Blue Skies Ahead
Most law firms would surely welcome an 'external reality check' - which is what consultants claim to provide. With the use of consultants on the rise, Charlie Wright weighs up the pros and cons
June 21, 2006 at 08:03 PM
11 minute read
It says much about the conservative nature of commercial law firms that any firm which implements some broad shift in strategy or tinkers with its partner remuneration is immediately characterised as radical, revolutionary or on the brink of collapse.
Indeed, the traditional partnership structure itself is arguably becoming increasingly anachronistic in a profession which likes to talk about the commercial realities it shares with clients.
While no practising solicitor would appreciate being told how to do their job by a non-lawyer, there are signs that institutional resistance to the use of management consultants is starting to dissipate. Their use is ubiquitous in other spheres of modern business; now, law firms are cautiously accepting the value they can offer to partnerships.
Taking the lead from business
In recent years, some law firms have belatedly moved to take on the trappings of modern business, with chief executives supplanting managing partners and many firms streamlining their decision-making processes in a bid to respond more nimbly to new commercial opportunities. Using management consultants represents an arguably bolder move on the part of this conservative profession.
Earlier this month, Legal Week revealed how top 10 UK firm Herbert Smith – traditionally regarded as one of the more conservative of the City giants – had turned to independent management consultant Dennis Sherwood to assist with a wide-ranging strategic review, contributing his own ideas and taking soundings from partners at the firm.
Senior partner David Gold said the review would focus on the firm's international strategy – an area of particular significance for Herbert Smith, which notably shunned the major international investment seen by more expansionist City rivals throughout the 1990s in favour of alliances with Gleiss Lutz in Germany and Benelux leader Stibbe.
The appointment underlines the new-found acceptance within the legal profession of the role external consultants have to play.
However, that acceptance is far from universal. There remains a degree of cynicism over the dark arts of the management consultant – a state of affairs not helped by the over-fondness for jargon-heavy management speak displayed by many such self-appointed experts.
Scepticism over the use of management consultants in the law was hardly diminished by the experiences of Freshfields Bruckhaus Deringer, which called in blue-chip management consultancy group McKinsey in 2003.
The City giant turned to McKinsey in a bid to revitalise a finance practice that was then – much as now – regarded to be lagging behind those of magic circle rivals Clifford Chance, Allen & Overy and Linklaters.
Some partners were known to have been somewhat underwhelmed by the findings of the review, which was reported to have cost Freshfields upwards of £1m and was regarded by some to have suffered from a distinct lack of concrete proposals to take the banking practice forward.
The findings did include the revelation that Fresh-fields was not exploiting its client base fully – a point which could be interpreted as less an answer to the question than simply a rephrasing of it.
Indeed, commenting on the review in 2004, one Freshfields partner told Legal Week: "A lot of what the report said was, in a sense, no more than common sense. It could be portrayed as obvious, although you can lose sight of the obvious."
Yet the idea that the legal profession has nothing to learn from other spheres of business is now very much a minority view. Law firms and barristers' chambers have already begun to appoint managers from outside the legal fraternity, bringing into play skills and experience gained at investment banks, accountancy firms and beyond.
Standing out
One such area where consultants can make a valuable contribution is in helping firms differentiate themselves from one another, argues Paul Gilbert, a former head of legal at Cheltenham & Gloucester and now chief executive of LBC Wise Counsel.
About two-thirds of the group's business comes from working with in-house legal teams, meaning law firms can draw on that experience to make themselves more attractive to prospective clients.
"All the law firms we speak to offer very good legal services and there is little differential in that respect," says Gilbert. "The price for those services does differ significantly, so the perception of 'value' differs significantly also. We work with law firms based around our experiences with in-house teams – how the in-house legal market is developing, what they are buying and so on. Law firms can then decide how they want to position their offering."
LBC provides lawyers with training and research on a range of issues including client relationship management (CRM) for top 50 clients such as CMS Cameron McKenna and Stephenson Harwood. The group has also developed in-depth key account programmes for a handful of firms.
Gilbert admits that there is still a reluctance among many lawyers in private practice to call in help from outside the firm.
He comments: "However sophisticated the facade is, when you scratch the surface the reality is that any firm is essentially a bunch of sole practitioners sharing a letterhead. Lawyers are still very target-driven and concerned with ensuring chargeable hours are as high as they can be. Marketing is still pretty unsophisticated… so when you suggest hiring consultants, there is even more resistance."
However, the scope of most consultants' briefs is less far-reaching than the potential involvement of Sherwood at Herbert Smith.
Jomati consultant Tony Williams – a former managing partner of Clifford Chance and erstwhile head of Andersen Legal – says consultants are perhaps most commonly used to provide firms with what he calls an "external reality check", giving a firm a potentially valuable insight into how it is perceived by its rivals, potential clients and the wider marketplace as a whole.
