There have been, and continue to be, a significant number of factors impacting the legal profession. Whilst not all factors will have an impact on every firm a number will, and will do so at any one time, making the running of a law firm to be a continuous challenge. Even for the growing and historically profitable firms, current and future regulatory changes, for example, could turn the good old days into more of a concern.
Partner and board meeting agendas should be focusing on these challenges, deciding on the actions, with responsibilities and timescales assigned. If a law firm does not currently operate in a corporate vehicle, it does not necessarily need to incorporate but the partners need to start treating it as a corporate entity; it is a business after all.
With such significant change and more on the horizon, is the legal profession in unprecedented times? Is it really the case that never before has there been so many stakeholders in a law firm? I would argue not; however I do agree that stakeholders’ priorities and areas of focus may have changed.
Remuneration, partnership politics and succession are emotionally charged. Every firm must have a partnership or shareholder agreement that is reviewed on a regular basis.
Clients have a strong influence on the growth and profitability of a firm, not to mention its cash flow. Fee pressures and service demands continue to reduce margins. A firm’s focus on who does what type of work is critical to ensuring a quality but efficient service. Technology should play a significant part in achieving this. Further, quality not only applies to the legal advice given but the management of the case too.
Funders are wiser to the profession and the number of lines of lending that there can be into any one firm.
Funders want to understand the firm’s strategy, business model, financial forecasts, markets and succession plans to name but a few to assess the financial viability of providing funds. Whether the debt is serviceable is a key question together with is it core debt or a true working capital and therefore a fluctuating requirement.
The insurers are key stakeholders in any type of personal injury firm, whether acting for defendants or claimants. The SRA, another key stakeholder of course, is currently undertaking a review to assess the impact of recent legislation on the profession.
Insurers will be stakeholders in all firms due to the requirement to have professional indemnity insurance. Current consultations to bring PI policies into line with the Insurance Act will raise the standard of disclosures being made to insurers; improper declarations are a breach of the Code of Conduct.
Solicitors Regulation Authority (SRA)
As the profession’s current regulator, the SRA continues to evolve in his practices, focus and areas of attention. Regular access of the SRA website provides insight into these areas and provides guidance on managing risk – a significant consideration to all stakeholders.
Understanding competitors’ ambitions is key in challenging a law firm’s own strategy to ensure that it can continue to differentiate itself, whether in services or markets, client or geography. Fee pressures can drive down the market rate of fees being charged; being proactive in this area will secure clients providing the quality of service matches the initial proactivity.
Transactional activity continues to take place in the profession, which changes the competitive landscape. Firms converting to an Alternative Business Structure is likely to be a result of the firm seeking to differentiate itself.
Retention of talent in a declining market is difficult in being able to satisfy their demands; retention in a growing market, which the legal profession continues to be, is also difficult where firms are able to make snap decisions, where cash flow allows, to recruit the talent for the present and the future success of a firm.
In conclusion, whilst this list is by no means exhaustive, a law firm’s strategy cannot ignore a stakeholder group. It is not the case that the partners are the only stakeholders. Law firm succession should be on all partner meeting agendas; every stakeholder will have an impact.