How are Magic Circle law firms responding to the more for less challenge?

As clients of law firms seek to reduce spending on legal services, they are increasingly asking the firms to provide more value at a reduced cost. How are Magic Circle law firms responding to this more for less challenge? a mid-sized UK-based law firm Copyright 2014-2015 InsightBee. All rights reserved.

Contents Introduction New service delivery models.. Initiatives by magic circle law firms Allen & Overy. Clifford Chance. Freshfields Bruckhaus Deringer.. Linklaters Slaughter and May Conclusion. Copyright 2014-2015 InsightBee. All rights reserved.

Pricing pressure key risk to the profitability of UK law firms Law firms are experiencing a return to growth in the UK. As per PwC s 2014 survey of the top 100 UK-based law firms by annual global fee income, total fee income increased for 80% of UK law firms during 2013 2014, as compared with about 63% during 2012 2013. However, the fee income per chargeable hour is falling for all law firms, as is evident from the graph below. In 2014, fee income per chargeable hour decreased by 8.1% for the top 10 firms, 2.8% for the top 11 25 firms and 9.3% for the top 26 50 firms. However, the number of chargeable hours have increased for all firms to near 2008 levels. This suggests that although firms are getting more work, they are decreasing their charges. The primary reason behind this decrease is downward pressure on pricing from clients. Initially, clients requested price cuts because of recession. Later, the liberalisation of the legal services market placed them in a better position to negotiate prices. This liberalisation happened in 2011, when provisions of provisions of the 2007 Legal Services Act came into effect to allow alternative business structures (ABS) in the legal industry. Under such structures, non-lawyers in professional, management or ownership roles can team up with lawyers to offer regulated legal services in England and Wales. According to Solicitors Regulation Authority (SRA), more than 300 ABS-licensed firms have entered the UK legal market since 2011, and more are in the pipeline. The latest entrant in the UK legal services market was US-based online legal services provider LegalZoom, which entered the market in January 2015. According to a Thomson Reuters survey of 25 finance directors from the UK's top 100 law firms (including 9 from the top 25), this pressure is increasingly threatening the profitability of commercial law firms. In the survey, 75% respondents agreed that pricing pressure is the biggest risk to their firm's profitability. The remaining said it posed a medium risk. According to Sam Steer, head of large law at Thomson Reuters' legal division, It will be critical for law firm leaders to focus on how their firms can respond effectively to client demands for more efficiency and cost effectiveness in the delivery of legal services. That will mean, among other things, a willingness to adopt more flexible approaches that allow firms to tailor staffing and leverage technology to support work processes. It will also mean that firms may have to consider pricing models that meet the needs of particular clients in particular situations.'

Traditional law firms are adopting alternative delivery models Concerned that their practices could suffer because of increased competition in the legal industry, law firms are adopting more varied and flexible ways of working. Many are experimenting with new service delivery models to gain efficiencies and adapt to changing client requirements. How they leverage technology to deliver these models is expected to become a key differentiator between law firms. In the words of Wim Dejonghe, managing partner at Allen & Overy, The traditional law firm model is under pressure and you have to decide whether you stick with a diminishing market for pure premium work or accept that, to win a greater share of the premium work, you have to combine it with alternative delivery models.' The following are some alternative service delivery models being adopted by UK law firms: Contract lawyers Contract lawyers are self-employed, independent lawyers who are engaged on contract for short periods or a fixed term to provide flexible project support or to fill an absentee position for a law firm and its clients. In 2011, Eversheds LLP launched its temporary legal resource, Eversheds Agile, which provides flexibility and adds value to the organisation. Similarly, Simmon and Simmon launched its contract lawyer service, Simmons & Simmons Adaptive, in October 2014. Document review services Online legal services Legal consultancy Hybrid legal solutions This model involves outsourcing to organisations that review high volumes of legal documents at a lower cost. Such organisations often employ reviewers who have not had any legal training. Their services are often used in litigation or due diligence. In November 2014, Hogan Lovells opened its low-cost support centre in Birmingham to provide support in document review processes, due diligence and real estate licensing. This model involves providing standardised legal advice available only online and often accessed through a subscription service. Samuel Phillips provides online services through a separate website that delivers online employment law services. It has also created an iphone app that provides information regarding employment laws and compliance issues. In this model, independent consultants advise on the management and operation of a legal department or the structuring of a large piece of work. On 16 February 2015, Eversheds expanded its consulting arm, Eversheds Consulting, with the launch of its financial services regulatory compliance offering. This service has both lawyers and consultants, who act as a one-stop shop for regulatory advice and assistance for its clients. This model invloves a combination of two or more of the above services, often combined with process and technology innovations. Bird and Bird launched its Virtual General Counsel service in 2012. The service allows the firm to do work that was traditionally undertaken by in-house legal teams. In this service, a partner acts as a local lawyer who allocates work to a lawyer according to his/her specialisation.

