Law firms have largely remained the same since last 100 years world over as far as the organisation structure and functioning of a typical law firm is concerned. The ‘corporate structure’ bug hasn’t bitten the law firms that much and there have been good reasons for that. However, in present times, when a business entity is faced with the question of how to achieve scale and size and related complexities, coupled with the need to remain competitive as to cost to client, TAT, cost of operation and implementation of technology, it is important the law firms need to rethink about their historic model and adopt the corporate model.
To handle the issue of size and scale that the manufacturing businesses had to achieve during and after the 19th century industrial revolution, certain brilliant minds of the world devised what we know today as the corporate model of working. A typical manufacturing company will generally have specialisation by function/role such as finance, sales, marketing, product design, manufacturing etc. There is a clear separation of such roles and each such department is headed by a department head who is a senior promoted to a managerial position and all such seniors reports to senior managers and so on till the CEO. It could easily be a single product company or a multi-product company but the division is typically seen role-wise and not product/offering-wise. As and when a person gets promoted, his position changes from execution to management and most of his time is dedicated to planning, directing, coordinating and supervising.
A very important derivative of the above, from the point of view of size and scale is that by functional specialisation, a business achieves routinisation of functions and standardisation of quality/quantity of the product or deliverable. This ensures predictability of a desired result at the customer’s end and also enables the business to apply the standardised state of the art knowledge for innovation for it to either enhance productivity or quality or both or to launch a derivative or a completely new product.
Another factor that is characteristic of a corporate model is the separate of management from ownership. The management is supposed to run and operate the business for and on behalf of the owner and the operational decisions are left to the management and structural or important decisions are left to the owners.
LAW FIRM MODEL
Law firms are modelled around the idea of an ‘apprentice/senior’ model which belongs to the 1830’s Inns of Courts of England age wherein a fresh lawyer or law student or a junior gets training and works under a senior or seniors and learns the profession and the team works to solve a client’s problem. Today’s law firm can be imagined as a collection of such teams working under a single brand/set of owners/family.
This structure has been working perfectly fine for the smaller practices and even law firms who cater to a particular geography or market or few practice areas. The clients also remain happy since they get made-to-order advise and over a period of time build a comfort with a firm or a partner thereof. However, till very recently, firms did not have to deal with the problems of scale and size. With the advent of multinational corporations and large companies, it was expected of the law firms also to catch up and form multi-jurisdictional, multi-practice firms for which the so-called ‘corporatisation of law firms’ became a necessity.
The nature of a law firm as a business entity is quite different from a manufacturing or a software business, where the professional advice and service of a lawyer is itself the end product for which the firm is paid. The deliverables such as reports, draft agreements or plaints are manifestations of the advice and therefore it is very difficult to separate the producers from the product. Generally, the lawyers who get promoted and become principal associates or partners cannot totally give up execution of the work and are therefore unable to graduate to a managerial role only, unlike how it happens in other businesses.
Similarly, a typical firm is structured not as per roles/functions but as per its lines of practice and therefore each vertical needs to carry out each of the functions such as finance, sales, marketing, product design, manufacturing etc. Even if the firms have a centralised pool of executives for non-legal functions such as finance, sales, business development etc, such executives essentially assist the partners in carrying out these roles rather than taking them up independently. It’s difficult to find a firm where a team of executing lawyers is managed by a manager who is not involved in execution and focusses on managing the business, team, delivery, reporting and quality etc.
What’s to be done then?
How does one create a balance between adopting the corporate model for achieving scale and size while maintaining the apprentice-senior model intact which gives a high quality-customised service to the client and the client doesn’t feel lost in a bureaucratic maze of a complicated organisation? There cannot be a simple answer to this question and each firm must figure out a way to solve the problem for themselves. However, there is no denying that to achieve scale and size and to cater to larger clients, once needs to think beyond the conventional law firm model and adopt certain, if not all, features of the corporate model.
Technology – an enabler
Technology has always been a huge leveller all over and one way to achieve the right balance is to adopt technology in law firms at the early stage to expand and scale up, keeping the personal touch intact. One must identify and break down the functions of lawyers into those which essentially are non-legal functions but require due customisation for them to make sense for legal business, templatise them using technology and give them to be performed to non-lawyers and the purely legal advisory functions can be left to be done by lawyers.
Roles such as data management, knowledge management, marketing and business development can easily be automated using technology. For senior lawyers, it is important that they transition to a managerial, planning, supervising and client care capacity as well as in the building and growth of the firm rather than being stuck in execution. This too can be achieved by technology which can, not only automate functions like drafting, research, and compliance management but also decision making, planning and advisory using AI and ML.
Capital and investment in law firms.
Implementing technology is a costly affair and a lot of capital cost goes into development, training, hardware and software and the gestation period of reaping the benefits of technology is long term. Therefore, it is pertinent that if a law firm is planning to size up using technology as an enabler, either it has provisioned for the capital cost or the eco-system allows it to raise capital from external sources. Again, the raising of external capital has its own vagaries and, in a way, it requires that the entity raising funds is structured as a corporate and has the necessary ingredients of a company such as management, corporate governance, business and financial model etc. Also, the laws governing the law firms, bar regulation etc. must allow corporate structuring of law firms or the law firms need to be creative enough to devise legally compliant ways to set up such structures. Assuming that it can be done, investors need to think about investing in law firms who wish to scale up and implement technology and modern practice systems rather than investing in tertiary technology products which are available dime a dozen in the market.