lawyer managers and non-solicitor lawyers becoming partners/owners in their firms, but with the introduction of alternative business structures (ABSs) later this year, the change will be more dramatic. We will likely see more deals of the ilk of Optima Legal a firm which appeared to jump the gun in 2009 by partnering with Capita on an outsourcing/ capital investment deal, before ABS deals were permitted. The Solicitors Regulation Authority (SRA) reprimanded the firm for its precipitate move, but its early adoption of the ABS model may be indicative of a wave of change to come in terms of how firms secure capital investment. If corporates and non-lawyer managers increasingly own law firms, not only will the structure of the legal profession change, but its very culture will transform. Traditional law firms will be faced with competition from new players the Tesco Law long promised and debated. In addition, outsourcing looks likely to play an increasingly important role in the way in which legal services are delivered. It is now not uncommon for law firms to outsource administrative processes. No sooner did firms build up their support functions did they start looking at whether it would be more cost effective to outsource them to providers who could provide better productivity and cost effectiveness through economies of scale. But the profession is now increasingly looking also at the impact of outsourcing legal work itself particularly V

6 Executive summary process-driven volume work that could be undertaken more cheaply by lawyers or paralegals in other jurisdictions. A recent example is that of Pinsent Masons, the first UK firm that outsourced aspects of its litigation work to Exigent, a legal process outsourcing (LPO) provider in South Africa. The firm now has a team of South African lawyers and paralegals working on e-discovery a move that the firm s head of enterprise Nigel Kissack has described as both an obvious and cost-effective solution. This first move was followed up by reports in October 2010 that even the most traditional of firms as Slaughter and May had appointed a panel of three LPO providers to consider the opportunities of outsourcing legal work should clients demand it. 1 And just this January 2011, a new firm, Radiant. law, has opened its doors. It promises not only to ditch the billable hour in favour of fixed fees, but to also outsource its less complex work offshore to LPO provider Pangea3. It consequently does not intend to hire any junior lawyers, 2 an intriguing step in a profession that tends to like to stick to both structural and cultural traditions. The firm s move to fixed fees may not seem like anything new, and long have commentators talked about the death of the billable hour. But the profession has been slow to move away from hourly rates, chiefly because to do so will also ultimately mean a radical overhaul of the legal service delivery model. The hourly rate cuts to the heart of legal practice it is not only a way of charging, but the basis on which law is practised. Training, performance management, remuneration and client relationship management have all been governed by the billable hour. Shifting to fixed fee isn t simply about meeting clients demands for greater transparency and predictability of billing; it is a demand to shift to a whole new way of developing internal talent and ensuring client satisfaction, including the need for new performance management systems, different training schemes and the introduction of comprehensive project management and team work. No wonder perhaps that many firms have been slow to make the shift to a system that will change the nature of legal work for good. Most firms accept, however, that alternative fee arrangements (AFAs) are on the rise and will only increase in the months ahead. This is partly because clients have been moving in that direction for some time but the recession has also increased the momentum as clients have been forced to review their costs and have realised that the hourly rate no longer works. With clients calling for both AFAs and improved cost effectiveness generally, firms have never been under so much pressure to change and to change quickly. In this Ark Group report, Change Management for Law Firms, we take these myriad challenges and assess what they mean for the future legal business model. Highlights of the report include: The changing landscape is this really a profession-wide shift? Or will the profession split with smaller new entrants on one side, and the largest traditional firms on the other? And what will happen to the bulk of firms in between? A new kind of law firm what kind of firm and what kind of competition is going to appear in the year/s ahead? A different kind of lawyer what the next generation wants and why the meaning of the war for talent may have to be revised; A transformed business model how fixed fees, outsourcing and non-lawyer VI

7 Change Management for Law Firms law firm ownership challenge the system at the heart of legal business; and The client equation where do clients sit within all of this? And how will they dictate the changes ahead for the legal profession? In addition, the report will suggest practical ways in which firms can tackle these changes, from implementing internal changemanagement initiatives to working with clients to meet the opportunities of a new era. A range of case studies will also demonstrate the extent to which some firms are already making the most of the new regime. For years, commentators have talked about the dramatic change lying in wait for the legal profession. But in truth, the promised survival of the fittest drama has never really played out. Firms have been able to stick their heads firmly in the sand, and they ve largely got away with it. Can they continue to do that in the months and years ahead? This report aims to find out. What is immediately clear, however, is that the recession has already proved that even the most stalwart law firms are not storm-proof. The rapidly shifting economic situation has proved that the legal profession is just as vulnerable to change as any other business. And the promised change is coming. Like the worst of storms, it may just have taken some time to brew. References Slaughters sets up panel for outsourced business, The Lawyer, October Lawyers from BLG, Latham and MoFo launch fixed-fee tech boutique, The Lawyer, January VII