Stephen Denyer: How to avoid being a 'dangerous' managing partner

Managing partners need to be entrepreneurial and ambitious, but they should not allow those instincts to put their firms in a dangerous financial position.

That's the view of Stephen Denyer, head of City and international at the Law Society of England & Wales. Formerly global markets partner at Allen & Overy, he takes on the additional role of secretary-treasurer of the International Bar Association's professional and public interest section from 1 January 2015.

Denyer believes that many law firms have failed or been acquired in recent years because they had overambitious managing partners.

"If you're a successful law firm leader in certain kinds of firms, I think you can get carried away with growth and development, and that can be quite dangerous," he says.

"Financial prudence is something that even the most entrepreneurial law firm leader needs to have."

He continues: "In your leadership you want someone who's very entrepreneurial and ambitious, but you also need a prudent manager who is going to make sure that, whatever comes up, the firm is financially secure."

Denyer believes that all firms should have an accountant or someone else with very strong financial skills in at least one of the top three management positions.

"The finance director is a crucial appointment, and that could easily become CEO or COO."

However, he does not think that accountants should replace lawyers in the top positions of law firms.

"The overall leader still needs to be a lawyer, so I wouldn't see a total leadership role going to an accountant anytime soon."

A balanced strategy

Denyer, who joined the Law Society in May 2014, was previously co-chair of the IBA's law firm management committee.

Having seen many cases of law firm success and failure in the legal market, he believes that the key to survival is having a clear domestic and international strategy which includes talent retention.

Citing the rising number of American firms expanding their practices in London, Denyer notes that "they have done a great job of capturing some real talent from the English firms and growing those operations very successfully".

For him, UK firms that want to do cross-border work "need to have a credible strategy for almost every jurisdiction in the world".

This could include opening offices abroad and establishing 'best friends' relationships with local firms, particularly in jurisdictions that are closed to foreign law firms.

"Let's say that you've got 45 offices in 30 countries, that still leaves more than 100 countries that you won't have a presence in, and a lot of those will be major places, like India for example, because you can't have a presence there. But even if it's not a major place - Tanzania, let's say, as firms don't typically have offices there - there's still a lot of business there and you still need a credible mechanism to deal with it," he notes.

"So I think people are spending a lot more time on relationships, on being clear about who they're working with on a regular basis, making more choices and investing more in those relationships."

He warns however against making exclusive 'best friends' arrangements with firms in other jurisdictions.

"I think what is most realistic is having two or possibly three firms per jurisdiction you work with on a regular basis: it creates more competition between those firms, it covers you against particular client concerns or issues and it deals with the conflicts point."

Denyer also believes firms should have diversified practice bases to avoid depending too heavily on revenues from a single pool of clients.

"There's still so much change amongst clients, so you shouldn't be putting all of your eggs in one basket in terms of who your key clients are going to be," he notes.

"You have to have an open mind, I think. If you just say 'we're going to continue on this course and not consider any alternative', your partners, especially the more able partners, often become disaffected, and your clients too."

"At my old firm, for example, some years ago, we made a strategic decision to spin off one part of the firm - the private client department in that case," he reflects. "That was thinking outside the box and doing something that created value for the main firm and value for what was being spun off as well."

He notes that it's important for law firm leaders to be nimble and able to launch new practice areas in response to changing market needs, citing the launch of practice groups focused on bribery, corruption, sanctions and compliance in recent years.

Equally, Denyer warns against firms overextending themselves by trying to cover more practice areas than they are able to do well.

"The ones who have real problems are those stuck in the middle, so if you look at firms that have either failed or had to be taken over or had something else done to them, they've tended not to be clearly on either side but to be trying to be all things to all people," he notes.

"I think the full-service model only works for certain types of firms," says Denyer. "A firm that has substantial operations internationally, that really is the go-to firm for major clients, I think does need to be full service."

"But clients are becoming sophisticated buyers, so a GC of a major financial institution, for example, has a very good idea of what they can go to a niche player for, what they can go to a full-service firm for and what they can do in house."

Advice for new MPs

Denyer has a wealth of experience in law firm leadership, having held management roles for more than two decades at global law firm Allen & Overy.

A member of Managing Partner's editorial advisory board, he believes that it is important for new managing partners to learn from their peers both within and without the legal sector.

"Spend as much time as you can talking to others - there's lots of experience out there, people like sharing it," he reflects.

"There is a danger of being obsessed with the views and prejudices of your own people and not looking outside at the bigger picture."

He believes it is important for law firm leaders to learn from how other professional service firms manage their businesses and people. They should also make use of resources available through the IBA and Law Society, he says.

"I think that fora for sharing experiences are really important. A magazine like yours adds a lot, I think, and your advisory board has people with a good variety of experience," says Denyer.

He suggests that international experience is also important for developing strong law firm leaders and that prospective managing partner should seek out client secondments as valuable learning opportunities.

"Even if you're at a purely English firm, look for a secondment, look for how you can diversify your workforce, look to do exchanges with organisations from other cultures - otherwise you won't be reflective of your clients, apart from anything else," he suggests.

Upon ascending to the role of managing partner, he warns against trying to carve up responsibilities too rigidly between different members of the senior management team.

"I don't think it works just to say 'that's the senior partner's area, and that's the managing partner's area, and that's the finance director's, and we'll just leave them to get on with it', because it needs to be unified," says Denyer.

"That means to a certain extent getting outside of your comfort zone and thinking 'how can I adapt what I would personally want to do so that it fits with other things that you may not personally want, that may not fit your personality, interests et cetera'."

For him, it's important for managing partners to build strong working relationships with each of the members of the senior management team to ensure they function effectively.

"I think the personal relationships between leaders, especially in a large organisation, are really important. It makes a massive difference if the senior partner, managing partner and finance director all get on and have a shared view."

Relationship building is clearly an area in which Denyer excels, having helped to shape the development of Allen & Overy, the Law Society and the IBA.

Most recently, he has been developing the programme of the Global Law Summit, which will be held in London in February 2015. Marking 800 years since the sealing of Magna Carta, the event will explore what the future holds for global business and the rule of law.

No doubt Denyer's rise through the legal profession is far from over.

Manju Manglani is editor of Managing Partner (www.managingpartner.com)