"Some people are still uncertain about how to use external consultants and where they can best be used to add value," he says. "But there is far more willingness now to get an outside view in a profession that has tended to be quite introspective."
Williams says although some managing partners still interpret the use of consultants by rivals as a sign of weakness, most now accept that consultants can be of use in a number of ways.
"Some firms bring in consultants for brainstorming or research; others will want assistance drawing up a strategy or high-level help in implementing it," adds Williams.
Williams is realistic about what consultants can achieve for a law firm, suggesting that well-managed firms with clear business goals and a happy part-nership are unlikely to need a radical overhaul from external consultants.
"Firms have now got to be very business-focused and hard-nosed about where they are going in the market," he says. "The firms I have worked for have tended to have some of the most strategic thinking, confident and far-sighted leadership… and realise that [using consultants] is nothing to be defensive about."
Certainly, there is likely to be an overlap between the most successful firms and those unafraid of embracing new ideas in order to gain a competitive advantage.
Taylor Wessing managing partner Michael Frawley says the growing influence of consultants in the legal profession can be traced to the popular Harvard management course, heavily influenced by McKinsey thinking, on which countless law firm managers – including all Taylor Wessing board members – have been sent.
He says his firm has benefited from the involvement of external consultants on a range of issues – including partner remuneration, improving client management and the introduction of an internal mentoring scheme at the firm.
Frawley comments: "Lawyers are not classically [regarded as] great managers. As law firms become more professional and the business world becomes more cut-throat, I do see an opening for consultants to become more involved in things like strategic planning. All law firms are starting to look at better ways of doing things."
That viewpoint is echoed by David Pester, managing partner of expanding southwest firm TLT Solicitors.
"As a managing partner I have found it very useful to engage with several [external] people with a real breadth of knowledge of the legal market who can provide some objectivity," comments Pester. "There has been an acceptance for a while that [law firms] can gain value from having that objectivity brought to bear."
TLT last year made its debut in the capital after securing a merger with 11-partner City firm Lawrence Jones. Although the firm itself identified Lawrence Jones as the right merger partner through its own contacts, the decision to seek a tie-up in preference to alternatives such as the launch of a standalone office was in response to the input of external consultants.
"It was more a question of 'how' rather than 'who'," says Pester. "The decision to move into London was client-led and so less complicated. More complicated was how to do it."
During the past few years, TLT has called on a number of consultants for strategic and operational advice, including Hodgart, Hildebrandt International, Edge International and Grant Thornton.
"You really have to be honest with yourself and decide what you want to be," says Pester, stressing that consultants can only ever be part of a wider evolutionary process involving partners and senior management. "There is no magic formula. Have a specific area or project in mind. Be prepared to use different people for different things."
While the emphasis on individual performance at law firms has arguably never been greater, firms must still be prepared as a collective to ask themselves some tough questions about where they are and where they ought to be.
"Law firms can be at the top of their game, but the game is changing all the while," says Gilbert. "You may be good at what you do, but will you be good five years from now? There are some pretty high-profile firms which are struggling and some issues around which people should be nervous about. For some firms, 80% of their profitability comes from 20% of their client base – they must ask themselves: 'How much is the unprofitable 80% costing us?'"
New opportunities
In coming years, the use of external expertise will surely increase as law firms continue to adapt to a changing marketplace.
With the Government set to adopt the programme of reforms proposed by Sir David Clementi, a raft of new opportunities await forward-thinking law firms. The possibility of raising funds by allowing clients or other investors to take a stake in the firm is sure to generate interest and it may be that management consultants have a role to play in making law firms more attractive to investors.
And while the accountancy-tied model of the 1990s ultimately failed in the wake of the Enron scandal, the Clementi reforms have put the issue of multi-disciplinary partners firmly back on the agenda.
While law firm administrators are understandably cautious about the likely impact of the reforms, these are exactly the sort of big-picture commercial questions where a fresh perspective could prove as instructive as the tactical acumen of an experienced managing partner.
However, the prospective changes will not have law firms rushing to write blank cheques for blue-sky thinkers to 'imagineer' new battleplans.
"We are very selective about who we use," adds Frawley. "We had a few forays that did not quite work out. The problem was that the consultants either told us what we already knew, which was irritating and expensive, or they tried to apply the principles that they used for large corporations and – surprise, surprise – they did not work for a professional service firm and/or partnership structure. A consultant can help you drive your business forward but, in order to do so, they have to understand you and your business. One size does not fit all, especially in the legal market."
As ever, the key to success is to be selective and to target the right areas for improvement, according to Gilbert.
"Knowing which are the good bits of the firm and showing why they are successful is valuable too," he says.
For all the criticism – often deservedly – levelled their way, it nevertheless appears the consultants are here to stay.
"I can definitely see more work for management consultants," concludes Pester – and it would require a suit-ably novel blue-sky interpretation of events to disagree.
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