The Laws of Organic Growth

There's more to growth than M&As. In this LexisNexis report, we explore the winning organic growth strategies of the UK's leading law firms.

LexisNexis snapshot:

• All law firms want growth. Big or small – firms are chasing more work, more profit and more clients. The traditional solution is to merge or acquire another firm
• But – might there be other ways to growth?  LexisNexis spoke with 20 of the fastest growing law firms to see which strategies work – and which don’t
• The responses were plentiful; the most popular being through enhanced client relationships, lateral hiring and talent attraction/retention, business development strategies as well as offering technology-as-a-service.

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Sceptics might be quick to the conclude that the current boom in law firm mergers is driven by post-pandemic financial duress. Yet, if September 2021 findings from HSBC’s annual Law Firm Strategy and Investment survey still ring true, those sceptics would be wrong.

The key driver behind this boom in mergers and acquisitions is the very opposite – growth! It’s at the top of the priority list for the vast majority (92%) of UK-based law firms with revenues upwards of £18m. Of the 80+ law firms included in the HSBC survey, more than half (54%) said they will look for growth outside their home regions in 2022, and a third (38%) are considering international expansion. In fact, just over a tenth (11%) are considering overseas expansion for the first time.

Sceptics may also point out that a lot has changed since September 2021. A January 2022 survey of 100 law firms of varying sizes from M&A advisors Acquira Professional Services found similar results. Almost half (47%) of respondents said they’re considering merging with another firm, and a quarter are already in talks over a possible deal. Interestingly, geographic expansion was the most common reason for firms looking at a merger.

Another commonly cited incentive to merge is the diversification of resources. Take the recent merger between Weightmans and RadcliffesLeBrasseur (RLB). The former is a modern, high-performing firm with ambitious plans to reach £200m by 2026 – plans which are largely reliant on their ability to diversify. The latter has an impressive healthcare business with a number of enviable medical defence organisations on their client list, but the firm has struggled to modernise. In this scenario, Weightmans adds to its already impressive list of healthcare clients and internal expertise while RLB gets the modern infrastructure it desperately needs.

Despite the setbacks brought on by the pandemic, the majority of law firms seem to have escaped the last two years relatively unscathed. Crowe’s Law Firm Benchmarking Survey 2021 found 81% of firms exceeded their expectations for the 2020/21 financial year (85% of City firms vs. 77% of regional firms) – which perhaps explains why so many are looking to grow.

For many law firms today, mergers and acquisitions (M&A) are still a key part of their overall growth strategy, especially to bolster coverage in a particular practice area, as well as to enter new markets.

However, truly successful M&A is easier said than done, requiring the smoothing of any cultural clashes and complex system integrations before the benefits start to appear.

The loss of culture when merging with another firm was a top concern for many of the law firms we spoke to. The impact of a poor culture can have a negative impact on your bottom line, a new study by the Solicitors Regulation Authority (SRA) found. The study also revealed that law firms with a positive workplace culture have a competitive edge over those with a poor culture, especially with many organisations incorporating softer metrics like culture and employee happiness into the bidding process.

Retaining their culture during mergers is a key priority for top 100 law firm Mills & Reeve, said Managing Partner, Claire Clarke.

“When we merged with Maxwell Winward in London in 2017, and George Davies in Manchester in 2013, we were mindful that success would rest on our ability to retain our award-winning culture, but also to flex and expand that culture to accommodate qualities that the new firms would bring,” she said.

It is a risk of which smaller firms are acutely aware, with 20% of the small firms we spoke to stating their 'small firm culture' is their top priority when looking to attract and retain talent and appeal to clients.

“I feel that there are risks associated with M&A, that you end up growing for growth’s sake without looking at what it does to the quality of your work and your culture”, said Rosalind Connor, Managing Partner at workplace pension law firm Arc Pensions.

Instead, many of these firms have looked at ways of growing revenue without boosting their headcount, such as focusing on flexible resources like consultants or barristers (for litigation firms) to cope with increased workloads during busier periods, or by relying on software solutions to automate work and streamline processes to increase efficiency.

