Who's in charge? Too many firms are led by their corporate practices
Since the 1980s, it's been clear who is in charge at large City law firms: corporate and banking partners. The reason is fairly obvious – unlike the US and many foreign markets, City law firms make most of their money from transactional work and their corporate practices have become the dominant power blocs at most top 25 (and a good number of smaller firms). Partnership remuneration may be relatively flat and law firms are supposedly consensus-driven. There's some truth to that, but not all partners are created equal. The direction of most City law firms is set by a relatively small group of partners, the vast majority of whom are drawn from transactional disciplines. When managing partners talk about getting buy-in, getting this group on board is what they mean. That ambitious law firms must lead off their corporate teams has become a cliche so utterly prevalent that it is hardly ever acknowledged, let alone queried.
October 05, 2011 at 07:03 PM
3 minute read
Since the 1980s, it's been clear who is in charge at large City law firms: corporate and banking partners. The reason is fairly obvious – unlike the US and many foreign markets, City law firms make most of their money from transactional work and their corporate practices have become the dominant power blocs at most top 25 (and a good number of smaller firms). Partnership remuneration may be relatively flat and law firms are supposedly consensus-driven.
There's some truth to that, but not all partners are created equal. The direction of most City law firms is set by a relatively small group of partners, the vast majority of whom are drawn from transactional disciplines. When managing partners talk about getting buy-in, getting this group on board is what they mean. That ambitious law firms must lead off their corporate teams has become a cliche so utterly prevalent that it is hardly ever acknowledged, let alone queried. Yet current market trends raise the question of whether this influence is in some cases justified or even productive.
In essence, this is because of two issues. On one hand, the gloomy medium to long-term outlook for commercial markets and the realities of an increasingly regulated world suggest that the balance of power will shift modestly away from an overwhelming focus on transactional work in favour of contentious and regulatory teams in the coming years. Let's not oversell that – corporate will remain the lifeblood of many firms – but there is reason to believe the balance won't be quite so heavily slanted in the direction of the deal junkies over the next decade, barring a miraculous shift in markets.
The other point is that the high-end legal industry is steadily segmenting into distinct groups of providers focused on different markets. If you follow that process through, it becomes easy to see that for many firms not very strongly focused around M&A and deal finance, corporate may not be the best place to invest in future. And many top 50 law firms really excel in commercial or niche disciplines.
That's where their best lawyers are, and those are the areas in which they have the strongest reputations. Yet their direction is, in many cases, still dictated by transactional practices which are, while perfectly respectable, never going to be much of a threat to firms with deals truly in their DNA. That is not to say it doesn't make sense for large firms to have a solid corporate offering – it's part of the service.
But should a second-tier corporate practice really be calling the shots when it could be holding back teams in which a firm's real strength lies? Some firms put themselves through agonies in the vain hope of one day challenging leading corporate law firms, and that's mostly thanks to following the aspiration of a relatively narrow group of partners. Maybe it's time for a few firms to start questioning what's gone unquestioned for so long.
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