Role calls

Not so long ago, when anyone used the term ‘law firm’, they could be confident that their audience would have a common understanding of what was meant. Although legal services were being impacted by consolidation and globalisation – and very large, multi-site mega-firms were beginning to dominate the top end of the business law market – that shared understanding applied to those giants as much as to the sole practitioner or small high-street firm. The law firm was a partnership, worked in offices divided up with cellular partitioning, was wholly owned and capitalised by a senior sub-set of its qualified lawyers, and billed its work almost exclusively by the hour. If we are honest with ourselves, we would also assume that the best remunerated and most influential people in the firm were almost all men, and the lowest paid (the secretaries and receptionists) were almost all women.

Today in the UK, the single-profit-pool, office-based, self-funded partnership is no longer the default model for legal services. Almost nobody now sets up a new legal business as a partnership or LLP. Of course, the partnership model is still seen as working well for some, and is clung to by many established firms, especially the largest commercial law firms, but numerically, those firms are in steep decline. We are now very near the point when partnerships will become the minority of regulated firms, with limited company the new default. There are now also well over 1,000 alternative business structures (ABSs) regulated by the Solicitors Regulation Authority. Meawhile, at the larger end of the market, we have seen an emerging ‘public circle’ of listed law firms, including DWF, Knights plc, Gateley and Keystone Law.

And, of course, the lockdown triggered by the coronavirus pandemic has accelerated all kinds of change and innovation in how lawyers work.

In this article, I look at how the law firm management model has changed in the last 20 years, the new roles emerging, and what the future might bring.

Adapting corporate governance to law firms

Changes to the underlying legal status of law firms inevitably stimulate new ways of managing and governing them. Although some ABSs (indeed, even some limited company converts) have continued to operate in almost every way as they did as a conventional partnership, most have introduced other internal changes.

With the advent of third-party shareholders, the creation of a board has been an obvious area of change. I have noted over recent years the growing trend to appoint independent, external non-executive directors (NEDs), even in firms that are still constituted as partnerships. Some NEDs are taking on the role of non-executive chair, and leading board meetings.

We are also seeing law firms adopt management trends from corporate organisations. Law firms have become more ready to challenge established conventions, in favour of applying best practice from other industries.

The long-standing view that the partnership model of owner-managers demanded an entirely unique management model has been challenged and, I would say, debunked. The fundamental foundation of corporate governance that delineates executive from ownership functions has been successfully adapted to professional services – suitably tweaked to reflect the important, but not insurmountable, challenge (and, sometimes, advantage) of having your shareholders working in the building.

The executivisation of law firms

Once the preserve of the largest UK law firms, what I call “executivisation” has established itself as the most common model for mid-tier firms, as well as for many of the most progressive and dynamic small to medium-sized (SME) firms.

I have identified five main characteristics of this model, which has been applied in partnerships and LLP firms as much as in limited companies. These are outlined below.

1. Managing partner as CEO

Over the last 20 years, the managing partner (MP) role has shifted to have a substantial concentration of decision-making authority, performance responsibility and control over

resources. In many firms, the MP title has been retained; in others, the role has been rebadged as chief executive or CEO, to reflect clear accountability for the ongoing management of the business. As this form of powerful senior executive management has taken hold, senior partner roles have become less clearly defined, often tending towards a loose non-executive chair position. With a more complex, demanding management role, often in an expanding firm, the MP has become close to a full-time executive. This represents an often unacknowledged professionalisation of the law firm management career path.

However, this presents a challenge for the MP: executives are chosen via periodic election, making their roles less secure; and they may have to leave their client practice, only to have to re-enter it later. For these reasons, and as firms look for proven business growth or turnaround experience at the helm, it seems highly likely that we will see a steady increase in the currently modest number of chief executives hired from outside the firm, many of them non-lawyers.

2. Executive team

As the MP role becomes more firmly executive and full time, there is a natural tendency to build the best team of business professionals around that role that the firm can find or afford. As firms get larger, this team tends to adopt a more formal structure and function. I can track the evolution in many firms from a loose weekly or bi-weekly gathering of ‘heads of’ – with the attendees each having a line relationship with the MP but little defined connection with each other – into a formal executive board (or ExCo or OpEx – the labels are legion).