Allen & Overy Among all the Magic Circle law firms, Allen & Overy (A&O) is experimenting the most with alternative delivery models. The firm has an IT Board (comprising partners and others drawn from across A&O) that is responsible for considering potential IT investments and prioritising investment decisions. In addition, it has a global head of e-business to oversee the strategy, development and marketing of its legal services. Currently, the position is held by Marc-Henri Chamay. Strategy Initiative Year Details Rationale Recent updates Low-cost hub Shared Services Centre (SSC) in Belfast, Northern Ireland 2011 SSC: The hub delivers core internal business support processes. Document review services Legal Services Centre (LSC) in Belfast, Northern Ireland Contract lawyers Peerpoint 2013 Peerpoint provides a panel of experienced, high-calibre lawyers on contract for A&O and its clients. Online legal services Aosphere 2001 A&O s online legal service business, Derivative Services (re-launched as Aosphere in January 2015), provides online subscription products to help clients reduce legal, regulatory and operational risks. The service has over 200 client institutions (including asset managers, corporate clients and financial institutions) from around the globe and around 9,500 individual user accounts. It is based in London and Belfast and employs 25 senior lawyers and support staff. 2011 LSC: The centre is led by an experienced partner and comprises junior legal professionals who handle transaction-related work, including document reviews, drafting and research tasks. They are supervised by qualified associate solicitors, each with at least six years of post-qualification experience. The two centres together employ a total of 380 people. The hubs were set up to enable the firm to deliver efficiencies and costeffectiveness in its business as well as due to client demand for alternative resourcing models. The LSC and the SSC helped reduce A&O's FY2014 operating costs by GBP15m. It enhances A&O s client service offering by providing an alternative and additional capability, and is more closely aligned with the changing patterns of work. The business was created to integrate a range of new service capabilities and delivery models with the firm's core high-end legal practice. It achieved an average annual growth rate in excess of 25% over 2010-2013, reaching GBP7.5m in ongoing subscriptions in 2013. Expansion of SSC and LSC: In October 2014, A&O announced plans to add up to 100 new roles at its Belfast office over the next five years. Of the 100 additional roles, 70 will be legal and will enable A&O to expand its LSC, which currently has fewer than 50 fee-earners. 'This additional resource will ensure we can meet this growing demand and that we remain at the forefront of changes in our market,' said Jane Townsend, head of the LSC. International roll out of Peerpoint: In February 2015, A&O started the international roll-out of Peerpoint with a soft launch in Hong Kong. According to Peerpoint CEO Richard Punt, 'There are a number of markets where Peerpoint's strategic value could be at least as significant as in London. We have to be careful about the pace of expansion so we will be selective but Asia is at the top of agenda.' He confirmed that the firm views the service as a global opportunity. Re-launch of online legal service: In January 2015, A&O relaunched its online Derivative Services as Aosphere, as part of its strategic vision to integrate a range of new service capabilities and delivery models with its core high-end legal practice. The business is headed by Marc-Henri Chamay. Hybrid legal solutions Consulting-style approach to solving clients legal problems 2014 A group of 10 A&O partners is developing a consulting-style approach to solving clients legal problems. This approach involves deploying technology, business processes and project management tools to combine traditional law firm services and new legal services into hybrid legal solutions. A&O s senior partner David Morley said clients like the 'sound of the hybrid model we are developing where we combine a range of different services into an integrated, seamless whole, with premium law firm work at its core.'

