Success planning: It was the best of times, it was the worst of times

‘1976 was certainly a year of hot weather,’ Michael Kain recalls, and he’s right: alongside the hottest summer average ?temperature in the UK since records began, ?the IRA detonated a series of bombs in the West End; Harold Wilson resigned as prime minister; ?Steve Jobs founded tech giant Apple; and ‘Hotel California’ was released by The Eagles. 1976 was also the year M B Kain Cost Draftsman was born.

‘I remember working as a legal executive for ?a firm in London and realising there was a huge opportunity to assist solicitors with costs’, says Kain, the founding partner of Kain Knight. ‘That’s when ?I decided to take the massive leap and start my own business as a costs draftsman. Looking back, I wasn’t thinking of the future, succession planning, tax, or any of those grown-up things; I just opened up shop in my mother’s front room and set to work. 

‘The first question I had to ask myself was: “Where do I start?”, so I decided to write to a few solicitors inviting them to send me work.’ Kain’s instincts were right and, within a month, the legal executive had ?so much work he ceased self-promotion for fear of being unable to deliver to his existing clientele.

The business grew over the next two years and, in 1978, things really took off. The legal entrepreneur moved out from his mother’s living room, opened up two offices, in Bishop’s Stortford and London, ?and employed 20 members of staff. 

This was the moment when law firm strategy ?and structure began to play an integral part in Kain’s business affairs. A conversation with his accountants informed him of his options, stating the current framework was no longer viable. ‘He gave me the options of remaining a sole trader; forming a partnership, limited company, or private public company; or creating a model similar to barristers’ chambers.’ 

Unsure of what would be best, Kain chose the partnership route, citing the popularity of the structure in the legal world as reason enough. He invited the then costs draftsman Jim Knight to join him as a partner, who requested to add his name to the company in 1990. ‘At the time it was thought it would give a better impression and not that we were a one-man band (which we weren’t).’ And so Kain Knight was born, but with no thought for the future or succession. 

Partnership problems

From those early days and through to the 1990s, things could not have gone much better for the newly formed business, explains Kain. The firm opened three new offices in Stamford, Maidstone, and York and employed over 50 members of staff. Eventually, the time did come to seriously consider what to do with the firm.

The partnership model had succession problems, Kain admits: ‘I didn’t want to fall into the trap of bringing in partners who would succeed ?in taking over the practice; I felt this gave me ?very little return for all my efforts in establishing the business.

‘I chose to form a private public company as ?I believed it would add status to our corporate image, while providing shares I could trade, sell, ?or float.’ Kain’s plan was to eventually add other services to the firm’s core costs business, but for the time being the model released cash to partners and provided him with limited liability. 

Then, in 1996, Kain brought his two children ?and nephew into the business with a vision of passing over the reins to them. However, this was no nepotistic handover. Kain dictated that all three must fully understand the business and would start at the bottom, be treated as any other member of staff, and work their way up the corporate ladder.

The succession planning neatly installed in the 90s had – at the time of Jackson – come nicely ?into effect with Kain’s son Matthew as managing director, daughter Vicki as HR director, and nephew Paul as operations director. ‘We had built a next generation family business with a corporate edge,’ he explains.

Kain proudly expounds on the fact that, ?over the next decade, Kain Knight had become ?the benchmark other costs firms had to compete against. ‘This was largely due to the competent staff we had developed through internal training and ?the vast experience accrued by senior fee earners. However, times were about to change,’ he added. 

Jackson’s shadow

In 2009 the Labour government commissioned ?Sir Rupert Jackson to produce a report on a legal sector that was viewed as out of control. In 2010 ?the much-publicised Jackson report was delivered, containing 109 proposals that would shake up the legal world.

‘Thus far, less than 15 proposals have been implemented, but these have completely changed the legal landscape beyond recognition since I first started in the 1960s and these changes have only just started,’ remarks Kain.

‘The most damning of the proposals, as far as cost drafting is concerned, has been the move towards fixed costs. This move has been equitable and was going to happen as costs in certain parts of the legal sector were getting out of control. However, I do think that it has gone too far. 

‘With all the reforms, it has made it increasingly more difficult, getting towards impossible, for ?any person with a small claim to be represented. ?This has removed access to justice, something that seems to have been forgotten. When it comes to most of the other reforms, we have seen an increase in our role as costs lawyers, particularly in the areas of budgeting and case management.’ >>

Despite the company’s track record and substantial turnover and profit, Jackson’s shadow has created many uncertainties for Kain.

