Many top law firms see alternative providers as “threat to profession”

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Williams: team acquisition is like a merger with less risk

Four in ten managing partners at leading law firms see alternative providers such as the Big Four accountants and insurers as the biggest threat to the legal profession, according to a survey published today.

Meanwhile, firms are more likely to eye growth from investment in technology and hiring established teams of lawyers, rather than merging with other firms.

The survey, From recruitment to robots: Growth strategies for law firms, was published by London corporate law firm Fox Williams and legal communications agency Byfield Consultancy, and surveyed 76 managing partners at the top-200 firms.

The results showed a further dropping off in enthusiasm for mergers. In the equivalent survey in 2015, which surveyed 102 top-200 firms, 45% of firms surveyed thought merger was on the agenda. In 2016, a massive 86% considered merger carried a risk of reducing profitability compared to other growth strategies.

Last year’s survey showed that concerns about merging as a strategy for growth were already widespread among managing partners. Also, while 95% predicted major consolidation over the next two years in 2015, 73% of respondents in 2016 have not merged in the past two years.

The reputational risk of a merger failure was felt to be far greater than other failures. However, almost all of the 19 respondent firms that had merged themselves reported they had achieved greater financial stability. Just one firm said it had not and none said merger had reduced profitability.

In good news for legal IT suppliers, 83% thought investment in technology had the greatest potential to yield profit growth. This was followed in popularity by recruiting an established team of lawyers – more than seven out of ten of those surveyed saw this as a top prospect.

Asked for their predictions for the future, just 3% of respondents planned to become an alternative business structure in the next 12 months and nearly 40% saw alternative providers as the biggest threat to the profession.

Despite the enthusiasm for technology, even more, 50%, identified IT – such as legal software for non-lawyers and artificial intelligence – as the biggest threat.

In a sign that non-lawyers are increasingly important in legal services, almost six out of ten respondents identified the increased use of paralegals and other non-qualified staff as one of the best prospects for improving profitability. “It could also point to more efficient ways of delivering legal services, in line with client needs and the nature of the work and levels of expertise required,” the survey said.

It also found that 42% of respondents have invested over £100,000 in the last 12 months to commoditise aspects of legal work.

Among technological developments highlighted in the report was block chain technology. Fox Williams partner, Jon Segal, said: “A block chain could be used for a negotiation process for complex contracts and projects, be highly resilient against unauthorised amendments and offer a self-managing record of the entire negotiation, potentially without any manual inputs from junior lawyers.”

As well as baulking at the risk of failed merger, respondents’ appetite for setting up overseas offices was extremely low. Fewer than one in ten identified the move as a top three growth strategy. A similar number said they expected to join an international network in the next year.

Tina Williams, Fox Williams’ chair and head of professional practices, sounded a note of caution about the shifts in direction suggested by the survey: “Recruiting a top team from a rival firm may seem to offer instantly increased market share, but the path can be strewn with legal tripwires that can mean delay and additional cost.”

On the other hand, acquiring a team was like a merger with less risk. “You can look at a team move as a merger with the benefit of cherry picking. A large firm might eye up a smaller one but want only its very best departments. It can take those teams without picking up any of the liabilities of the other firm.”

Ms Williams added: “Technology may appear to be a ‘must have’ but how might it improve efficiency and profitability; is it the best in class; will it be obsolete no sooner than  acquired? Not every firm will make the right strategic decisions all of the time, but all firms can take inspiration from the leaders in our market.”