In many firms today, the executive board holds the critical responsibility of managing the business, responding to the ever-faster pace of legal business, and making the key decisions day to day. Composition varies, but the group is usually focused around the MP / CEO’s direct line reports, comprising ‘heads of’ both legal practice groups and business functions, such as finance, HR, IT and business development. Office heads and partners without a practice head role are seldom included; indeed, lawyer partners may be in the minority. Whether physically or virtually, the team will meet, very regularly (some firms even have a daily, short ‘water-cooler’ check-in). The “C-suite” (chief financial officer (CFO), chief operating officer (COO), chief infomation officer (CIO), and so on), once regarded as incompatibly alien and corporate, has naturally gained traction with the emergence of the executive team as the main organ of business management (see below).

3. Practice executives

Over the past decade, law firms in most jurisdictions and of all sizes have begun to adopt another corporate organisation trend: simplifying and consolidating their management structure. Once, 15 departments and multiple standalone branch offices made up the firm organigram; now, large, diverse practice groups, typically no more than six or seven, have become the default organisational building blocks, mirroring the corporate business unit. Department head roles have begun to expand, tracking the development of the MP role; some firms have rebadged them as divisional MPs. In larger firms, these roles take up a lot of time, squeezing the time for client work, and the group heads often need their own executive team, with a divisional COO and finance manager to support them.

4. Non-executive shareholder oversight

In many firms in the past, the whole partnership, or a large equity partnership board, met every month to pore over the firm’s performance and make decisions. In many firms I work with now, all-partner meetings are only held quarterly, six-monthly or even annually, and sometimes take on more of the appearance of a corporate annual general meeting (AGM).

Instead, firms have adopted a partnership-friendly version of a corporate board, by developing their partnership council or partnership board (sometimes with one or two external NEDs added in) into an oversight body of representative partners, often chaired by the senior partner / chair. The members are generally elected, either to represent a specific location or practice constituency, or by the partnership as a whole. Practice heads typically now sit on the executive board, rather than on the oversight body – I have found this helps to resolve the conflict of executive and representative roles they have to juggle in the unitary-board model. Firms with this partnership council model can also find it easier to co-opt representatives for specific groups or issues, and tackle serious challenges such as the lack of gender diversity in law firm leadership.

A few firms have gone the whole hog and created a representative oversight board made up of a large proportion of independent, external NEDs and a representative group of partners – most commonly, firms which have floated or taken substantial external investment have had to adopt this model.

5. The legal chief operating officer

Over the last 20 years (coincidentally, when I first began work as a legal COO), the role of COO has established itself as part of the legal organisation blueprint. What COOs do in law firms tends to be rather different from their counterparts in many other sectors. Law firm ‘operations’ lack the operating plant and machinery, supply chain, and critical operational efficiency and margin management of many industries. In law firms, the COO role has instead often been used to consolidate responsibility for the running of the business and the full range of business support functions: line-managing all the business service heads; holding the firm’s operational and financial plans; and making the key resource, infrastructure and financial decisions. Appointing a COO enables an MP to maintain some semblance of a practice, or focus their time and energy on growing the firm through attracting new clients and new hires – or even simply cope with the massive demands of the top job in an expanding firm. In almost all circumstances, the COO has skills and experience that complement the MP, who will typically only have worked in a law firm environment, and often exclusively as a front-line client-facing lawyer.

Some MPs still hold the COO duties themselves, and some believe this remains the core component of the job. However, I estimate that over 60% of the top-100 firms, and a growing number of the next tier, now have a COO taking overall responsibility for a large swathe of the firm’s business operations.

There are multiple COO models in use in law firms today, and examining the options and the advantages of one model over another would require another article. But, in headline terms, there are three options.

1. The COO manages the entire business operation of the firm, reporting up to the MP, or sometimes senior partner.
2. The COO manages the finance function of the business, typically with a CFO.
3. The COO manages finance and one of the more practice- and client-focused functions, such as business development or HR (in which case, the COO is holding a focused operations and infrastructure remit).

The new legal C-suite

I’ve already touched on the growing use and acceptance of “chief officer” labels for senior business executive roles in law firms. How are these roles developing, and to what extent do these C-suite labels denote a genuinely different role in practice?