‘Our industry has, historically, been a person-to-person business,’ he says. ‘An individual in a solicitor’s firm would send work to a specific costs lawyer. ?Very few firms had a policy as to who to instruct for costs services, leaving it instead to the fee earner ?to choose who they felt they worked with best. ?What could I do to change this way of thinking?’

To ensure the firm maintained existing client relationships while also adapting to the changing market, Kain Knight began offering services over and above costs drafting. ‘We now have relationships with a number of key partners who offer legal services, allowing us to fulfil more than just clients’ costs needs,’ explains Kain. ‘We have also entered into contracts with preferential terms for clients, making it cost-effective for them to use us.’ 

Ensuring performance levels remained high while also quelling the fears of the largest professional team of costs lawyers in the UK against a drastically shifting legal landscape was imperative for Kain, ?but just how did he do it?

‘I am pleased to say that our people have been our biggest success story, many of whom have been with me through various changes,’ he responds. ‘I have always taken their views into consideration and have, in the past, rejected offers and ventures because I did not consider it right for everyone.’

Kain explains that he understood from an early stage that staff need to ‘buy into what you are trying to achieve’ as they have an interest in the outcome. ‘If you get this buy-in, it ensures their performance levels are maintained,’ he adds. ‘Protection of employees’ jobs and statutory rights are the most important aspects of any company.’

Managing change during turbulent times has been key to Kain, but far from easy. 

‘In the past I have tried to bring in professional CEOs,’ he says. ‘The problem has been that the industry has been changing at such a rapid pace ?it has been difficult for them to understand how ?the company has developed over the years. It is important Kain Knight moves towards a corporate image yet retains old standards; for this to happen I need to lead from the front and show my employees I am with them.’

Succession planning

In a time of uncertainty, however, will market consolidation become the quick fix to succession planning?

‘Mergers are not the only fix. That being said, ?the merger of two or more companies is an obvious fix for me personally but does raise its own issues,’ replies Kain. ‘Having a company with so many long-term members of staff means you have to ?look at a fix that is right for everyone.’

Over the last two years, Kain Knight has been at the forefront of acquisitions more than any other costs company. The firm has already purchased Quantum Costs Ltd, a niche costs firm, and Johnson and Johnson, a leading costs company ?in the South West. 

‘We have also introduced costs into the Middle East with the purchase of Settle First Ltd, a debt-collecting company, and we are currently working on one of the biggest pieces of litigation in Dubai with multi-costs facets,’ adds Kain.

‘We have explored mergers with other costs companies, without success. That does not mean to say that it is not a possibility; we just have to find the right company with a similar outlook to ourselves.’

Mergers, invariably, run the risk of diminishing a company’s carefully constructed identity. Retaining a firm’s distinctiveness is, therefore, important when considering corporate marriages, but whose responsibility is it and how do you control it?

‘This has always been important to me,’ says Kain, ‘although I am not obsessed with it. Having said that, it would seem stupid to have built up a brand that is so well recognised to then want to change it. 

‘Compass Costs lost their identity when they ?were acquired by Quindell, and people very quickly forgot Compass. It is possible to retain a well-known British brand yet change the ownership, though ?that is down to senior management to take responsibility, and is a big factor I would have to ?take into account if there were any outside interest.’ 

Future for costs

So, what does 2016 hold for the costs lawyer? ?‘There are many options for me this year, from taking the easy option of a management buy-out, which solves so many issues, to mergers, which have their own risks, to outside investment, or to just continue as we are,’ explains Kain. 

‘Whatever happens, I am sure that costs drafting will still be around in 20 years’ time but not in the format that we know today.’ 

Instead, Kain foresees a not-too-distant future ?in which his fellow professionals are no longer preparing bills of costs by hand, with ‘computerised billing not far away’. Kain Knight has already invested in solving the problems presented in Jackson’s report with a software system that will provide a budgeting, monitoring, and bill delivery service, due to be launched this month.

‘I do not see the Jackson reforms as depressing or the end of an era,’ says Kain, ‘but I see it as an opportunity for those that want to develop. Yes, things will be different, but in a good, positive, modern way.’

‘Sale, merger, and expansion are all areas I am hoping to explore,’ he admits. ‘Whatever happens, there are fun and exciting times ahead.’

 Laura Clenshaw is managing editor of Solicitors Journal