Organic strategy: Increasing revenues without a merger

 

Key takeaway points

1. Design a physical environment where individuals will thrive

2. Insist on good manners

3. Focus on people, product and profitability

4. Don’t sit on stuff – make decisions quickly and then act on them

5. Build for the future – leave a legacy

 

I sometimes wonder if people imagine a self-satisfied air at Stewarts Law. For ?the record, that’s not how it is and not how it’s been.

Yes, we’ve done pretty well. When I took over as managing partner in 2000, we were turning over £3m. Turnover in 2014 is due to break the £50m barrier – that’s year-on-year growth of 30 per cent per annum in the past five years, without a single merger. And, of course, that’s reflected in our earnings.

This year, Stewarts’ 18 equity partners earned an average of £1.1m each – although we’re only the UK’s 65th biggest law firm in terms of turnover, we’re ?fourth in terms of profitability.

We’re now the country’s largest litigation-only practice. But we haven’t ?done all that by being complacent. It’s been very hard work, actually. Fun, too, ?and challenging. But it didn’t just happen by accident and we are not about to rest on our laurels.

Working environment

Our London office provides a good introduction to what I’m talking about. At first glance, it probably looks much like any other office in an upmarket City block – open-plan, muted colours and so on. The London practice is actually the identical twin of the one in Leeds, which we opened 10 years ago. What I saw in Leeds was how well people react to cityscapes. My brief for this place was to use as much glass as possible, so that whether you’re in an office or an open area, you can always see out and beyond.

The thing you’ll really notice about Stewarts, though, is how quiet it is. Most open-plan offices are noisy. What I wanted here was a collegiate feel – thus the desk lamps, for example, and matching Kubrik units for stowing the tens of thousands of files you get with litigation. I wanted the office to feel civilised, well-ordered, courteous. When I’m asked to sum up in one word our key core value, I always say ‘manners’. People are surprised by that.

The way this office looks and feels has a lot to do with it. They say that manners maketh the man, but I think the environment also makes for manners. In my early days, I remember dreading going into some of the jobs I had – places with strip lighting and plastic pot plants on the window sills. I didn’t want anyone who worked here to feel like that.

My designer Terence de Pass and I found the desks in Spain and the chairs in Germany. We had the carpets flown in from America. Even the art on the walls – good modern British works mostly, by artists such as Julian Trevelyan, Elizabeth Frink and Mali Morris – was chosen to chime with the kind of work that goes on here.

By the way, in case you think that means we threw money around, quite the opposite is true. By putting together our own team of design consultant, project manager and specialist contractors, we managed to avoid the high cost of using a single lead contractor. We ended up paying around 40 per cent less for our fit-out than other comparable City firms were forking out at the time.

The three Ps

But it isn’t all just about money. I’ve got a shocking memory, so I’m always making up mnemonics. The one I have for making a success of Stewarts is PPP – people, product and profitability. You can’t have any of them without having all three. And, for me, the single most important one since 2000 has been people.

I’m sure that sounds like the kind of self-gratifying puff that managing partners always spout, but in the case of Stewarts it happens to be true. I don’t mean to blow my own trumpet, but I can’t think of another managing partner of a firm of our size who can say, hand on heart, that he has personally interviewed every single one of his legal staff. In the days when we were smaller, I’d even interview the office cat!

People

The thing is, it’s not just about skill sets. It’s about fit. We’ve got nearly 120 qualified lawyers at the moment. When we bring in another, the first question in my mind is always: ‘How well will he or she fit in with the other 119?’ To answer that, you need to have one person with an overview. And, for now, that person is me.

This emphasis on fit runs all the way through Stewarts, from bottom to top. The practice has just taken on four new trainees, all recruited from our paralegal staff. (There were 49 applicants for the places). Many other practices would have delegated tests and interviews to its human resources department. Here, the process is run by two equity partners, with me (assisted this year by the firm’s youngest female partner) involved in the final selection from a shortlist.

I asked someone to nip down to stationary shop Ryman’s and come back with eight things that cost under £1 each – he bought an HB pencil, a fluff roller, a left-handed pen, a battery-powered mini fan, a tube of glue and various other things like that. The eight shortlisted finalists were asked to go to the back of the interview room and agree among themselves who would defend which object as being the most innovative.

When they’d done their sales pitches on their chosen objects, I gave each of them 10 minutes to write a poem about Stewarts. As it happens, the guy who won the pitch, the one who chose the pencil, was also the winner of the poetry round. He wrote a haiku: “In any weather / Stewarts Law fights complex claims / Winning for clients”. It may not be an Ezra Pound poem, but it does sum us up pretty well in 17 syllables.

Product

Right from the beginning, my idea was that we should concentrate on complex, high-stakes, high-value disputes, many with an international element. When I took over the firm 13 years ago, it was best known for its personal injury work. I continued this focus, but differentiated it from those of competing firms by concentrating almost entirely on the most extreme catastrophic injury claims.

