I’m not really following this SDT case, but it is interesting to see the SDT tackling the question of billing figures provided on a partner-move. It is clear that sharing confidential client data is not permitted under SRA Standards. And I would imagine internal data was contractually protected from unauthorised disclosure by a partner. But it will be interesting to see if disclosing confidential internal information like billings figures is considered a professional regulatory issue or not.
As the economy starts to emerge from the impact of the COVID-19 pandemic and multiple lockdowns, many law firms will be considering not only how they can ensure the firm survives but how to bounce back stronger and more resilient to the economic challenges they may have faced during the past year. This might include reviving shelved pre-COVID-19 merger plans or re-appraising their existing business plans in light of the ‘new normal’ to include mergers or bolt-on acquisitions aimed at enhancing strategic growth opportunities. Inevitably, there will be some distressed law firms that are seeking a merger as a protective measure to mitigate against financial difficulties.
A successful law firm merger was not easy before the pandemic let alone amidst the current turbulent and uncertain trading conditions. In this news alert, Zulon Begum, Wendy Chung and Wonu Sanda discuss some of the key issues that need to be addressed for a merger to be successful:
In the current climate of global uncertainty and with many firms facing a dip in revenue and PEP, some are inevitably reviewing their partner ranks. Some partners perceived to be underperforming are facing the prospect of their teams, reporting lines and responsibilities being negatively restructured; others are staring down the barrel of de- equitisation or even involuntary exit. Many are asking whether the unilateral changes they are facing may amount to constructive dismissal and give rise to related protections to support them in their discussions with their firms.
The transition that any firm must undergo if it is to survive and thrive after its founders retire affects every aspect of the organisation. It is at the same time both strategic and intensely personal. For founding partners, it involves giving up control of an organisation that in many cases defines who they are and trusting the next generation to lead and manage it into a successful future. For that next generation, it means stepping up to a whole new level of responsibilities. It almost always involves difficult discussions, including about money, power and influence. For the firm’s employees, the outcome determines no less than their future livelihoods. For clients, such transitions can significantly impact the quality of service that they receive in both the long term and while the transition is underway.
Today’s PPA webinar on ‘Transitioning from Founder-Led to Perpetual Governance Models’ with expert panellists, Rob Millard (Cambridge Strategy Group), Fernando Pelaez-Pier (F.Pelaez Consulting, email@example.com), David Shufflebotham (PEP Up Consulting), Claire Watkins (Buzzacott) and Zulon Begum (CM Murray LLP) was brilliant!
Above is a screenshot from the session of Rob Millard’s and David Shufflebotham’s excellent matrix reflecting key factors that impact a founder to perpetual model transition. Founder led firms need to aim for the top right quadrant.
Other interesting takeaways were:
- Early discussions with exiting and joining partners is key.
- Firms and founders need to look at viability of an exit and the impact on cash flow at least 3 to 5 years ahead.
- Governance docs need to be regularly reviewed and reflect the firm’s succession plan.
- There are many ways to cut the cake, including annuities, consultancy arrangements, a goodwill model, a “naked in, naked out” or tenancy model and returns on a future capital event.
Don’t worry if you missed it, it was recorded and will be shared in due course.
It’s that time of year many dread – when partner reviews, reward discussions and decisions loom large. In the second of three short posts, designed to help leadership teams improve process and outcomes, I provide some tips on how to put your financial data to best use.
“Essentially, all models are wrong – but some are useful.” George Box; Norman Draper (1987). Empirical Model-Building & Response Surfaces
Your firm’s financial data is an essential tool for evaluating partner contribution. But you need to take care in how you assess and apply it because your financial data:
- Provides more compelling and comprehensive evidence of contribution in some areas than others.
- Is a proxy for performance, providing an influential but fractured reflection of what a partner actually delivers to the business.
- Can shine so brightly that it blots out all other considerations – how often have you heard – “yes, all that other stuff they do is great – but just look at their numbers!”?
Consider, for each area of contribution, the extent to which the data is compelling and comprehensive.
Taking client facing activities as our example: the financial data in your practice management system on delivery of legal advice to clients, and getting paid for that work is far more compelling and comprehensive than the financial data available to evidence contribution to client relationship management. So, you can rely with confidence on the data in the former case but will need to look for additional sources of evaluatory input for the latter.
Treat your financial data as a starting point – a useful simplification of reality.
Think closely about what each individual piece of data is actually telling you and confine its influence to that field of contribution. For example, what does “matter partner billing” really provide evidence of, and what doesn’t it evidence.
You should also avoid overly fixating on one measure, especially if that measure is a combination of a number of data sets. I always tell my clients that they will get a more rounded and richer view of partner contributions if they consider a range of “raw” data, rather than an amalgamated single number.
And it is always wise to remember, Charles Goodhart’s adage from 1975 that, “When a measure becomes a target, it ceases to be a good measure.”
Be specific about what falls within your range of expected “broader contributions”.
And ascribe some explicit value to those contributions – maybe 20-30% – and apply it to all partners. Doing this has three key impacts:
- Partners generating significant levels of profitable revenue for themselves and others, whilst making strong broader contributions will, deservedly, come out on top of your evaluatory table.
- High revenue/profit generating partners, who otherwise make little or no broader contribution, will still be highly rated but will not sit at the top of your evaluatory table.
- The broader contribution of partners who struggle to perform against the firm’s key financial metrics will become obvious and have a specific value attached. Once specifically valued, somewhat counter-intuitively, this prevents it excusing below par partner performance against key financial metrics.
In my third and final short post on this topic I consider how to approach evaluating those “broader contributions” made by partners that have a profound effect on long-term and sustained business success, but which fall outside of short-term client service commitments, and don’t show up in your financial reporting.
