The governance of law firms has evolved hugely in the past 10-20 years, with firms now generally being much more professionally led and managed. Practices of all sizes have commonly moved to more of a corporate management structure, rather than having partner meetings to collectively make all management decisions.
Whilst managing partners focusing exclusively on management rather than fee earning used to be the preserve of the larger firms, it is now common for medium and smaller firms to have non fee earning managing partners. Terminology has also evolved and many a managing partner is now entitled as the Chief Executive. That title first started to appear in law firms when non-lawyers were recruited from other professions/industries to lead law firms and it has now spread to apply equally whether the law firm leader is a lawyer/not or whether they are internally/externally sourced.
Benchmarking results of law firms would appear to indicate that the firms that are able to distinguish roles between ‘working on the business’ and ‘working in the business’ tend to out-perform those that are focused on owner-management and collective decision making.
Why have firms evolved in this way?
Decisions are made much quicker with a streamlined management structure that does not require the need to wait until all partners are available to meet and then discuss potentially minor issues in great detail before reaching an agreement
Decisions that either need to be made quickly (e.g. responses to the initial Covid lock-down) cannot wait for a full partner meeting
Decisions that do not warrant full discussion due to their relative immateriality (e.g. renewing small leases or changing a minor supplier) should not be important enough to take the time up of all partners
Time is precious and should be prioritised, not wasted. Having a small group of informed people making decisions on the business, and allowing partners to focus on what they do best (fee earning/leading and developing their teams and being close to their clients) will mean that the business gets the first-rate attention that it deserves, and so does fee earning/team development and client/prospect relations.
Having people tasked with running the business, and having clear delineations of responsibilities of all, also allows the performance of partners to be appraised more easily and having a hierarchy of management within the partner structure allows constructive line management, accountability and development. Risk management and governance procedures are also improved, as partner compliance can be managed through the improved structure.
In limited liability structures, partners do appear to be more willing to cede control and be managed by others, presumably as they are more comfortable in the fact that their personal assets are not on the line and therefore feel the need to be involved in every decision. This is particularly so if there is a reporting mechanism to keep them informed and if certain decisions are retained with equity owners.
The team as a whole becomes more efficient and effective if people are taking on roles that they have the appropriate skills for. Those with commercial, management and leadership skills can focus ‘on the business’, and those with excellent technical skills can work more ‘in the business’. This concept then extends to potentially having other professionals on management/strategic/operational boards, such as chief executives/IT/marketing/HR/finance professionals.
When roles are clearly defined, there can be more focus and the likelihood of objectives being achieved can be improved.
When decisions are being made by those that have the skills and the time to make such decisions, and such people are immersed in those roles with the relevant information engrained in them, decisions will be from an informed basis and are more likely to effective.
What does a good governance structure look like?
Although there are a huge range of potential options and how firms have achieved effective management and governance, some of the common traits include:
Having an overall management board to focus on strategic matters, made up of a full-time managing partner/chief executive; a finance director; and typically no more than three equity partners.
Having a service line head for each of the firm’s service lines, who are effectively mini-managing directors for their parts of the firm. In order for the service line heads to focus on operations within their team, and for the board to focus on the strategic bigger picture, often the service line heads are not necessarily on the management board.
Having a leadership team for each of the service lines, comprised of the service line head and say three others from that service line.
Having an operations board made up of the key internal functions such as IT/HR/finance/marketing.
Key variables include:
Defining boundaries and what decisions are made by each group/individual
Links, communication and hierarchy between the groups
Reporting from board/service line teams to the wider firm
Line management / appraisal processes
How to decide who sits on which group
There is clearly no ‘one-size fits all’ approach here, and it is important to bespoke structures that work best for particular firms. I have been involved in reviewing and recommending governance for a number of firms, and the end result is always different to some degree.
It can be difficult for partners to let go of control, and also to be managed by others, especially if they are an equity owner of the business. Results help in this regard, and if it is working well for the business and there is a track record of success, then that success breeds more acceptance and further success. In more difficult times, the need to change may be more important, but is much harder to obtain the buy in from the partnership for such changes – in such circumstances law firm leaders should be bold and if people aren’t all on board then it may be better for them to go their own way.
Comfort should be obtained from the fact that those firms that do have effective management and governance outperform those that don’t.
If you would like to discuss any of the above, please speak to one of our Legal Sector experts on 0808 144 5575