In personal injury, only one per cent of claims are for more than £1m, and those are the ones we targeted. With catastrophic injuries come other claims for clinical negligence – people going into hospital with terrible damage and having the double whammy of being badly treated when they get there. So, we followed the same strategy with that. Over the past two years, the firm has resolved 140 personal injury cases and recovered £285m, an average of £2m per client.

Another injury-related expansion took us into aviation and travel litigation. The injury departments are now regarded externally as the ‘standout departments in the UK’ for claimant catastrophic injury work.

The high-value, high-risk model hasn’t just been applied to injury bolt-ons. In 2008, we moved into divorce, for example. Again, our aim was to act for high-net-worth individuals only. We set out to rival the very best firms in London in five years, and we’ve done it. It’s a huge achievement, it really is. Our typical divorce work is a case involving several potential jurisdictions and assets worth more than £50m. It’s this focus that helps makes us profitable, which in turn explains why we’ve managed to attract so many star lawyers to our Leeds and London offices.

In addition to our injury and divorce departments, we have a very substantial commercial litigation department (currently 30 lawyers). Newer departments include competition litigation, employment and international arbitration. Tax litigation is our latest target practice area. The economic and political climate in the past few years has fuelled a growth in high-value tax disputes and I expect that trend to continue.

Profitability

A behavioural trait consistent with manners and fit is good citizenship, which we insist should apply across the firm and especially to the top fee-earners across our diverse departments.

One of the things I always tell new partners is that we’re a collegiate firm. A lot of lawyers keep their contacts closed, effectively working for themselves. As part of our remuneration structure, we say to anyone coming in: “Unless you can show that you’re contributing to the success of others, you will never make it to the top of the equity”.

The three key performance indicators in the firm’s lockstep are:

• good citizenship;

• business development; and

• profitability.

We think we’ve got quite a sensible structure here, with a closer correlation between departmental profits and equity allocation than at most law firms.

Part of the trick of keeping PEP high, not surprisingly, is about managing the number of equity partners you have. Each department is broadly expected to generate sufficient profits to meet its respective equity allowance and, in addition, to pay non-departmentally-based equity partners like me.

 

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Improving people, product and profitability

• Remember it’s not just about skill sets, it’s about fit

• Don’t just hand over recruitment to HR

• Offer something different – differentiation is key in today’s legal market

• Create a remuneration structure that rewards good citizenship as well as individual performance

• Build in a correlation between departmental profit and equity allocation

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Management strategy

I imagine you’re getting the idea that Stewarts is a bit of an autocracy, and I suppose to an extent it is – but a benign one, I hope. If you were to ask the lawyers who work here what they thought my strongest point was, I have a feeling it would be that I don’t sit on stuff. I think people would say I make decisions quickly, and then act on them quickly. This can also include cutting losses when things do not go entirely according to plan.

Early last year, we decided to build on our foreign business model by opening in America, with bases in New York and Delaware. Earlier this year, we closed the Delaware base and trimmed the one in New York. To the extent that it was a mistake, we learnt from it quickly. Twelve months in and actually there on the ground, it was becoming clear how difficult it was going to be to get critical mass to compete with domestic firms.

Also, we had a flattering approach ?to enter into a strategic alliance with ?the New York plaintiff firm Lieff Cabrasar Heimann & Bernstein. It opened our ?eyes to the benefits of rolling out these kinds of alliances across the globe, ?not just in America. That strategy is part ?of what is on the cards for Stewarts ?for the next few years, and it ties in ?well with our newer departments, particularly competition litigation and international arbitration.

In a post-Lord Jackson, post-damages-based agreements nation, an imaginative approach to fee funding is also going to pay dividends. We’ve already got our thumbs in that pie. We were faster off the blocks than most UK law firms in embracing conditional and part-conditional fees and damage-based agreements. That strategy, too, relies on keeping profits high. At the moment, we’re carrying £45m in work-in-progress and another £5m in disbursements. We need to be profitable enough to pay for all that stuff in an environment in which banks just aren’t lending.

As to my own future, well… I’m 53. I certainly plan on sticking around for the next seven years, although maybe in a gradually evolving form. Since 2000, I’ve played both the senior partner and managing partner roles. Health and partners willing, it’s probably a good idea to split these roles and hand the managing of the partnership over to someone else a couple of years before I retire.

Doing a handover will also give me more time to spend with the Stewarts Law Charitable Foundation, a charitable body which our equity partners set up and fund. We’ve given nearly £1.5m away over the past few years to a wide range of charities, which has been very rewarding. It’s all part of what the firm is about.

Of course there’s a legacy aspect for the firm and the foundation. When I eventually leave Stewarts, having been a founding partner, I want to leave something well regarded behind me.

John Cahill is managing partner at UK law firm Stewarts Law (www.stewartslaw.com)