 Also referred to in some systems as “supervising timekeeper billing”.
There’s a significant gap in what most law firms deliver in terms of client needs and services and the problem for law firms in how to bridge this gap. Many law firm partners currently even fail to recognise that the gap exists. However, without understanding this expectation gap and working collaboratively with clients to close it, many legal service providers will face long-term issues.
Long before the outbreak of Covid-19, in-house legal counsel complained of a growing expectation divide between what they and their external legal service providers (in good faith) perceived their legal needs to be. In the words of a general counsel, it might have been described thus:
If you were to ask our relationship partner at [insert name of law firm] whether she or he understands our needs and priorities, the answer would be a “yes, of course”. And that would be a sincere, honest response. The problem is – what our relationship partners perceive to be our needs, and what we believe them to be, are very different things.
Has the Covid-19 pandemic widened this gap? What do law firms need to do in order to bridge the divide? How is it even possible, in such a deeply client-centric profession as the law, for such expectation gaps to exist between lawyers and their clients in the first place?
The Professional Practices Alliance hosted an interactive discussion on the future of working arrangements and professional firm space. Attendees benefitted from the insight of excellent panellists Oliver Richards (Director, Orms), Beth Hale (Partner, CM Murray LLP) and Rob Millard (Cambridge Strategy Group) and the discussion was chaired by Corinne Staves (Partner, Maurice Turnor Gardner LLP). The discussion also drew on data collated in a survey and our thanks to those who participated.
These are just a few of the interesting points raised.
- Prolonged periods of enforced working from home have proved the resilience of the professions and the surprising ease with which we adapted quickly and smoothly to significant change. Few people miss regularly commuting and, unlike face-to-face, there are rarely latecomers to Zoom meetings. Global firms are finally able to provide an equal platform for those based outside the London HQ. This was highlighted by attendees joining this 9.30am (UK) webinar from Malaysia, Toronto and Rotterdam. But many miss the collegiality and energy of working alongside clients and colleagues in a shared work-space.
- In our webinar poll, nearly half of attendees predicted we would be spending 75% or more of our time working from the office. This contrasts with the survey, in which the majority suggested 60/40 office/WFH (and the largest minority said 40/60 office/WFH).
- Epidemiologists report that we will live with COVID forever, so we will need to evolve and a year at home has already altered everyone’s horizons. Firms need to reflect this in their long-term strategy and identify how to motivate their teams to be productive and best serve their clients. As ever, understanding how clients expect to evolve and how the firm can support their evolution is at the heart of that planning.
- A successful workplace will have a good ‘buzz’, provide a sense of companionship and promote discussion and communication internally and externally. It is thought that 1/3 occupancy is probably the minimum required to achieve a buzz. It is not an easy balance – good buzz quickly becomes too much noise if it compromises acoustic privacy.
- Another challenge will be properly supporting the new hybrid of office-based and remote working, probably through investment in office technology and thoughtful office re-configuration. Simply re-designating the entire office space as hot-desks wont work: most people hate the uncertainty and disruption of working from a different, impersonal space each day.
- The UK’s legal framework was not designed for pandemic recovery, so in most cases firms have significant flexibility to impose new arrangements on team members. That is not to say the landscape is not complex: consideration will be needed of COVID secure work-spaces, regular risk assessments and compliance with data protection rules when handling thorny questions such as whether or not to communicate about illness and/or vaccination levels across the business.
- Firms can probably however impose change on team members, but should they? Firm culture has become more fragile during COVID and permanent damage is easy. Good listening and communication is vital so everyone understands the firm’s strategic priorities and their individual role in achieving the firm’s success. The survey suggested that around 30% of respondent firms will distinguish between partners and other team members. If this affords partners greater flexibility than they are prepared to offer staff, this could have a damaging impact on the firm’s culture and success. (Equally, partners who feel undermined because they don’t understand why they have less flexibility than their assistants may choose to vote with their feet).
- Firms need to decide how their firm should manage their partner body. Tensions may emerge if there has been a disparity in contribution during COVID and if this is not addressed as some form of normality returns. Firms would be well advised to review their LLP or partnership deeds and/or partner KPIs. If some sectors simply do not recover, drastic change may be needed involving ‘redundancy’ style exercises for groups of partners and this is very difficult to manage without effective powers. The survey suggested that only 50% of firms had a ‘no cause’ removal power. This approach was common a decade ago but is now quite rare so perhaps these firms need to review and update their deeds. Equally, the survey and anecdotal evidence has shown that some teams have thrived during COVID, and protection against the impact of team moves is vital. Finally, do the LLP/partnership deed and the firm’s policies accommodate and support the new working arrangements that the firm has decided best supports its objectives?
A recording of the webinar (excluding the break-out discussions) will shortly be available, and the survey data will be circulated to webinar invitees.
If you would like to discuss any of the issues arising from this webinar please contact Corinne Staves (corinne.staves@MTGLLP.com or 020 7786 8724) or your usual Alliance contact.
The March 2021 edition of the prestigious Journal of Management Studies contains no fewer than three articles on the topic of business models versus strategy. What makes them different; in practice, does this matter?
Intuitively, clear differences do seem to exist in practice. Strategy, one might say, is about the “what” that firm leaders must ask. What markets, clients and services will we prioritise? What objectives will we set? Business models, on the other hand, are about “how” questions. How will we organise to meet our objectives and optimise performance? How will we deliver value to clients that increases the likelihood of them instructing us again? How will we attract and retain the best people? Structures, systems and processes a firm puts in place and how these are used seem to be more aligned with the “how” than what we usually call strategy. Business models are inextricable with corporate governance. They involve managing and optimising the interdependencies and connections that inevitably occur across a firm. They have a profound effect on a firm’s success.