A bleak future

Following on from Jordan Furlong’s recent post in Law 21 (which I commented on some days ago), a snippet from Legal Risk LLP’s March Newsletter*, after a law firm risk management conference in Chicago,

The future shape of law firms

The traditional leveraged model of law firms with large numbers of associates was under attack from clients’ general counsel, one commenting that partner: associate ratios of 1:1 delivered better results than 2 or 3:1 – “the shape of the successful law firm is not a pyramid”. We know UK firms with corporate practices are increasingly under pressure to service in-house legal teams with specialist advice rather than do whole transactions – as one risk management partner put it succinctly, firms are being asked to take 10 per cent of the fees and 90 per cent of the risk.

This has been my recent experience in the UK, so what is happening that side of the Atlantic is already reflected over here.

* Legal Risk LLP’s website is http://www.legalrisk.co.uk/ . There is no hypertext link to the March Newsletter, but it is well worth reading. I rate Frank Maher really highly and he always talks sense.

Some downturn risks

Chasing debt and effective cash flow management are critical in a downturn (see Rob Millard’s Heads of Pigs and Golden Rules, posted yesterday) but also consider:

client take on: not following the necessary risk management procedures when taking on new clients may be disastrous. I hope you aren’t replying to the email scams from the widows and orphans of third world dictators, but the next worst thing is not doing the appropriate DD on the new client.

working outside your competence: it is all too easy to say you will do something that you simply don’t have the expertise to do. At the best of times clients are not impressed by your learning on the job; taking on work because you cannot face turning it away (all too easy when you’re sitting at your desk trying to look busy) is a surefire recipe for an indemnity claim.

soft terms: winning work sometimes requires you to take a view on fees ~ discounting for the future. It is also important to be realistic over cost. But agreeing terms that devalues the work not only sets a precedent that in better times it may be hard not to follow but it also demoralises the team.

Partner ego: in many firms power and politics is intrinsically linked to partner performance. Maintaining this in a downturn may mean that work is kept, not delegated. It all comes back to Spending time wisely.

Not quite such a simple solution

It is all too easy to think that the solution to falling fee income in a downturn is simply to find new clients.

Well, up to a point, but this is, or may well be, a riskier strategy than you might imagine. Time may be better spent looking at ways to develop your active clients; or re-activating your dormant clients.

So, why not new clients?

For most organisations changing law firms in a downturn is going to be well down their list of priorities; and for most law firms, themselves facing the same recessionary pressures as you are, hanging on to their valued clients is going to be important. The result is that changing advisers is only likely if there is a compelling reason to do so. Certainly there will be price sensitivity and pricing pressures, but the aware law firm should be prepared to be flexible. And among the reasons for change are a couple that should give you pause for thought.

First, the incumbent law firm may be trying to “lose” the client. The client may be a bad payer, or it may be asking the law firm to do something that leaves it uncomfortable. In which case why would you want to act for the client? Client take up procedures all too often get overlooked in the bad times, but ignore risk management at your peril.

Alternatively, the incumbent law firm may have cocked up, which in turn may mean that the client has a somewhat jaundiced view of lawyers: and you may get sucked into a lot of remedial work that the client is reluctant to pay you for.

As Stefan Stern noted in his FT column Beware of fad-loving analysts

Simple solutions to complicated problems can be seductive.

And all too often such solutions fail to deliver. There are certainly going to be opportunities to find and develop new clients in this downturn; and there are going to opportunities to be burnt: as a result of taking on unsuitable clients, agreeing to do work beyond your competence, or on terms that not only devalue the work and demoralise your team, but set a precedent it may be hard to reverse later.

“Search engine results can get facts wrong” (STBO)

I am not sure whether to be appalled or amused by one of last week’s front page stories in the Gazette, Net-surfing lawyers warned of compliance risk (not yet archived by the Gazette). Apparently, according to a leading QC solicitor, Andrew Hopper,

Solicitors risk breaching conduct rules and could face insurance claims if they use non-specialist online sources for legal research.

You don’t say! Are there any lawyers who are not aware that user-generated content is not always reliable. The story is a non-story (and perhaps more the result of yet another vanity publishing update than anything better).

Meanwhile, the article goes on, Emma Harris, Law Society librarian, told the Gazette: ‘Today’s trainees, despite the best efforts of law school librarians, don’t know the world outside the internet. . . ” Has no one told her that for better or worse (and in my view very much the former), the internet is not only how information is now delivered, whether it is the daily update, or the RSS feed, but the internet has also greatly expanded our access to information. What we should be doing is ensuring that lawyers understand how best to use the internet.

And STBO? ~ “Stating the bleeding obvious”