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  • Writer's pictureJaap Bosman

Grant your clients access to the power of the firm.

Having a global client base, for us at TGO Consulting it is important to constantly read-up on the situation in different markets and industries across the world. We absorb massive amounts of economic news on a daily basis. It will be no surprise that across the different economies and business sectors, the outlook is not particularly rosy. Many companies, big and small, face unprecedented challenges to survive.

We at TGO Consulting, are working with law firms in the upper segment of the legal market. So far, the vast majority of our clients has been doing quite well. Despite the covid-19 situation over the past three months, revenue and profitability are mostly still in good shape. But it will hardly come as a surprise that the outlook on the months to come is still very cautious. The million-dollar question is: how to navigate the future?

In last week’s article, we explained why we expect huge pressure on price in certain segments of the legal market and substantial less in others. For those of you who haven’t read that article, I suggest do so now, as it will help you better understand the context of today’s article.

Understanding how partners are incentivized

Law firms are like an archipelago: referred to as a group, but consisting of multiple individual islands of which some are interconnected by bridges, others by ferry and some only by boat. From the outside law firms may appear to be strong impenetrable institutions, but behind the scenes they are made of individual practices, some of which cooperate better than others.

Many law firms are a 'firm' in name mostly. Behind the walls partners are competing with each other over issues as mundane as ‘who owns the client’. Clients are often not aware of this and go through great lengths to appoint the best firm in the panel. Pricing arrangements are typically made with the firm and also engagement letters are typically signed on behalf of the firm. The reality is however that almost invariably there is only one partner who acts as a liaison between the client and the firm.

Law firms are composed of a fabric of individual practices. Some fabrics are very tight, others are loosely knitted. Much will depend on the way in which the profit is distributed among the partners. In general, the more strictly merit based profit distribution is, the more loose becomes the fabric. Some firms even have had to adopt a system of ‘origination credits’ in order to stimulate sharing clients between partners. Despite the fact that many firms seem perfectly happy with such systems, I would argue that this is actually a practice that you probably should avoid. (read this article on origination credits)

Don’t get me wrong. I am not at all claiming that a lockstep profit sharing model is better than a merit-based model. Also the lockstep model puts a lot of pressure on individual partners to meet certain performance criteria. Sometimes even more so than a merit-based system would, since equal sharing is based on the assumption of equal contribution, something a merit-based system does not care about.

The point is that almost all law firms have explicit or implicit incentives for partners to focus primarily on growing their personal practice before growing the firm. Being under permanent pressure to perform, partners prioritize their personal turnover.

Working in silos does not help

Today many lawyers in the upper segment of the market have become highly specialized. Having narrow but deep specializations is typically seen as a must. Only the top-firms would have experts on niche areas, having deep technical legal expertise and a wealth of knowledge of best-market-practice in this one area. Having these specialists will have great value to certain clients who come with very specific questions.

The thing with specialization is however that the more you focus on one area, the less interested you become in other areas. More often than not, experts in a certain field are not at all interested in what happens outside their direct scope. The higher the specialization, the lower the connection with other areas (specializations) and the looser the fabric becomes.

Maybe it is time to start putting clients first

As stated at the top of this article, we at TGO Consulting monitor the state of the economy on a daily basis. We also dedicate a significant portion of our time to speaking with business leaders. What we see and what we hear is that businesses today are facing challenges they have never faced before. Challenges that are closely tied to the future and very existence of the company. What once would be classified as ‘bet the farm’ will be ‘save the farm’ today.

Confronted with today’s reality amidst a limping economy and an uncertain future, business leaders are searching to find the right direction. Faced with clients who have to rebuild their business model (aviation industry, automotive, retail, restaurants, entertainment, just to name a few), lawyers have to adapt their service delivery. The most fundamental issues clients are having right now, go well beyond what any individual partner could solve. Many topics will also go beyond the limits of the traditional legal areas of specialization.

This is the time for lawyers to truly start putting their clients’ interest first. That means before their personal interests. To be honest, it would be a bit unproductive, to say the least, to continue having internal discussions on who has what revenue on his/her name, while outside clients are going out of business.

This is the time to finally put all your internal differences and interests aside and grant your clients access to the full power of your firm. Not while claiming origination credits, not while making sure the file will be on your name, not by thinking that you as a partner need to have an answer to every question and will be perceived as being weak if you would ask advise from your fellow partners.

This is the time to start putting ‘swarm intelligence’ into practice. You will be amazed what can be achieved if you mobilize the collective experience, market intelligence and creativity of your firm. Law firms that succeed in having partners cooperate on creating value to clients, will likely have a larger slice of the type of work that has low pressure on price. Law firms that cling on to the traditional individual approach will increasing struggle to keep their rates and profitability. So maybe cooperating will even be in your personal interest after all.


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