Knowles: Too many law firms do not know where they are heading
Sir Nigel Knowles has warned the top commercial law firms that the Big Four accountants are “a force that no law firm can match” in their ability to invest in capital projects.
Sir Nigel, DWF chairman and former senior partner of DLA Piper, said shrinking numbers of equity partners at large law firms made capital investment “more and more difficult”.
Speaking at the Legal Futures Innovation Conference last week, he said: “One of the problems law firms have got in terms of equity partnerships is that very often people come into equity later in life.
“By the time they’re in their mid-50s, lots of law firms are saying ‘you should be retiring so we can bring some young people in’.
“The proportion of equity partners to the size of firm is probably reducing, but equity partners still need to be the people, unless you get private equity or list, that invest in the future of the business, particularly in capital projects.
“The burden on equity partners to make capital investment in law firms is getting more and more difficult.”
In contrast, Sir Nigel said that in 2016 alone, PwC had spent a billion dollars on buying technology-based companies.
“They are under pressure because they can’t get any more audit clients and there are restrictions. So the only way of growing their top line is to sell non-audit services to non-audit clients, which is why tax, consultancy and law are right in their sweet spot.
“So the accountants are going to be a force with an ability to invest in capex [capital expenditure] that no law firm can match.”
Sir Nigel, who was chair of Riverview Law prior to its sale to top four accountant EY this summer, said law firms needed to understand their position in a “segmented” market. Instead, he said too many did not know where they were heading.
“You’ve got to work out: what clients do you want to act for, what services do you want to provide, where in the world do you want to be providing them and what is your market strategy?
“I think there are far too many partners of law firms, who, if you got them in an elevator and asked them ‘what is your plan?’, they could not articulate it quickly enough.
“Clients don’t want to pay for your input any more. They want to pay for your output – what value do you bring to their business or how efficiently have you solved their problem.
“It’s not a question of you’ve worked 12 hours so they’ve got to pay for 12 hours. It’s a question of what are you going to do that the client is going to pay you for? Can you do something in 20 minutes that used to take you an hour and charge for 40 minutes?”
Sir Nigel said innovation was “really important” and was the competitive difference between law firms.
“It’s not down to the leadership of a firm to work out what innovation is. You innovate on different levels.
“I think every partner in every firm is responsible for looking at incremental improvements and continuous innovation to the way they deliver service… Innovation is something everybody has got to be engaged with every day.”
He said that, since the 2008 economic crash “all the slack has gone out of the system”, while general counsel had “strengthened enormously” in terms of their importance to companies.
“They want to keep some of the better work for themselves and they also want to reduce the number of firms on their panel, and they want those firms to cover more practice areas and more geography that match their footprint.”
He added: “The boot was on the foot of the law firms until 2008. The boot is on the foot of the client now, and [since then] that boot has never been taken off the neck of law firms.”
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