A new survey on the way law firms are managed has been published, predicting dramatic shifts in the way law firms handle highly competitive markets over the next five years, as well as dealing with risk and regulation, financial pressure and changing client demands.
The report from the accounting giant BDO took the views of 58 law firm leaders to look at their current governance models and their expectations of the future, including the key challenges faced by the firms.
The law firm of the future is going to be more corporate, according to a report from BDO that showed that all the surveyed firm senior executives put risk management as their top item for focus in the past five years.
The next five years would see a greater move towards a corporate firm structure, although retaining the partnership culture was a top item of concern for the managers.
The BDO report, “Law Firm Governance” showed all of the 54 senior executives surveyed regarded risk management as the top concern over the past five years – shadows of the GFC foremost – and that almost a quarter of the group saw retaining the partnership ‘culture’ as a key focus for the next five years.
To deal with the risk management issues, several firms have made structural changes through the creation of new risk & compliance boards, committees or dedicated risk management roles the report says.
Risk management has become more detailed, with the development of more granular risk registers, and also broadened in scope to cover everything from technology, finance, business interruption, cyber risk, financial risk, managing client money, mergers and international strategies.
The report talks of dynamic change in law firm structures noting:
Since the financial crisis, law firm clients are more powerful, more capable of handling work internally, and more demanding. They are also more interested in how their law firm panels are structured and in a greater breadth and depth of information about the law firms they appoint. We are still some way from client requests for proposals (RFPs) regularly.
The report notes the relative changes in senior positions in law firms.
The report looks at leadership succession planning and notes the requirement for “more urgency” for change. The need to move quickly and move through the competitive legal market faster was a key issue, along with the need to ensure firms maintained their distinctive advantages and uniqueness.
The Priorities
There was high degree of consensus amongst respondents when rating the benefits of good governance, but firms with different international profiles had slightly different priorities.
National firms were more likely to prioritise ‘the ability to win new business’, ranking it fourth on the list overall. This was considered the least important benefit for global firms.
Global law firms (covering more than two continents), on the other hand, were more likely than international or national firms to prioritise ‘maintaining competitive position in the market’, ranking it fifth overall.
Who are the Stakeholders?
Almost a quarter (24%) of national law firms selected staff as their primary stakeholders, compared with only 6% of global law firms.
Key Governance Changes
Many firms have added a new governance layer to their management structure, adding an executive or management committee or supervisory board. Many had also increased the size of their boards by adding business services heads, non-executive directors, or additional partner representation across regions, practice or sector groups. A smaller number had reduced the size of their executive or international boards.
Law firms are arguably transitioning through the greatest period of change for a number of years. Introverted partnerships are having to adapt to becoming outwardly looking, commercial operations which can mean making drastic changes, the report says.
See the full report here
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