Flourishing ideas: Why some law firms are more entrepreneurial than others

Joshua Freedman goes behind the scenes
more entrepreneurial than others

Academics have long struggled to agree how to define entrepreneurship, but most
people know an entrepreneur when they
see one. The legal profession has its fair share, despite the conservative nature
of the industry.

The successful ones are careful about developing the right culture to let entrepreneurship flourish, incentivising partners and staff to be radical, having the processes in place to make the most of new ideas and creating an environment in which change is not a bad thing. Often, this means learning from successes in other industries.

Open culture

Managing partners frequently say that their firm's culture is key to achieving entrepreneurial success, both in terms of getting partners and staff on board with new initiatives and encouraging them to pitch their own ideas.

Among the aspects of an entrepreneurial culture that leaders and advisers cite are:

• a forward-thinking mindset across the business;

• a lack of formal hierarchy;

• involving a range of people in decisions;

• encouraging people to come up with ideas without fear;

• celebrating innovation; and

• a willingness to throw the firm full-throttle into a new endeavour.

All of these make it more likely that lawyers and non-lawyers will conceive their own business proposals, pitch them to management and feel able to play along when the firm itself takes on a new track or tries out an entrepreneurial venture. These,
in turn, improve the quality of such ventures and make their success more likely and financially effective.

As law firm consultant Mitch Kowalski says, "if you don't have that environment where people are celebrating [innovation],
it dies very quickly".

Neville Eisenberg, managing partner of Berwin Leighton Paisner (BLP), says building such an environment is not something that comes out of a clear-cut instruction manual.

Eisenberg, who steps down this year after 16 years in charge, oversaw the firm during key entrepreneurial developments such as the formation in 2008 of Lawyers
On Demand (LOD). The business develops
a pool of lawyers who can be sent into clients' legal teams when there is demand
for more people.¹

"The culture and environment did play a part in empowering people to come forward with these ideas in the first place," says Eisenberg. "I don't think it's anything concrete - it's that the culture and the atmosphere and the approach of the firm tend to be to encourage people to come up with ideas. It's noticeable as an important element of our culture."

The concept arose when TMT partner Simon Harper co-developed the idea of putting together a small pool of lawyers who were not at BLP but were willing to make themselves available for clients on an ad hoc basis. Other clients heard about the scheme and expressed an interest in it, at which point the firm decided to take the product to the wider market.

It has since been expanded into two brands, LOD On Site, a secondment-style service, and LOD On Call, which provides lawyers to work remotely with clients. It has grown to serve both clients and other law firms, while turnover has gradually increased from £1m in 2008-9 to £8.7m in 2013-14, despite BLP as a whole reporting mixed results during the period. In 2010, the firm also rolled out Managed Legal Services, an insourcing project that takes on all or some of a client's in-house function.

"Certainly conditions do need to exist," comments Eisenberg. "BLP has always encouraged and empowered people to be entrepreneurial and think laterally."

Kim Craig, director of legal project management at Chicago-based Seyfarth Shaw, believes that a focus on clients and a lack of formal hierarchy are key to developing an entrepreneurial culture.

Seyfarth undertook a wholesale change to its model in the mid-2000s, applying lean six sigma and launching a project management team to handle tasks on mandates that traditional firms would assign to partners or senior associates. The 18-strong group is perhaps the largest such department in any law firm globally.

Other features of SeyfarthLean, as it
is branded, are sharper data and intelligence-led decision making, process mapping for client projects, a research and development team and a range of offshoots including Seyfarth Link, a technology platform
for clients.²

"I would say the culture in the firm
has always been one of forward thinking," says Craig.

"We're more of a flat organisation in that we recognise the value that other professionals contribute, not just lawyers. I've been at the firm for 32 years and, over time, I've seen the firm move towards the progressive, forward-thinking approach.

"When we started doing project management in 2004, I thought they [the firm leadership] would just dictate, but what was apparent and embedded in the culture was all the people being involved."

Seyfarth has seen revenues grow by 60 per cent on the back of the initiative, from around $336m in 2005 to $540m in 2013.

DWF's managing partner, Andrew Leaitherland, whose firm's turnover grew
from £32m when he took on the role in
2006 to £191m in 2013-14, agrees that culture is a key factor.

"We have a culture where everybody has a voice and we have invested in necessary communication tools to ensure the right channels are in place for our people to share ideas in an open and honest environment," he says.

"Whether it's at our town hall meetings, over our internal social network Yammer or via a video call, everybody has the opportunity to have their voice heard.

"In addition, we have key teams established to deliver support to help
ideas get off the ground, helping to create
a culture of innovation across all aspects
of the business."

The revenue growth was primarily driven by five mergers in 2012 and 2013, which Leaitherland cites as a sign of the firm's entrepreneurial attitude. But, more recent eye-catching innovations include giving lawyers the option to buy a pre-fitted shed for home-working for £6,500 and striking a deal with Canon to route mail directly into its case management system electronically.

