Years ago, in the immediate wake of the banking crisis, I wrote a column on the notion that top London law firms, having pursued consolidation and growth for the preceding quarter century, had fallen out of love with being big. The argument was that they were increasingly focused on segmentation – meaning tighter focus on their core markets – than consolidation. I have made duffer calls over the years, but in retrospect only one of those points, on losing faith with growth, was substantively borne out. The second observation about a more clearly-segmented legal industry emerging has largely not come to pass. Major London firms have consistently eschewed growth strategies with generally poor results. But no matter the structural pressures building on the legal industry, they have yet to get used to the idea of being more rigorously focused on core markets. Incremental chipping – ditching a bit of structured finance here, a little employment disputes there – is about as good as it got.
Yet there is an increasingly salient argument to be made that major law firms have two broad approaches that look sustainable if they wish to be major forces in high-end law. The first is to operate closer to the classic partner-driven model – a simplified regime based on low leverage, partner-heavy service, and being focused in a relatively small number of markets and geographies. This is a stance successfully applied by many of the more potent US-bred law firms expanding in Europe.
The second approach is closer to a professional services business underpinned by law. This path implies a far broader practice, higher fee-earner/partner leverage, more geographic coverage, and far greater willingness to build new models that provide legal services with non-lawyer professionals and technologies.
While you can just about imagine a major UK-bred law firm splitting the difference by maintaining two complementary divisions operating very different models in the same group, it is hard to see the generalised approach as it stands prospering. Yet it is striking the extent to which major UK firms are attempting to remain most things to most clients, especially since the clearest post-Lehman success stories in the UK profession have been lean City mid-tiers.
While there has been talk for years of the possibility of top London firms getting smaller, there has been a failure to grasp that such a stance can only be credibly achieved through a sharp, decisive restructuring. Law firms cannot be trimmed incrementally over a decade or more without robbing the institution of momentum and morale. While an institution can reboot and then pursue strategic growth from its smaller form, ultimately, healthy businesses need to advance unless they fill extremely well-defined niches, such as a Slaughter and May or Bristows.
What this ultimately comes down to are choices: the ones you make and the ones you avoid. There are far worse maxims in business than strategy being largely about what you say no to. At some point, major London firms should be making far more definitive decisions on where they want to place their bets and which areas are not taking their businesses forward. Would anyone seriously argue the contrary?