Our research also revealed small law firms tend to favour lateral hires – the poaching of well-established and highly experienced lawyers – instead of full-scale mergers. According to our conversations, 40% of small firms said lateral hiring was a priority for their overall growth strategy.

However, lateral hires can act as unofficial mini-mergers, especially when a high-profile fee-earner comes into a firm, bringing new expertise, clients and, in some cases, entire teams with them. Therefore, firms that favour lateral hires over merging with another firm will not necessarily protect their current culture.

The majority of firms, though, are looking inward to create an organic growth agenda focused on their existing people, clients and processes.

Loyal clients are at the heart of any successful organisation but particularly so for the smallest law firms: 30% of small firms said strong client relationships were the most important aspect of their growth strategy.

Firms have a vast toolbox of techniques to draw upon when keeping clients happy. This includes everything from deploying lawyers to nurture key client relationship roles, to integrating themselves into their most important client organisations via secondments or technology (a technique common to the consulting model).

Legal service packages or bundles

Some firms, such as Wiggin, Radius Law and Taylor Wessing, are also focused on bundling additional business services, such as legal technology solutions, together with traditional legal services to create a personalised package that adds greater value to clients and increases their own revenue. Other boutique firms were founded with the specific goal of providing clients with senior-level attention from start to finish.

“Right from the outset, we have been clear that we do not want to grow to the extent that we cannot personally be involved with our clients’ transactions”, says Mirthe van Kesteren, Partner and Co-Founder at small firm BVK Partners. “We will likely end up with a reverse pyramid structure, with senior people as the majority of employees.”

Client feedback is also seen as vital but not every firm approaches it formally, with boutique firms in particular citing their closeness to the client as a natural two-way feedback path. For those who take a more structured approach, regular client surveys and net promoter scores (NPS) are commonplace.

When it comes to billing, most firms agree that there is no magic bullet other than simply being open to the client’s preference. In fact, many have found that their clients reject more innovative billing structures in favour of the tried-and tested hourly rate.

As for operating during a pandemic, far from stunting business, many senior leaders have found that lockdowns across the globe have actually allowed them to deepen their relationships with key clients, and even expand into new markets.

Peter Jackson, Chief Executive at international commercial law firm Hill Dickinson, said the pandemic has allowed lawyers at his firm to strengthen their client relationships.

“We always had clients around the world but now we are actually ‘seeing’ them more often because we don't have to make arrangements to jump on a plane," he said. "We meet more regularly and more constructively.”

With positive client relationships being pivotal to growth, law firms should also seek to offer support to lawyers that are dealing with fraying or difficult relationships. A 2022 SRA revealed that one in four lawyers said they need more support with challenging clients. This could be achieved by creating a culture where employees can openly discuss challenges without criticism, as well as creating mentoring programmes (or reverse mentoring programmes) to provide more junior lawyers with advice on relationship management. It is also worth implementing safeguards to ensure client needs are met and regular communication is being carried out, which can be aided through legal technology.

"Feedback is absolutely crucial. We do NPS independently and currently have a score of 65%, which is world class. We also do client feedback programmes in different forms and quarterly where we select a portion of our clients and invite them to submit feedback."

Vicky Brackett, CEO, Business Legal Services, Irwin Mitchell

"The key objective of our 2025 strategy is to be a leader in client experience. A vital part of that will be to ensure that client service is at the heart of our business as we embrace a culture of fearless feedback. The end game is that 95% of clients will recommend Mills & Reeve."

Claire Clarke, Managing Partner, Mills & Reeve

When it comes to nurturing client relationships and building new ones, firms are united in laying responsibility at the feet of the partnership. Business development (BD) strategies hinge on tactics such as giving partners formal training in sales techniques, publishing thought leadership, organising and/or attending trade events, joining industry bodies and even publishing bespoke content to be sent directly to clients. Litigation firms are also tapping into new avenues for BD, including referrals via accountants, barristers and third-party funders.

However, larger firms in particular are more eager to involve their junior lawyers in driving BD efforts than smaller firms, with 30% of larger firms using junior lawyers compared to 20% of smaller firms.