Remuneration systems

Without financial incentives, getting partners and associates to change and be creative is that bit harder.

Employing a remuneration system that rewards innovative thinking and action achieves two goals: it is both a carrot
for staff and, in a less tangible way, an indicator that the firm puts its money
where its mouth is.

A number of firms use their
remuneration system to encourage innovation, but the more entrepreneurial
ones do so in a focused way.

Seyfarth, for instance, embeds
innovation into its annual remuneration reviews for partners and associates.

Axiom Law, one of the more radical disruptive models, takes entrepreneurship into account when determining staff pay and bonuses, according to its UK head, Al Giles.

"Because it's part of people's day jobs, we performance manage against it," he says.

 

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Innovations labs in law firms

Some of the more entrepreneurial law firms are moving towards the model seen in other industries and have a research and development (R&D) department or a dedicated, target-free innovation laboratory along the lines of Google X.

Among these few is Seyfarth Shaw, which has a team of ten developers working on technological infrastructure.

“Think of it as a small software company inside a law firm,” says Kim Craig, global director of the firm’s legal project management office. “We almost function like an R&D shop – the policy is ‘don’t be afraid to fail’.”

Among the pioneers of innovation centres is Miami-based Akerman. In 2013, the firm, together with others, put out a list of seven changes they expected in the market in the next decade.³ One was that firms would create R&D departments and launch autonomous ‘skunk works’ teams to mirror the defence contractor Lockheed Martin’s longstanding development programme. In April 2014, Akerman announced it was setting up its own R&D council modelled on start-up incubators, involving select clients and with the freedom to develop its ideas.

Other firms are getting in on the act too. Allen & Overy has an Innovation Panel headed by London partner Jonathan Brayne. Berwin Leighton Paisner briefly ran an ideas lab in the years after Lawyers On Demand launched, set up by then-director of innovation Stephen Allen (now at DLA Piper) with the purpose of assessing and incubating entrepreneurial proposals, but this did not continue in the same form long after he left.

“Most industries have R&D departments,” says Tim Aspinall, former managing partner of DMH Stallard. “Lawyers don’t have R&D. if you look at the new entrants coming in, they do.”

Markus Hartung, director of the Bucerius Center on the Legal Profession, encourages firms to think about using “future laboratories” to find out what the law firm of the future will look like. He has been researching this question himself, together with Boston Consulting Group, with a focus on whether alternative service providers will succeed in disrupting the market.

Hartung hopes his first laboratory will be up and running by the end of the first quarter.

“Either they should join our laboratory or set up their own future laboratory [and] have a real spin-off,” Hartung suggests. “And don’t ask them to report to you. Maybe there will be a time when these people will get back to you. In order to let people have their way and their blue sky, provide them with their resources and let them go.”

Not all are so convinced by the phenomenon. David Ryan, managing partner of Pinsent Masons, says that while the firm has many staff who are expected to spend up to half their time coming up with ideas for solving the firm’s and clients’ problems, shifting people into a separate laboratory is not the solution.

“We think sparks are created when people interact and share, and that happens most often when people are going about their daily work and working on real – rather than hypothetical – problems that need to be solved,” he says.

Not every firm wants or can afford a Google X-style department, but we might just see a few more coming about in larger law firms.

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Managing ideas

Having in place a careful plan for how to assess proposals can ensure that a firm takes full advantage of the good ideas, scraps the bad ones without enmity and incentivises those proposing the changes
to provide a focused and thought-through pitch. After that, it is critical to have an
honest assessment of a project once it gets off the ground and to know when to pull
the plug or spin a business off to get maximum value.

One firm that has benefited from a deliberate approach is Shakespeares, which completed seven mergers in seven years from 2007 and has carried out other endeavours, including a joint venture between the firm's property department and a client. Firmwide revenue has grown over the years thanks to the mergers, going above £50m in 2013-14, compared with £28.4m in 2010-11.

Chief client officer Andy Raynor, who joined Shakespeares at the end of 2013 from accountancy firm RSM Tenon (where he was CEO), says the assessment of these ideas "has to take place over a short period of time - good ideas don't happen slowly".

Shakespeares has a fixed process in place. First, the internal entrepreneur must pitch the idea to the board in no more than two pages, explaining what the idea is, how it relates to what the firm already does, how it will help the firm strategically and what the financials are likely to look like. The five-person board, including CEO Paul Wilson, meets monthly and usually has at least one pitch to assess.The board will then ask a series of questions to determine the appropriateness and viability of the idea:

• Is it a business opportunity?

• Does it fit with what the firm already does?

• Is there a commercial model the firm can make out of it?

• Would the firm have to change the shape of the business, or things such as where people sit or their responsibilities? Do they have the right people already?

Eisenberg says BLP managed its LOD idea well as it did not take on major risk until a late stage when it was already making money. Only then did management decide that the people running it as a side thing should take the wheel as a full-time endeavour, meaning they would be removed from client work. In 2012, the firm spun the business off as a separate business unit, managed full time by the lead development partners.

