What makes a law firm ‘successful’?
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After two years of stellar financial performance from commercial law firms in Europe, it would be easy to miss some of the big changes under way in the world of elite law. Yet they profoundly affect the way the legal sector — and anyone with an interest in it — measures success.
While the model of equity partnerships based on charging for legal advice by the hour remains, the context in which they operate has been transformed.
Accelerated by the pandemic, clients and the people who work in law firms are demanding a different experience.
For clients, having big law firms that mirror their priorities, values and ways of working is essential. For staff, the traditional trade-off between high remuneration and a work-life imbalance is becoming less acceptable.
Rosemary Martin, group general counsel at Vodafone and a seasoned buyer of legal services, says: “A successful law firm, in my view, is one that its clients and employees love to work with and for. We look to partner with law firms for the long term, which means they have to share our values and approaches.”
Over the past year, many European law firm leaders have responded to these demands, by embracing purpose-driven, digital transformation and focusing on their people.
Firms such as Freshfields and Herbert Smith Freehills are undergoing big reviews of culture and values. Georgia Dawson, global chair at Freshfields Bruckhaus Deringer, says: “It remains front of mind for me that the way we run ourselves and our reputation will shape our client and recruitment opportunities.”
Justin D’Agostino, chief executive at HSF, identifies the people component as the big change: “People want more control, they will put in the effort, they want to be stretched — but they want the firms to have their back.” HSF is completing a listening exercise that will define what it means to work at the firm.
How much change is achieved remains to be seen — and some managing partners are sceptical. Paul Lewis at Linklaters says: “When you look back over the past five years, nothing has fundamentally transformed the legal business.” US law firms, the most profitable in the world, maintain the same business models they have for decades.
Still, the “great resignation”— in which workers left or cut their hours — and the pandemic have certainly led to new practices. Law firms now offer a form of hybrid working, where people are allowed to work from home, and human resource policies are designed to soften the high-pressure effects of elite law firm culture. These include better parental leave, and flexible working arrangements.
“Being able to deliver a quality service means delivering a great experience . . . to your clients and to your people,” says Karen Davies, global chair at Ashurst. This shift in law firm culture, where managing your people is now on a par with “the client comes first” mantra of past decades, invites the question: what constitutes a successful law firm?
For years, law firms have effectively used the measure of shareholder returns — or profits per equity partner (PEP)— to assess their success.
Catrin Griffiths, editor of The Lawyer, which publishes such law firm financials, says: “We know the problem of PEP — it is important but is it a healthy indicator of success? We are getting to the stage where law firms have to tell stories — but it’s hard to put a narrative into a PowerPoint deck.”
The legal directories assess law firms by practice area reputations as expressed by peer and client comments. And this annual Financial Times Innovative Lawyers report, started 17 years ago, became the first to use innovation combined with client feedback to measure success. But elite law firms are now realising that all their stakeholder relationships are critical.
And law firm leaders are noticeably planning further ahead than in the past. “Many decisions I take now will shape us in 2030,” says Dawson, who set up an advisory board of associates and business services colleagues to help the firm look to the future.
So, to reflect such shifts, the FT annual ranking of law firms is introducing a new, broader range of indicators to assess the success of commercial law firms (see FT law firm index table below). Innovation is still a key benchmark, but scores for people strategies, financial growth and profitability over three years, digital maturity, and client mentions have been added (see methodology below).
One indicator not included is social impact — partly because “responsible business” scores are included in the innovation indicator, but also because the firms have mainly been laggards on environment, social and governance questions.
The top ranked firm, Ashurst, is an exemplar of the changing legal market. The 200-year-old firm has spent the past decade reinventing itself, after its merger with Australian firm Blake Dawson. Revenues have grown 24 per cent over the past three years. Part of this was driven by its digital delivery arm, Ashurst Advance, and the development of its adjacent consulting services designed to give clients more rounded advice. The firm has also made strides to improve its working culture with generous parental leave policies.
Global chair Davies acknowledges that to give junior partners and associates the attention they want is hard.
“Partners are committing more time than ever before to supporting our people,” she says. “However, it is the Ashurst experience that will differentiate us, and partners will have to adjust to the new reality.”
FT Innovative Lawyers Europe 2022 is a ranking, report and awards scheme for lawyers based in the region. The FT and its research partner, RSGI, have devised a unique methodology to rank lawyers on innovation. Law firms and in-house legal teams were invited to make submissions.
Featured entries are drawn from those law firm and in-house legal submissions. Each submission is researched and scored out of 10 for originality, leadership and impact, giving a maximum score of 30 for each published entry.
Top-ranked entries in the report are shortlisted for the FT Innovative Lawyers Europe 2022 Awards. Some 428 submissions and nominations were received from 96 law firms and 34 in-house legal teams. RSGI researchers assessed and researched them through interviews with clients, senior lawyers, executives and experts between May and September 2022.
FT law index
The new FT law index provides a ranking and a holistic assessment of law firm success. Firms are ranked based on the following criteria, with a maximum score of 100:
Innovation: sum of score for the top three submissions to the FT Innovative Lawyers Report in Europe 2022, including submissions that were not published. (Weighted score out of 40)
People: Law firms completed a questionnaire about their human resource policies. Seven questions covering gender diversity, inclusion policies, and post-pandemic return-to-work policies were scored and benchmarked against other law firm responses. (Weighted score out of 20)
Digital: Law firms completed a questionnaire on their use of data and technology. Each of 10 questions was scored and benchmarked against other responses. (Weighted score out of 20)
Client mentions: Law firms were scored based on the number of recommendations received in a survey of 1,500 clients for legal creativity, approach to delivery of legal services, and positive impact. (Weighted score out of 10)
Growth (financial): Law firms were compared to each other for revenue growth in the most recent three-year period for which data was available, and for profitability in the most recently reported financial year. Revenue growth was weighted twice as much as profitability in the final score. Figures were sourced from RSGI’s research and were then given a banded score. (Weighted score out of 10)
Judging panel - Innovative practitioner and Innovative leader awards
The innovative practitioner and innovative leader award winners were selected by a panel of judges from a shortlist compiled by RSGI. The judging panel comprised: Matthew Vincent, editor, Project Publishing, Financial Times (panel chair); Harriet Arnold, assistant editor, Project Publishing, FT; Amy Bell, commissioning editor, Project Publishing, FT; Sarah Davis, vice-chair, Unicef UK and media industry general counsel; Andrew Durant, senior managing director, FTI Consulting; David Fisher, chief executive, Integra Ledger; Freddie Hustler, director, product sales, Litera; Christopher Jeffery, vice-president product marketing, legal tech, Thomson Reuters; Stephanie Vaughan, global legal practice director, iManage; Reena SenGupta, executive director, RSGI.