Same, Same, But Different
At a time when the legal market is in a state of flux, ensuring consistency around culture and client contact is a key issue for senior partners. Shaaron Dalton from Eaton Capital Partners looks at the challenges of Succession in a market that is consistently inconsistent
Succession is a vexed issue for Australian managing partners in all levels of firms in the market. The pressures private practice firms are facing are complex, and the solutions require a critical analysis of the traditional law firm model.
At ECP Legal we have seen first-hand how clients grapple with this issue, and it is one without a quick fix. We believe the solution requires a detailed analysis of the type and size of firm in question, and it’s place in the legal market. What is true for one does not necessarily resonate for all.
From my experience recruiting within the rapidly changing legal environment over the past decade, I have observed three major structural changes which have taken place:
- New Law attracts talent and gains impetus
With the traditional apprenticeship model of the law firm partnership giving way to a more entrepreneurial model which is now causing disruption in the profession, we are seeing innovative lawyers choosing pathways other than the partnership track. Examples include the creation of firms like Keypoint Law, IT solutions like Crowd & Co, and Online law firms in areas like conveyancing and family law.
- “Legal Profession” morphed into “Legal Services”:
Lawyers and law firms now encompasses a myriad of structures. The influence of the corporate sector has widened with the growth of sophisticated in-house teams. The re-establishment of legal firms within the ‘Big 4’ Accounting firms has also thrown a gauntlet down to the traditional law firms, whilst widespread changes such as the rise of alternative legal services, LPO, online firms and Artificial Intelligence have meant that private practice law firms and the bar no longer have a monopoly on the law.
Lawyers now have many choices in following a legal career path. Moving away from the traditional billable hour, gaining better work/life balance or more varied, flexible or collaborative working environments is now a tried and true alternative for many who would in the past have stuck solid with big law, confident they were on the partnership track.
- Trend towards niche at upper end of the market
This is a development which is still in its infant stages in Australia, but which will gather pace rapidly in the next five years. It will significantly change the landscape of law as I knew it over the past 20 years.
Examples of the trend are already there in the boutique international entrants this decade. Seyfarth Shaw (Employment and Industrial Law), Quinn Emanuel (Litigation), Clyde & Co (Insurance and Construction), Pinsent Masons (Construction). Indeed, blue-chip global full-service law firms have entered Australia via a niche offering. Most recently, White & Case (Projects) and Hogan Lovells (Corporate, Projects and Finance) have followed in the steps of Clifford Chance and Allen & Overy, in launching practises in Australia by seeking to be dominant players in select sectors. It is around this structural change that there are great risks in talent management, which the traditional top tier firms will need to explore very carefully if they are not to suffer loss of talent, brand identity and therefore clients in the process.
Given there are so many factors at play, a one size or one step solution will not work. It is necessary to look holistically at each factor and then put a plan and a model in place for that individual firm. Below are some of the factors we believe are essential in the process of analysing the issues and putting together a successful model for future sustainable succession within law firms.
- Financial – Redesign Remuneration Models
ECP Legal has assisted both international and local law firms in redesigning remuneration models. Designing remuneration models requires as much psychological insight as financial. The issue for firms is that millennials think differently and are motivated differently from the baby boomers and gen Xers who run most private practice law firms. Creating a model giving the up and comers rewards which link to their motivators is critical.
Legal leaders need to take time to understand the world of the millennial: their talent set, and, yes, their sense of entitlement! Otherwise, the bright young things will be off to start their own firm, NGO, start-up or political party (we’ve all read those cvs right! – they did all those things before they became a lawyer!)
- Connection with Clients
Lawyers who succeed in making it through to partnership in firms today are those who build relationships, know the business of law and understand their clients’ business.
Firms with programs to assist junior lawyers in developing networks at their levels with future leaders in the business world are also firms that seem to regularly promote new partners.
- Lateral hiring
Lateral hiring for succession is a common and very successful solution when there is no-one in place within the firm.
As the larger firms have merged internationally there has been significant fall out at partner level. Whereas sometimes this is a windfall for the next in line in the team, sometimes it has the opposite effect. Firms are starting to understand that hiring the 2IC to a high quality partner in a “Big Law” firm can be an excellent strategy for them to add or augment an area of practice with a high quality junior partner who is well connected and able to grow a practice within a few years.
As diversity becomes a matter of client procurement, firms are also using lateral hiring in their succession plans to add diversity to partnerships.
- Mergers, Acquisitions and Restructuring
There is impetus for growth by merger in the boutique and mid-market. The recent example of the HDY/NRF merger is an early sign of what we are seeing as a developing trend.
In our work assisting firms with merger and acquisition plans, succession is quite often at least one of the reasons for boutique firms to choose this strategy. It enables senior partners to see tangible value for their practice before retirement and guarantees their lawyers a bright future in a larger firm. It can also assist the firm in capturing work they have needed to refer out and in attracting larger matters once they have more critical mass.
- Collaborative Disaggregation
The opposite is true for traditional Big Law firms. They are being squeezed by the internationals entering their patch and by the growth of mid-tiers by merger and lateral hire along with the demand from clients for lower fees for a range of work.
What if those firms took control of the remodelling of the partnership themselves, creating new value in new businesses in which some of the up and coming talent could participate as partners? We have seen the recent example of a proactive approach to the loss of lower level work by Herbert Smith Freehills with the creation of ALT, the alternative legal service offering a lower fee model for routine matters which can be commoditised. We would see such a concept as a starting point to a more exciting succession plan for talented lawyers in the future.
The increasing pace of structural and generational change as we come up to a new baby boom, the success of law firm management will depend on insight across a number of levels of the practice. The retention of proactive, committed talent is a multi-faceted problem. Robust solutions require a re-imagining of the traditional legal partnership and practice model.
ECP Legal is a unique strategic advisory firm with deep expertise in the legal profession. We offer strategic consulting services including mergers and acquisitions, discreet search for partners and successors and design programs for communications and media, remuneration review and design.
Please be in touch if you or your firm is interested in further information.