Although de rigueur for the big players, in-house marketing teams are understandably less common at smaller firms, who often choose to spend the investment elsewhere and split marketing responsibilities across the team or work with agencies for one-off projects to keep overheads down. The level of marketing investment differs greatly amongst firms; some have chosen to make senior marketing hires during the height of the pandemic, while others have made cuts, preferring to use the budget elsewhere. However, with the legal sector experiencing promising results throughout 2020 and 2021, and with growth on the agenda for most, the importance of the marketing and business development functions within law firms will only continue to escalate in importance.

“There are very good lawyers in all the firms that compete with us and so to attract a client's attention you have to put yourself in the firing line," said Jackson.

"And that means writing articles in trade magazines, that means being quoted in the press. That means speaking at seminars or webinars to provide that peg that a client can hook something on to establish credibility. That’s important for juniors as well as partners.”

"The BD really needs to be done by the people who understand the market the best, and that is generally the partners."

Rosalind Connor, Managing Partner, Arc Pensions.

"Every team member is expected to be responsible for our business development. We try to recruit people who have emotional intelligence for that reason, as it’s all about relationship building."

Ashkhan Candey, Managing Partner, CANDEY

There is no growth without the right people in place to drive it, and firms across the UK are taking action both to attract star senior
lawyers (and their loyal clients) and to accelerate the development of their more junior employees.

To attract and retain the right people, international law firm Taylor Wessing has adapted its path to partnership, says UK Managing Partner, Shane Gleghorn.

While the traditional “lockstep” model of pay is still in place at a number of leading law firms – Slaughter and May being the most well-known – this salary model seems likely to soon become the exception. Competition from well-funded US firms, as well as the ever-evolving demands of a new generation of lawyers, has led many firms to embrace more competitive commission structures.

Our analysis of the 20+ firms we spoke with found 44% of large firms have moved away from the lockstep structure, while 60% of small firms have done the same. These firms pride themselves on their ‘entrepreneurial’ culture, citing the ability to develop new offerings for clients, fast-track internal development and flexible working as a way of appealing to lawyers returning from parental leave or looking for a better work life balance.

Magic Circle law firms Freshfields, Clifford Chance and Linklaters have all allowed their lawyers to work away from their desks for up to 50% of the time, while Slaughter and May has allowed its lawyers to work remotely for 40% of the time (20% for juniors). While this acts as a powerful incentive for employees, it also comes with the benefit of keeping overheads down for the firms that have decided to downsize their office space.

Flexible approaches to remuneration include soft and hard targets, based on factors including marketing and business development efforts (including referral bonuses), paying fixed monthly salaries as a high proportion of annual profit shares (rather than awarding significant bonuses), and, in the case of DWF, granting PLC shares to newly-hired partners.

Many law firms are also attempting to drive growth by incentivising non-lawyers within the organisation to meet growth targets with financial remuneration.

This is not only useful for driving growth, but it also helps to meet the changing needs of clients, said Nick Perry, the Managing Partner of longstanding London law firm Bird & Bird.

Jackson also mentioned that Hill Dickinson have tried to break down the ‘them and us’ mentality that commonly exists between lawyers and support staff, and have experienced positive results.

"We’ve tried to accelerate the timescales for people to reach the partnership. Our emphasis is on metrics which result in cooperation between the partners, collaboration, and the growth of the pie.”

Shane Gleghorn, Managing Partner, Taylor Wessing

“Clients are coming to us with problems which can not always be solved by lawyers and so it’s becoming more and more common for teams of lawyers to collaborate with other professional staff to co-create client solutions.”

Nick Perry, Managing Partner, Bird & Bird

Examples include Wessing asking partners to prove collaboration both within and outside of the legal cohort before deciding on appropriate remuneration; Birketts contributing significant profit share bonuses to all colleagues outside of the partnership; Kingsley Napley actively avoiding making any redundancies during the pandemic; and Arc Pensions ensuring that every member of the firm has access to the same technology set-up for remote working.

Most firms see internal development across the board as key to their growth, looking to accelerate paths to partnership, encourage movement through the firm or, where the lockstep structure is still in place, to push people up it more quickly.

Ultimately, most firms believe that their culture, location, flexible offering or high-quality clients give them enough of an edge to compete with the sky-high offers from their US counterparts.