Clifford Chance Clifford Chance was one of the first law firms to invest in an offshore centre in India, demonstrating its readiness to make investments in new ways of working. In January 2015, as part of its renewed focus on innovation and change, the firm appointed its Amsterdam managing partner, Bas Boris Visser, as global head of innovation and business change. In his new role, Visser will lead the firm's strategy to anticipate, respond and adapt to key factors shaping the global legal industry, including new technologies and market entrants. To deliver increased efficiency and productivity, the firm runs a dedicated team, called Continuous Improvement, which identifies efficiencies in its traditional working methods. It applies scientific methods to determine the best approach to carry out a piece of work. So far, the team has run more than 100 projects to improve service and cut unnecessary costs. It has reported increased efficiencies in several areas of operations, including in the compilation of transaction bibles and document reviews. In addition, the firm runs an initiative to improve lawyers' efficiency and to allocate its fee earners' workloads effectively. On 19 July 2013, it recruited three external coaches, known as black belts, to lead training workshops aimed at helping the firm's lawyers identify inefficiencies in the way they work. Strategy Initiative Year Details Rationale Recent updates Low-cost hub Global Shared Service Centre in New Delhi, India 2007 The centre provides research, analytics and administration services to all Clifford Chance offices and personnel and supports the firm s finance, IT and HR functions. It employs about 20% of the firms' overall business support staff at its New Delhi base. The centre was set up to provide a more flexible cost model, increased efficiency and a better business continuity capability. Document review services Knowledge Centre in New Delhi, India 2007 The centre provides transaction and case support to Clifford Chance lawyers outside India. In FY2014, it worked on 1,500 matters for 31 offices across the Clifford Chance network. The centre was set up to help the firm operate costeffectively while providing a high level of support to its teams outside India. In November 2013, Clifford Chance said it is looking to refer more legal support work to its New Delhi support function, through the use of resource management. Online legal services Competition/Antitrust courses, anti-bribery/anticorruption courses 2013 Clifford Chance and Thomson Reuters' Competition/Antitrust courses are a subscription-based online courses. They help employees in an organisation learn about competition and antitrust laws of the EU, the US, Japan, China, Russia, India and Canada. The service is available in 20 languages. The courses enhance Clifford Chance s client service offerings. Clifford Chance and Thomson Reuters' anticorruption/anti-bribery elearning course is a subscription-based service. It offers compliance training for senior managers and business users working in customer-facing roles such as sales, marketing and procurement. It is available in 10 languages.

Freshfields Bruckhaus Deringer According to David Aitman, global managing partner of Freshfields Bruckhaus Deringer (Freshfields), the firm constantly strives to evolve the way in which it provides services in order to ensure optimal and efficient delivery. It has a number of ongoing projects that will help keep it one step ahead of technical legal developments and ensure that the firm has the most streamlined and responsive model among its peers. Strategy Initiative Year Details Rationale Recent updates Low cost hub Shared services hub proposed in Manchester, UK 2015 In February 2015, Freshfields announced it is undergoing a consultation to move a number of its legal and support services from London to Manchester city centre. The company's staff would be moved from London to Manchester in phases, from 2015 to 2018. Initially, only the back-office staff would be moved; other departments would follow later. In all, six non-partner-facing departments, including billing, IT, marketing and design, and some paralegals would be affected by the move. Rents are low in Manchester, so the move will enable the firm to reduce its real estate costs. The centre will help the firm support client-facing lawyers in an efficient way. Move to Manchester hub: An initial plan to shift 1,000 jobs is said to have been cut back by one-fifth, following internal discussions between the head of the new venture and formerly head of disputes resolution, Paul Lomas, and colleagues. The plan will be implemented in stages, with the first phase expected to happen in the second half of 2015. The long-term goal of this move is to create a consultancy option as well as a low-cost legal services hub to help the company compete with the Big Four accountancy firms that have moved into the legal services market by using alternative business structures. Contract lawyers Freshfields Continuum 2012 This initiative seeks to commercially leverage Freshfields' alumni network. The firm drafts in ex-freshfields lawyers on an ad hoc basis to provide part or full-time support on specific projects. Online legal services Bribery Watch, EPBnet, Fsnet, Guardian Angel This helps the firm handle fluctuating workloads at cheaper working rates. 2012 Bribery Watch provides a summary and The services enhances comparison of anti-bribery and corruption laws Freshfields client service and enforcement activities across 100 offerings. countries. EPBnet is a secure extranet for topical employment and pension law issues. Fsnet is a secure extranet that provides useful resources to financial services clients. Guardian Angel is an online toolkit designed to help organisations' in-house commercial and legal teams.

