There's more to growth than M&As. In this LexisNexis report, we explore the winning organic growth strategies of the UK's leading law firms.
- All law firms want growth. Big or small – firms are chasing more work, more profit and more clients. The traditional solution is to merge or acquire another firm
- But – might there be other ways to growth? LexisNexis spoke with 20 of the fastest growing law firms to see which strategies work – and which don’t
- The responses were plentiful; the most popular being through enhanced client relationships, lateral hiring and talent attraction/retention, business development strategies as well as offering technology-as-a-service.
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Growth is front of mind for the majority of law firms
Sceptics might be quick to the conclude that the current boom in law firm mergers is driven by post-pandemic financial duress. Yet, if September 2021 findings from HSBC’s annual Law Firm Strategy and Investment survey still ring true, those sceptics would be wrong.
The key driver behind this boom in mergers and acquisitions is the very opposite – growth! It’s at the top of the priority list for the vast majority (92%) of UK-based law firms with revenues upwards of £18m. Of the 80+ law firms included in the HSBC survey, more than half (54%) said they will look for growth outside their home regions in 2022, and a third (38%) are considering international expansion. In fact, just over a tenth (11%) are considering overseas expansion for the first time.
Sceptics may also point out that a lot has changed since September 2021. A January 2022 survey of 100 law firms of varying sizes from M&A advisors Acquira Professional Services found similar results. Almost half (47%) of respondents said they’re considering merging with another firm, and a quarter are already in talks over a possible deal. Interestingly, geographic expansion was the most common reason for firms looking at a merger.
Another commonly cited incentive to merge is the diversification of resources. Take the recent merger between Weightmans and RadcliffesLeBrasseur (RLB). The former is a modern, high-performing firm with ambitious plans to reach £200m by 2026 – plans which are largely reliant on their ability to diversify. The latter has an impressive healthcare business with a number of enviable medical defence organisations on their client list, but the firm has struggled to modernise. In this scenario, Weightmans adds to its already impressive list of healthcare clients and internal expertise while RLB gets the modern infrastructure it desperately needs.
Despite the setbacks brought on by the pandemic, the majority of law firms seem to have escaped the last two years relatively unscathed. Crowe’s Law Firm Benchmarking Survey 2021 found 81% of firms exceeded their expectations for the 2020/21 financial year (85% of City firms vs. 77% of regional firms) – which perhaps explains why so many are looking to grow.
Mergers & acquisitions aren’t a quick fix
For many law firms today, mergers and acquisitions (M&A) are still a key part of their overall growth strategy, especially to bolster coverage in a particular practice area, as well as to enter new markets.
However, truly successful M&A is easier said than done, requiring the smoothing of any cultural clashes and complex system integrations before the benefits start to appear.
The loss of culture when merging with another firm was a top concern for many of the law firms we spoke to. The impact of a poor culture can have a negative impact on your bottom line, a new study by the Solicitors Regulation Authority (SRA) found. The study also revealed that law firms with a positive workplace culture have a competitive edge over those with a poor culture, especially with many organisations incorporating softer metrics like culture and employee happiness into the bidding process.
Retaining their culture during mergers is a key priority for top 100 law firm Mills & Reeve, said Managing Partner, Claire Clarke.
“When we merged with Maxwell Winward in London in 2017, and George Davies in Manchester in 2013, we were mindful that success would rest on our ability to retain our award-winning culture, but also to flex and expand that culture to accommodate qualities that the new firms would bring,” she said.
It is a risk of which smaller firms are acutely aware, with 20% of the small firms we spoke to stating their 'small firm culture' is their top priority when looking to attract and retain talent and appeal to clients.
“I feel that there are risks associated with M&A, that you end up growing for growth’s sake without looking at what it does to the quality of your work and your culture”, said Rosalind Connor, Managing Partner at workplace pension law firm Arc Pensions.
Instead, many of these firms have looked at ways of growing revenue without boosting their headcount, such as focusing on flexible resources like consultants or barristers (for litigation firms) to cope with increased workloads during busier periods, or by relying on software solutions to automate work and streamline processes to increase efficiency.
Our research also revealed small law firms tend to favour lateral hires – the poaching of well-established and highly experienced lawyers – instead of full-scale mergers. According to our conversations, 40% of small firms said lateral hiring was a priority for their overall growth strategy.