"It reached a point where if they are not liberated from the mother ship they can be limited," says Eisenberg.

Pinsents Masons' central project management function assesses major ideas, focusing on alignment with strategy and checking up on costs and benefits. One of the firm's biggest entrepreneurial outcomes came in 2013 when it won the right to handle all of Balfour Beatty's business-as-usual work, using a technology-based approach to deliver a 30 per cent reduction in legal spend for certain types of work. The deal also meant reliable revenues for the firm.

"The ideas which went into the Balfour Beatty relationship were themselves the development of relationship, pricing and IT ideas, and fed directly into other relationships and tools once we were able to demonstrate success," says Pinsents' managing partner, David Ryan.

Normalising change

Leaders who are able to normalise change tend to enjoy more entrepreneurial success than those in firms which are dogmatically focused on tradition.

Tim Aspinall, who stepped down as managing partner of DMH Stallard at the end of 2014 after 18 years, agrees that making change normal is critical. He employed change management tactics in his early years as head of the firm, then Donne Mileham & Haddock, and saw revenues grow from £6m in 1997 to over £20m in 2005. PEP, which back then had never breached £60,000, rose to nearly £200,000 in the same period.⁴ The firm grew from a Brighton firm to one with five offices across the southeast of England, including London.

In addition to a string of mergers, the culture bred innovations such as a sector approach, client listening programmes, process mapping and a strategic alliance with fixed-priced legal services business Riverview Law in 2013.

Among the ways Aspinall attempted to normalise change was through increased staff engagement, notably in his early years in charge by running a Saturday workshop open to anyone in the firm to debate fundamental strategic issues.

"Lawyers are essentially very conservative people because the advice they give has to be perfect every time.
Risk-taking isn't something that comes naturally to lawyers," says Aspinall, cautioning that this does not mean entrepreneurs are "reckless".

Learning from other industries

A big part of innovative thinking is not feeling that one must comply with the norms of the profession. Learning from other industries can open up doors to new ideas and more efficient ways of working, improving revenues, profit margins and savings for clients. It also helps to take the long-term approach favoured in entrepreneurial segments of other trades.

As Aspinall comments: "I suppose I wanted to create a business that happens to be in the legal services market. I thought of the firm from an early stage as a business and created a strategy around that. And to export a business that wasn't doing so well [in the late 1990s] into a successful one.

"We were taking what other industries were doing on an everyday basis and bringing them into our firm," Aspinall explains, adding that, when partners would challenge him by asking if competitors were doing the same thing, he would respond: "I don't care what other firms
are doing".

One of the factors that Aspinall identifies is the need for partners to see themselves as shareholders in a business aiming to see their capital grow over several years, in the same way that entrepreneurs in other sectors might view a start-up.

Notes Nick Jarrett-Kerr, principal at Edge International: "One of the upsetting things about traditional law firms is they tend to be very short-term vehicles for profit, whereas [entrepreneurs] look beyond today, into tomorrow's market."

Adds consultant Andrew Hedley: "Once you make that shift in mindset, you get to the point where you're creating a return-on-investment approach."

Axiom tapped a number of other industries for its strategies in handling client work. Seyfarth, too, learnt from other industries, making its major shift in the mid-2000s when it observed what its own clients were doing.

"In around 2005, our chairman and leadership sat down and realised we needed to come up with a better way to serve our clients. They spent some time with some clients who had embraced six sigma and other models. We decided that should be something our firm did," says Seyfarth's Craig.

Many law firms are still nervous about departing from the norms of the profession, but plenty out there have proven that entrepreneurial change can be beneficial to the point of transforming a firm's commercial success.

 

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Top entrepreneurship tips

• Think of the firm as a business that happens to offer legal services. Use successful companies in other industries as your examples to imitate.

• Let the younger members of the firm influence decisions.

• Where the remuneration system permits, give partners and staff a financial incentive for being entrepreneurial by building it into performance and compensation reviews.

• Engage staff through optional ideas sessions.

• Encourage partners too look at themselves as shareholders with a long-term stake in the business and want their capital to grow.

• Do everything you can to ensure partners and staff can openly pitch ideas to the leadership.

• Plan carefully what resources to put into a project and when.

• Hive off a successful product to give it freedom to develop once it has produced results consistently.

• Consider setting up a dedicated innovation laboratory and making R&D a key strategic function

Note: Compiled from observations made by interviewees

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Endnotes

1. See 'Flexible service', Simon Harper, Managing Partner, Vol. 14 Issue 4, December 2011/January 2012

2. See 'Lean and agile', Karen Dalton and John Duggan, Managing Partner, Vol. 15 Issue 7, April 2013

3. See https://www.law2023.org

4. See 'Peak performance', Tim Aspinall, Managing Partner, June 2005

 

Joshua Freedman is a freelance legal journalist.

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