Linklaters According to Peter Hickman, chief finance and operations officer at Linklaters, the firm is committed to using innovation and leading technology to serve its clients. To achieve this, it appointed Matt Peers as the firm s new director of Information Systems & Strategy (ISS) in May 2015. Strategy Initiative Year Details Rationale Recent updates Low-cost hub Back offices in Colchester, UK and Warsaw, Poland 2011 Linklaters pursues a model based on two captive shared centres in Colchester and Warsaw. Warsaw: Linklaters decided to bring 60 business and financial services staff back inhouse in Warsaw after choosing not to renew its contract with outsourcing provider Infosys, which previously provided all staff at the business shared services office. The Warsaw shared services centre provides financial processes, global invoices and travel invoices support as well as client and contact data management and data processing functions. Colchester: The Colchester base is likely to handle more HR and marketing services work in the future, given its proximity to client contacts in London. The centres were set up to provide a more flexible cost model and increase efficiency. Expansion of Warsaw shared services centre: On 17 February 2015, the firm relocated 10 back office staff from its London and Colchester offices to a low-cost business services centre in Warsaw. The firm already has 70 positions in Warsaw, with all of the staff moving to Linklaters, following a stint with Infosys. Document review services Legal Services Centre (LSC) in Colchester, UK 2011 The firm started a new initiative, called Linklaters' Legal Services Centre (LSC), in its Colchester office, with paralegals provided by Integreon. The LSC provides document review, due diligence and other transactional support to major clients. It will also be able to procure contract lawyers both for the firm and its clients in New York, London and Europe, on specific deals and projects. Brian Henerson, global head of legal sourcing, said, 'The motivation for the move is not only to cut costs, but also to free up time for younger lawyers and to create more flexibility within the teams. The new arrangements allow us to offer clients a tailored and cost-efficient service.' Online legal services Online subcription services - The firm's online services include data protection services and a dispute management toolkit. The services enhance Linklaters client service offerings.

Slaughter and May Slaughter and May is seen as the most traditional of the Magic Circle law firms. Although it has been looking at outsourcing for the past few years, it lags behind its Magic Circle counterparts in adopting new service delivery models. In 2012, the firm adopted Recommind s Decisiv Search as its knowledge management search solution to establish a search facility across the firm s know-how, intranet content and library sources. The move helped to improve employee efficiency. Strategy Initiative Year Details Rationale Recent updates Document review services Outsourcing legal work to Carillion Advice Services (CAS) 2013 Slaughter and May has begun offering the services of Carillion's new low-cost legal arm to its own clients, including a recent transaction for key client Vodafone. The firm offered Vodafone the option to use Newcastlebased CAS in an undisclosed deal, which included a customer contract exercise. In the past, Slaughter and May has used CAS to carry out some of the more straightforward work it used to do for Carillion. The firm looks set to offer the arrangement more widely to other clients. Commenting on the Slaughter and May Carillion arrangement, Roland Turnill, the Vodafone relationship partner at the firm, said, 'It is of real value to us and our clients to have access to the CAS service in the right circumstances and for the right sort of work.' The services enhance Slaughter and May s client service offerings.

Conclusion According to the FT Innovative Lawyers 2014 report, the top 20 law firms in the UK are using a combination of outsourcing centres, paralegal support centres, contract lawyers, process mapping, project management and technology for legal and support work. Legal matters are being broken down into smaller components and resourced in more cost-efficient ways. Large law firms are focused on rebundling and repackaging services for clients under the firms' own brands. Delivery models Allen & Overy Clifford Chance Linklaters Freshfields Bruckhaus Deringer Slaughter and May Low-cost hub Document review services Online legal services Contract lawyers Hybrid legal solutions Among the Magic Circle law firms, A&O is the most innovative law firm, as is evident from the types of alternative delivery models it has adopted. It is followed by Freshfields, Clifford Chance, Linklaters and Slaughter and May. Other firms, such as Eversheds, Berwin Leighton Paisner and Pinsent Masons, are also considering integrating new business models or have started implementing such models. Eversheds, for instance, introduced its business of process engineering in 2003, and it launched its consulting arm for clients in 2010.