The simplest definition of C-suite roles is that they are the highest-ranking senior executives in an organisation. The concept of the complete C-suite sitting at the top of an executive pyramid comes from corporate America in the first place – going some way to explaining why the job titles and roles didn’t catch on very quickly in the UK legal world!

However, law firms in the US and the UK have increasingly adopted C-suite titles. One reason for this has been the introduction of the CEO (often a renaming of the MP role) and COO roles into law firms: the initial decision to create a CEO or COO role, or both, can then sow the seeds for a natural extension of C-suite nomenclature over time.

The recent wave of new roles is just the beginning

Probably the next most popular C-suite title we see in law firms today is CFO. Firms from Hogan Lovells and Baker McKenzie to Mills & Reeve, Brabners LLP and Collas Crill have CFOs today. In some large corporations, and now in larger law firms, the CFO role is clearly distinguishable from a still-extant finance director (FD) job; typically, the CFO has more global and/or strategic responsibility, and the FD reports up to them. However, it is more common to see the old FD job title being retired and replaced by CFO, to fit in with a wider renaming of senior roles and emphasise a new level of responsibility and status (or simply because it sounds bigger and better!). Similarly in the technology function, CIO has become common, typically as a new rendition of IT director, but sometimes (as with CFO) to define a clearly different, more strategic role.

Although other C-suite titles are less commonly used in law firms, all of the executivisation trends noted above are contributing to growth of these labels to replace other senior job titles. In the sector, I can find a scattering of chief marketing officers (quite common in US firms), chief people officers or chief human resources officers and chief risk officers. There is no doubt we will see more adoption of this trend, particularly in tandem with the development and formalisation of executive boards.

Blazing a trail: the innovation and transformation community

The next few years are likely to see the introduction of more people at all levels who are focused on driving innovation, deploying LegalTech, and transforming and digitising client services.

These trends are already triggering a surge in new hands-on roles, with growing numbers of new hires or internal transfers with a host of interesting labels: legal engineer, legal operations, legal project manager, data analyst or innovation team. I buy into the predictions that the percentage of people that law firms need with digital, data and change skills will keep growing through the decade, as the percentage of qualified lawyers needed reduces. The recent wave of new roles is just the beginning. Many of these new roles are hybrids that require a strong grasp of legal practice and service delivery, as well as technology and innovation skills, so many people taking on these embryonic jobs have a legal background – either qualified solicitors looking for a career shift, or young people with a law degree or conversion course finding a different route into the law.

Towards the senior end of the management structure, the cadre of new people with hybrid, LegalTech and innovation skills don’t always slot into legacy organisational design. If located in existing IT functions, the applied, client-facing component of the role may not receive enough focus. If sat in with the legal teams, the new roles may find themselves pulled inexorably into chargeable work as a priority, and never given the space to deliver the expected innovation. One solution is setting up a new directorate, clearly separated out from the ‘business as usual’ running of the firm and led by roles like chief innovation officer, head of transformation, client service director or strategic programmes lead. Often sat apart from the rest of the C-suite and reporting directly to the MP, these new roles are still finding their place in the next-generation law firm model. In the short term, the right person in post with the right support can drive an incredible amount of innovation and momentum, free from the constraints of conventional functions.

Another group of roles has appeared in law firm management structures in recent years. Although much more prominent in the US, we are beginning to see this group translate to the London market. These roles have focused on what is now generally termed as “legal operations” (popularised by the incredible growth of the Corporate Legal Operations Consortium): the management of legal matters including scoping, pricing, financial, planning and project management, particularly from the in-house legal perspective. In US law firms recently, I have seen titles including director of strategic pricing and project management, legal operations director, director of client relations, and legal project management director.

Without a doubt, we are about to see another shift at the cutting edge of law firm models, with some of these new roles permanently establishing themselves, starting with the largest firms, but moving quickly to the mid-tier and to the most progressive SME firms. Inevitably, as with any new model, there will be failures as well as successes along the way; firms can expect too much too quickly, fail to truly support these new teams, and/or blow hot and cold about committing genuine resource to them. Relations with the rest of the executive team can be challenging, not least with COOs and CIOs, who may feel some of the most rewarding aspects of their remit have been carved out.

I recommend that law firm leaders step back and consider their structures and senior roles, with an eye on the changing demands of the next decade. Law firm executives also need to face up to another period of change and be prepared to positively re-set the scope, boundaries and key relationships of their roles.