“If someone wants to be well remunerated and have a high standard of living, but also wants to be part of something with people at its heart, then those are the people we want, and who seem to want to come to us."

Richard Baker, Managing Partner at Devon- and Cornwall-based law firm Stephens Scown

Having adequate internal technological tools in place for your internal processes is now standard practice across the legal industry, particularly in a post-pandemic world.

Innovative firms are approaching technology as a service in and of itself. Tech-as-a service covers firms that are white-labelling software that provides their clients with deeper insight or automated assistance (operating much like a SaaS company), as well as firms that are packaging bespoke software with more traditional legal services. In either case, the firms’ own technology tends to be top tier, reflective of their investment in building up sector expertise.

Understandably, our analysis found only one in 10 small firms offer tech-as-a-service. It's a huge investment for a small business to undertake, and there's arguably less demand from clients at smaller or independent firms than you would see at a larger firm. However, some boutique firms have embraced tech via their existing practice areas, like Music, Sports & Entertainment solicitors Bray & Krais, who have, in response to the pandemic, taken on clients in the live streaming space.

When looking at the use of legal technology in general, a mid-2021 SRA survey of 900 UK law firms found 37% are currently using it, while 24% are ‘not using but planning on using’ it in the future. The most common legal technologies currently in place are videoconferencing (87%), storing data in the cloud (66%), practice management software (62%), legal research software (50%) and e-verification/e-signature (37%).

Another survey by PwC of the top 100 law firms found the most common legal technology investment is in e-signature software (88%), document management systems (84%) and virtual data rooms (81%).

Matthew Doughty, Chief Operating Officer at the UK's largest listed law firm, DWF, said:

“We really try not to think about tech and software in isolation, but as an integrated proposition of people, process and tech.”

Small law firms are also eager to adopt tech solutions. "One of my mantras is ‘software solutions over payroll solutions’," said Ian Walker, Director, Ian Walker Family Law & Mediation Solicitors.

"Our Intelligent Content Protection technology is a technology and consultancy business with two products: one which scrapes the internet and identifies pirated content and another which identifies counterfeiting. As Intellectual Property is a key practice area for us, this tool is useful for both our clients and our business: we have the technology business that will identify whether IP has been infringed."

John Banister, Chief Executive Officer, Wiggin

"A core tech innovation is our new training platform, which is something we will offer to our clients to help with corporate rollout of issues like compliance."

Iain Larkins, Managing Director, Radius Law.

"By combining legal advice with support from legal technologists, our teams can select the right technology solutions to achieve the best results for our clients and help to win new work."

Rachel Broquard, Service Excellence Partner, Eversheds Sutherland

Besides merging or acquiring another firm, a common – although far less travelled – road to growth is listing on the stock market.

According to the same survey by Acquira, only 18% of large firms, 9% of medium-sized firms, and 4% of small firms said this was on the agenda. DWF is perhaps the most well-known firm to have gone down this route, joining the London Stock Exchange in 2019. Another is Mischcon de Reya, who joined this year. A third example is platform law player, Keystone Law, which joined the LSE back in 2017.

Having the right funding in place is crucial to a law firm's growth, said Sir Nigel Knowles, Chief Executive Officer at DWF.

There are also smaller players that have entered the stock market like fraud specialist law firm PCB Litigation, who completed an innovative portfolio financing and equity transaction with Burford Capital.

These innovative financial structures can free up capital for investment in organic growth without relying on partners or the bank.

While there is no ‘one-size-fits-all’ approach to growth, it's clear that there are some winning strategies law firms of all sizes are deploying to drive growth organically. Whether you choose to empower your employees with a growth mindset, utilise new technology to enhance your services, commit to building longer-lasting relationships with your clients, or take on a more flexible approach to both billing and remuneration, the key to growth seems to stem from investing in innovation.

In the years to come, the firms that innovate – and subsequently embrace a culture of innovation – will have maximised these growth opportunities and more to create a legal offering that sets them apart from the competition.

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“Funding and risk sharing are fundamental to moving forward."

Anthony Riem, Partner at PCB Litigation