However, lateral hires can act as unofficial mini-mergers, especially when a high-profile fee-earner comes into a firm, bringing new expertise, clients and, in some cases, entire teams with them. Therefore, firms that favour lateral hires over merging with another firm will not necessarily protect their current culture.
The majority of firms, though, are looking inward to create an organic growth agenda focused on their existing people, clients and processes.
What kinds of client relationships boost growth?
Loyal clients are at the heart of any successful organisation but particularly so for the smallest law firms: 30% of small firms said strong client relationships were the most important aspect of their growth strategy.
Firms have a vast toolbox of techniques to draw upon when keeping clients happy. This includes everything from deploying lawyers to nurture key client relationship roles, to integrating themselves into their most important client organisations via secondments or technology (a technique common to the consulting model).
Legal service packages or bundles
"We use a range of structured listening approaches to complement the ongoing dialogue we have with our clients about service delivery [...] Of course, putting an immense amount of effort into collection feedback is useless if you don't then follow up and do something about the comments you receive and this is a focus for us."
Nick Perry, Managing Partner, Bird & Bird
Some firms, such as Wiggin, Radius Law and Taylor Wessing, are also focused on bundling additional business services, such as legal technology solutions, together with traditional legal services to create a personalised package that adds greater value to clients and increases their own revenue. Other boutique firms were founded with the specific goal of providing clients with senior-level attention from start to finish.
“Right from the outset, we have been clear that we do not want to grow to the extent that we cannot personally be involved with our clients’ transactions”, says Mirthe van Kesteren, Partner and Co-Founder at small firm BVK Partners. “We will likely end up with a reverse pyramid structure, with senior people as the majority of employees.”
Client feedback is also seen as vital but not every firm approaches it formally, with boutique firms in particular citing their closeness to the client as a natural two-way feedback path. For those who take a more structured approach, regular client surveys and net promoter scores (NPS) are commonplace.
When it comes to billing, most firms agree that there is no magic bullet other than simply being open to the client’s preference. In fact, many have found that their clients reject more innovative billing structures in favour of the tried-and tested hourly rate.
As for operating during a pandemic, far from stunting business, many senior leaders have found that lockdowns across the globe have actually allowed them to deepen their relationships with key clients, and even expand into new markets.
Peter Jackson, Chief Executive at international commercial law firm Hill Dickinson, said the pandemic has allowed lawyers at his firm to strengthen their client relationships.
“We always had clients around the world but now we are actually ‘seeing’ them more often because we don't have to make arrangements to jump on a plane," he said. "We meet more regularly and more constructively.”
With positive client relationships being pivotal to growth, law firms should also seek to offer support to lawyers that are dealing with fraying or difficult relationships. A 2022 SRA revealed that one in four lawyers said they need more support with challenging clients. This could be achieved by creating a culture where employees can openly discuss challenges without criticism, as well as creating mentoring programmes (or reverse mentoring programmes) to provide more junior lawyers with advice on relationship management. It is also worth implementing safeguards to ensure client needs are met and regular communication is being carried out, which can be aided through legal technology.
"Feedback is absolutely crucial. We do NPS independently and currently have a score of 65%, which is world class. We also do client feedback programmes in different forms and quarterly where we select a portion of our clients and invite them to submit feedback."
Vicky Brackett, CEO, Business Legal Services, Irwin Mitchell
"The key objective of our 2025 strategy is to be a leader in client experience. A vital part of that will be to ensure that client service is at the heart of our business as we embrace a culture of fearless feedback. The end game is that 95% of clients will recommend Mills & Reeve."
Claire Clarke, Managing Partner, Mills & Reeve
Business development is crucial – but who should be responsible for it?
When it comes to nurturing client relationships and building new ones, firms are united in laying responsibility at the feet of the partnership. Business development (BD) strategies hinge on tactics such as giving partners formal training in sales techniques, publishing thought leadership, organising and/or attending trade events, joining industry bodies and even publishing bespoke content to be sent directly to clients. Litigation firms are also tapping into new avenues for BD, including referrals via accountants, barristers and third-party funders.
However, larger firms in particular are more eager to involve their junior lawyers in driving BD efforts than smaller firms, with 30% of larger firms using junior lawyers compared to 20% of smaller firms.
Although de rigueur for the big players, in-house marketing teams are understandably less common at smaller firms, who often choose to spend the investment elsewhere and split marketing responsibilities across the team or work with agencies for one-off projects to keep overheads down. The level of marketing investment differs greatly amongst firms; some have chosen to make senior marketing hires during the height of the pandemic, while others have made cuts, preferring to use the budget elsewhere. However, with the legal sector experiencing promising results throughout 2020 and 2021, and with growth on the agenda for most, the importance of the marketing and business development functions within law firms will only continue to escalate in importance.
