Legal Business Blogs

Comment: The case against value – the virtue that can become vice

It’s the spirit of the age that law firms feel the need to not only deliver better value and efficiency but to be seen to do so by clients.

And what could be wrong with that? The northshoring trend has been increasingly apparent in recent years, with Freshfields Bruckhaus Deringer – the closest to a traditional partnership in the big four – now gearing up for a huge move to Manchester. Clifford Chance, meanwhile, has made much of its efficiency and push to align itself to clients, a stance clear under the leadership of David Childs and even more front-and-centre under Matthew Layton.

In many regards, attempts to improve the value provided were overdue. Law is a high-margin business that had been through a long period of growth and law firms had pushed a lot of increased costs – primarily to fund their war for talent – onto clients during the boom.

But I’m still going to argue that mom and apple pie isn’t always a good thing. The problem with seeking out efficiency and making a business more productive isn’t the goal itself, which is admirable and logical, it is that such a drive can easily tip over into less desirable organisational behaviours.

Put simply, cutting costs to produce the same service is good, but what are you doing on the other side of the equation – growing revenues? Efficiency as a long-term goal is a false idol; it morphs into managing decline. Businesses are ultimately defined by the ability to profitably achieve growth against peers. In over 15 years of covering business and law, I have seen this many times – commercial entities unsure how to achieve growth become obsessed with cost management, blind to the fact that this is a medium-term tactical response, and lose focus on their business drivers.

This is true in most sectors, but more so than most in law because of the way the economics of corporate legal services work. Most large commercial law firms are just half a dozen pitches or big mandates away from a great year… or a terrible one. Law firms are selling quality and, when demonstrably delivered, it pays very well.

Given all the effort, time and hassle that goes into such northshoring or re-engineering, the question is whether the equivalent focus is being put into improving the firm’s business-winning skills and ensuring it is in the right markets to drive growth. Any large law firm that cannot sustainably grow on a three-to-five-year basis is diminished.

Latham & Watkins in 2014 increased its revenue by 14%, up more than $300m in a single year. That strengthens the firm’s hand strategically far more than its current initiative to set up a low-cost centre in Manchester (though you have to applaud rightly ticking both boxes at once).

Many things can be a barrier to profitable, sustainable growth – being in the wrong areas or on the wrong side of a shifting market, or a lack of requisite skills in the partnership base are the usual suspects. Those are problems law firms need to solve – and if it comes down to a choice between the two paths, rising to the growth challenge is a better use of precious management time than plotting the next trip to the regions.