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Interview: the corporate structure vs. the partnership

Barnetts Solicitors has enjoyed steady growth over the past ten years and has recently enjoyed the tenth anniversary of its chief executive, Joe Whelan. When the firm decided to move to a corporate structure, however, it was a small partnership with only 25 staff members. Caroline Poynton talks to Joe Whelan about the decision to abandon the partnership model, his experience as chief executive, and the business development of the firm.

27 January 2003

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What did you think of the management structure at Barnetts when you arrived ten years ago?

After 15 years experience as a practice manager at another firm of lawyers, I joined Barnetts in 1992. I relished the opportunity to manage a firm that would allow me a certain freedom to put into practice the ideas I had formulated in my earlier years.

It seemed to me that lawyers had traditionally run their firms on an archaic basis. I could see massive opportunities for a well-run, properly-managed enterprise with focus, ambition and a will for success.

The firm in 1992 had a fairly traditional set up – a partnership of five handling the generality of work, with the senior partner also having to act as the reluctant manager. There was good expertise in certain areas, but I could see potential, at least because Richard Barnett, the senior partner, wanted to progress – and appointing a non-solicitor [and non-fee earner] manager in those days was something of a bold step for a small firm.

Together with Richard, I spent the first six months analysing everything about the business and implemented the progression from there.

What structural decisions did you make and how did you implement the change?

Partnership is a terrible way to run a business. Some say that a camel is a horse designed at a partner’s meeting. Most partnerships appoint a managing partner by taking the most senior person, often the highest fee-earner, and asking him to manage, for which he will have had no training and probably feels exposed in doing a job he doesn’t necessarily enjoy. More often than not his role tends to be that of a referee, settling internal disputes between the partners.

We decided early on to run our business in a corporate style. I would be chief executive and Richard would take the chairman’s position. Partner meetings as such were abandoned (they were perfunctory anyway) and replaced by a reporting system to the partners. Over the years we have built on that foundation and now have a non-contentious director, HR director, conveyancing director, admin director and ICT director.

Inevitably, we suffered casualties among the early partners, who could not cope with this environment. Having a common philosophy is essential to success.

Many law firms might see such a structural upheaval as a risk too far. What do you believe to be the main challenges of moving to corporate management?

Many partnerships have extreme difficulty in raising the necessary capital to advance the business, by the very nature of their structure. As of yet, outside investment is not allowed. The older partners are looking to ring-fence their capital and seek an exit route. The middle-aged partners have high personal expenditure. The younger partners are far more enthusiastic about expansion, but it’s not their money anyway. Many partners will not take the entrepreneurial risk. Fortunately, I did not come across such problems, in that Richard was prepared to take that risk, and we were able to convince the bank of the model that we were pursuing.

Hopefully with the forthcoming proposed changes to the legal profession, it may be possible to attract outside investors and enter into proper business arrangements with business partners.

Having agreed the basic structure, what were your next steps to implementing a corporate business development strategy?

When formulating our strategy, we had a good look at the profession generally. We saw the large corporate city institutional type, well run and profitable, but with no great similarity with the rest of the profession in the country. Then there was the niche practice, focused with clear business objectives and quietly doing very well. Then there was the rest – not quite sure how to progress or how to do it. We opted for the niche route.

Basic business principles have not changed for centuries. We looked at all disciplines of the business and considered them as “shops”. We then looked at the net profitability of each shop, the sales per square foot, market trends and growth areas. The debt collection shop was closed down (unprofitable), then the commercial litigation shop (the market place changed), then the matrimonial shop (inability to gain economies of scale) and finally areas of general law (limited to local work).

The two niche areas that emerged were bulk residential conveyancing and bulk personal injury. Both were areas that could be conducted for clients all over England and Wales and where national referrers existed. We also had the advantage of location – we were not situated in a city centre. Residential conveyancing would produce a quick turnover of cash that could help finance the long-haul that was personal injury.

We decided to process the work by taking advantage of the very latest ICT technology and systems, employing a number of teams (shops). In the efficiency business, it is necessary to do each job down at the lowest common denominator. Only a small proportion of a job is actual legal work, much of it is processing documents or admin. We grew the business by gaining more work and building the teams.

Stage two was to look at each team to see its profitability and then to finesse it further by looking at the introducers of work and assessing their profitability. It was no surprise that some were more profitable than others – some even made a loss. We took the brave step of terminating our relationship with some introducers and turning some types of work away.

Many businesses seem to chase turnover, regardless of whether it makes a decent profit or not. After running the entrepreneurial risk of expanding the business, turning work away was probably the next hardest thing to do. In hindsight, we should have done it a lot sooner.

How did you manage the ongoing change within the firm?

With a rapidly expanding business, we found change management somewhat easier. All new recruiting was geared to the new methods. Some of the old school had their jobs redefined and they contributed in other areas such as quality control, technical advice and training. Unusually, we published our business plan and made it freely available. We told all the staff our plans and the cost involved in carrying them out. We have formal pay structures for every member of staff, which is openly published. All this is nothing new in industry, but it is very new in the legal profession.

In simple terms, if they know what the plan is and become part of it, there is a far better chance of it working.

The hardest part in implementing the plan has been recruitment. There are few people out there with the right kind of mind set and forward thinking who enjoy working in the fast lane. Recruitment has become inventive and is now ably aided by our PR company. We have also invested heavily in our people and have now established our own training courses.

And what are your plans for the future?

In ten years, our staff has grown from 25 to 200, with a target of 350. We move to our new 20,000 square foot custom-built premises on the outskirts of town in the summer of 2003. Turnover has gone up ten-fold and will dramatically increase when our space restrictions are lifted.

Many changes are afoot in the legal profession. For those that understand what is about to happen and have a vision, coupled to a sustainable game plan the future is very rosy indeed.

Joe Whelan is chief executive at Southport firm Barnetts. He can be contacted at: joe.whelan@barnetts-solicitors.co.uk

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