“There are very good lawyers in all the firms that compete with us and so to attract a client's attention you have to put yourself in the firing line," said Jackson.
"And that means writing articles in trade magazines, that means being quoted in the press. That means speaking at seminars or webinars to provide that peg that a client can hook something on to establish credibility. That’s important for juniors as well as partners.”
"The BD really needs to be done by the people who understand the market the best, and that is generally the partners."
Rosalind Connor, Managing Partner, Arc Pensions.
"Every team member is expected to be responsible for our business development. We try to recruit people who have emotional intelligence for that reason, as it’s all about relationship building."
Ashkhan Candey, Managing Partner, CANDEY
Encouraging business growth through competitive employee compensation models
There is no growth without the right people in place to drive it, and firms across the UK are taking action both to attract star senior
lawyers (and their loyal clients) and to accelerate the development of their more junior employees.
To attract and retain the right people, international law firm Taylor Wessing has adapted its path to partnership, says UK Managing Partner, Shane Gleghorn.
While the traditional “lockstep” model of pay is still in place at a number of leading law firms – Slaughter and May being the most well-known – this salary model seems likely to soon become the exception. Competition from well-funded US firms, as well as the ever-evolving demands of a new generation of lawyers, has led many firms to embrace more competitive commission structures.
Our analysis of the 20+ firms we spoke with found 44% of large firms have moved away from the lockstep structure, while 60% of small firms have done the same. These firms pride themselves on their ‘entrepreneurial’ culture, citing the ability to develop new offerings for clients, fast-track internal development and flexible working as a way of appealing to lawyers returning from parental leave or looking for a better work life balance.
Magic Circle law firms Freshfields, Clifford Chance and Linklaters have all allowed their lawyers to work away from their desks for up to 50% of the time, while Slaughter and May has allowed its lawyers to work remotely for 40% of the time (20% for juniors). While this acts as a powerful incentive for employees, it also comes with the benefit of keeping overheads down for the firms that have decided to downsize their office space.
Flexible approaches to remuneration include soft and hard targets, based on factors including marketing and business development efforts (including referral bonuses), paying fixed monthly salaries as a high proportion of annual profit shares (rather than awarding significant bonuses), and, in the case of DWF, granting PLC shares to newly-hired partners.
Many law firms are also attempting to drive growth by incentivising non-lawyers within the organisation to meet growth targets with financial remuneration.
This is not only useful for driving growth, but it also helps to meet the changing needs of clients, said Nick Perry, the Managing Partner of longstanding London law firm Bird & Bird.
Jackson also mentioned that Hill Dickinson have tried to break down the ‘them and us’ mentality that commonly exists between lawyers and support staff, and have experienced positive results.
"We’ve tried to accelerate the timescales for people to reach the partnership. Our emphasis is on metrics which result in cooperation between the partners, collaboration, and the growth of the pie.”
Shane Gleghorn, Managing Partner, Taylor Wessing
“Clients are coming to us with problems which can not always be solved by lawyers and so it’s becoming more and more common for teams of lawyers to collaborate with other professional staff to co-create client solutions.”
Nick Perry, Managing Partner, Bird & Bird
"I think it has engendered in the lawyers a recognition of how those who aren’t lawyers can actually help the growth agenda and can be just as important to clients."
Peter Jackson, Chief Executive, Hill Dickinson
Examples include Wessing asking partners to prove collaboration both within and outside of the legal cohort before deciding on appropriate remuneration; Birketts contributing significant profit share bonuses to all colleagues outside of the partnership; Kingsley Napley actively avoiding making any redundancies during the pandemic; and Arc Pensions ensuring that every member of the firm has access to the same technology set-up for remote working.
Most firms see internal development across the board as key to their growth, looking to accelerate paths to partnership, encourage movement through the firm or, where the lockstep structure is still in place, to push people up it more quickly.
Ultimately, most firms believe that their culture, location, flexible offering or high-quality clients give them enough of an edge to compete with the sky-high offers from their US counterparts.
“If someone wants to be well remunerated and have a high standard of living, but also wants to be part of something with people at its heart, then those are the people we want, and who seem to want to come to us."
Richard Baker, Managing Partner at Devon- and Cornwall-based law firm Stephens Scown