A warning to training contract applicants: technical expertise in the black-letter law is no longer enough to succeed in the legal profession.
Commercial awareness is a requisite skill, which means appreciating law firms’ approach to business, the commercial considerations of clients and the wider legal market pressures.
Remember that all law firms are businesses and are usually structured as traditional or, most predominantly, Limited Liability Partnerships. Essentially, each equity partner owns a chunk of the business and (hopes) to get back a significant return on their investment into it.
Firms come in a variety of sizes, ranging from sole practitioners to global giants. They make money by charging clients for advising and assisting in their legal matters and spend money on – among other things – staff salaries, property costs, IT systems and professional indemnity insurance to cover their backs in the event that it at all goes wrong.
The economy affects firms’ business – boom times witness dealmaking, whereas gloomier periods will often mean a rise in litigation. The biggest economic gloom of recent times was the crisis of 2008, which ended abnormal growth and changed the legal market irreversibly. Supply of legal services outstripped demand and so firms were left with great overcapacity, which challenged organic growth and the status quo of traditional business models. Further, firms have also been confronted by increasing competition from agile new entrants to the legal marketplace (there are now over 300 Alternative Business Structures in operation), legislative changes such as the Jackson Reforms and public funding cuts scrapping most legal aid.
How have firms reacted to these challenges to their businesses? Common trends have included the re-pricing of legal services, firms restructuring, market consolidation (mergers, and some firms going under) international expansion to balance risk, lateral hiring and growing dependence on contract staff and paralegals. Although there has been some return of confidence and a pickup in activity, overcapacity remains and therefore competition is intense as clients demand more from their advisers.
Business pressures firms have included the increasing need to drive down costs, efficiently manage billing and cash flow, monitor profitability and invest in business development.
Business development can be defined as the strategy which firms adopt to raise awareness of their services, gain more work and, ultimately, grow their practices. The concept encompasses client relationship management, marketing, gaining new instructions and crafting future business growth plans.
The law as a profession is somewhat unsophisticated when it comes to business development, and firms are consequently investing in this area to become more proficient in the skills required. A business strategy is only successful if all staff are aligned behind it, which is why trainees should take an interest in their firm’s business.
The fast-moving market presents an opportunity for firms to creatively reshape their business models and thrive. At my firm, I have had the exciting opportunity to assist in a variety of business development activities including networking, social media, marketing events and branding. In this series of blogs I will provide an account of my progress and share the little gems of business wisdom I learn along the way, in the hope that it will provide a useful insight into the business of law.
Sej Lamba is a trainee at Hanne & Co. Check back in January for her next blog.