Managing to stay on top, US-style
Partners need to keep their management skills as sharp as their American competitors, writes Christopher Stoakes
Wednesday 20 December 1995
Such views are misplaced, according to David Temporal of Hodgart Temporal, a UK management consultancy that specialises in advising law firms. "US firms have been larger for longer, have put in place strong administrative infrastructures and are ahead in their use of technology, but they don't have much to teach UK firms about strategic management. Clarity in leadership and direction is not as well-established across the US profession as it is across UK firms."
UK firms may have been slow off the mark. Certainly, even as late as last year, Coopers & Lybrand was able to say in its report, Financial Management in Law Firms, that the gap between the best- and worst-managed firms was growing as "the best performers use their superior management and profitability to invest in new services, technology, international links, training and development". But earlier this year, Nottingham Law School's inaugural MBA in Legal Practice - the first of its kind, designed to help senior lawyers to learn how to manage - was oversubscribed, attracting lawyers from as far away as Singapore. Then, in August, the Corporate Research Foundation published Top 100 UK Companies, highlighting businesses with the best management. Among them was the City law firm Davies Arnold Cooper.
"There is a rapidly maturing awareness of what management entails," confirms Mr Temporal. The reasons are not hard to find. The recession and increased competition have forced firms to pay greater attention to the bottom line. Lawyers who are good at winning new business - "heavy hitters" in US legal parlance - have been more willing to move laterally between firms, attracted by those that offer greater rewards through better management, sense of direction and marketing. One such lawyer is Stuart Benson, who was head of litigation at the City firm Turner Kenneth Brown before being wooed away by the provincial firm Dibb Lupton Broomhead. At the time, Turner Keith Brown was suffering from well-publicised management and business problems. TKB was subsequently absorbed by Nabarro Nathanson, while Dibb Lupton Broomhead has been in the vanguard of provincial firms seeking to attack the client base of smaller City firms.
Dibb Lupton Broomhead has reorganised its management structure twice in the past five years. The first followed the merger that created the firm. "We initially fudged the management issue," says Robin Smith, the senior partner, "but we made sure the two [merged] firms were properly represented." Then the firm formed a board, with a senior partner acting as non-executive chairman and a managing partner, Mr Smith, acting as chief executive officer. In 1993 the management was refined further. "We confirmed the managing partner's responsibilities as CEO but gave a new role to the senior partner," says Mr Smith, who took on the latter position.
For the largest City firms, the need for strong management has been a fact of life for some time. In part, this is a function of size: until 1967, firms could have a maximum of 20 partners; that year's Companies Act removed the ceiling; just 20 years later Clifford Chance had more than 100. In part, it is the result of international competition: English and New York law are the preferred governing laws of international business and banking transactions; in 1994, UK law firms had net overseas earnings of more than pounds 500m, according to UK balance of payments figures. The current battleground is in the Asia/Pacific region. Freshfields stole a march on its US competitors two years ago by absorbing a number of lawyers from the respected Asian practice of the US law firm Coudert Brothers.
Freshfields was also the first City firm to bring in a senior figure, Sir John Nott, from outside the law in a non-executive capacity. He has just been succeeded by Brandon Gough, previously chairman of Coopers & Lybrand. "Non-executives lift the plane of debate," says Alan Peck, the firm's managing partner. "If faced with something difficult, lawyers tend to descend into detail." Freshfields is fine-tuning its management roles. John Grieves steps down as senior partner next year, to be replaced by Anthony Salz. "The US analogy is apt," says Mr Peck. "John has been CEO while I have been COO [Chief Operating Officer]. Anthony will be chairman while I am CEO. At the moment I spend 80 per cent of my time running the current business and 20 per cent thinking about the future. I need to change that balance."
UK firms are departing from their US competitors in two crucial respects. First, City firms are adhering to lockstep a progressive increase in a partner's drawings depending on seniority alone - whereas some US firms have moved towards merit-based systems that reflect the level of business a partner brings in and his or her importance to the firm. At its worst, this is characterised as eat-what-you-kill. It can introduce great instability and encourage mediocrity: underperforming partners simply earn less. Lockstep, by contrast, is a system that forces firms to weed out underperformers - as many former City partners have discovered.
Second, management is providing leadership, particularly in business development. Every firm needs what Mr Temporal calls "an anchor point", which is the strategic blueprint, back to which all day-to-day management decisions relate. But once a firm's strategic direction is in place, what matters is developing the business.
Anthony Salz and Alan Peck at Freshfields are credited with creating the firm's highly lucrative mergers and acquisitions practice in the early Eighties. Mr Peck went on to spend several years at Warburgs before returning to the firm. "As an investment banker, you have to understand your cliental approach to management," he says. It is no accident that Mr Salz, one of the most highly regarded corporate finance lawyers in the City, will continue to do some client work.
Dibb Lupton's outgoing Robin Smith, who works in tandem with the managing partner, Paul Rhodes, focuses on business development in the broadest sense, looking at areas of profitable activity that may not lie in the mainstream of legal work: "opportunities which cannot be realised except when looked at from a distance, but which come from an acute awareness of cliental needs," he says.
Strong management does not lift the burden from the individual partner. Major UK firms have followed the US example of appointing professional non-lawyer managers in areas such as finance, human resources, marketing and administration. But, as Mr Temporal says: "Management on the front line is done by the individual partners. The question for the managing partner is how to delegate management down to the front line while maintaining the overall direction. As management is "delegated back" so the role of the individual partner in a law firm has come under greater scrutiny. David Maister's message to his audience was stark: individual partners must continue to enhance their skills throughout their careers or face extinction. However, one irony was not lost on big audience; Mr Maister is English.
The writer is a group tutor on Nottingham Law School's MBA in Legal Practice.
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