Page 156 - MASTER COPY LEADERS BOOK 9editedJKK (24)_Neat
P. 156
Leaders in Legal Business
There are many John Does out there who try hard to navigate their firm through heavy weather. We
at the Bucerius Center on the Legal Profession, a think tank at Bucerius Law School in Hamburg, have
spoken to many of them. Our Center does research and analyzes legal markets in order to provide market
participants with knowhow and knowledge regarding the best practices of law firms and in-house legal
departments. Here is what we talk about when we spend time with the John Does:
Law firms should focus on three core areas when it comes to setting up a plan for the next three-
plus years. They have to:
1. Deal with their strategic positioning;
2. Focus on client service; and
3. Make sure that their partnership structure is well aligned with the strategic goals of the
firm.
Focusing on these three core areas is sufficient, but what about innovation? Profit sharing?
Governance? Mergers? These are each important, but first things have to be put in perspective. Just grabbing
a buzzword — e.g., “innovation” or “profit sharing” — has nothing to do with strategic goals and leads to
aimless activism without any success.
Before discussing the core items, one has to understand that all three topics are applicable for each
type of law firm, be it a global player, a boutique, an international firm, or a category killer. The questions
are always the same; the answers are not. The most important topic is strategic positioning; hence, we will
spend more time on this subject.
Strategic Position
Strategic positioning has a lot to do with knowing oneself and understanding the dynamics of
markets in general, not just legal markets. Law firms tend to look at themselves as something special and
unique; actually, they aren’t so special. The legal industry can learn a lot from other industries. A useful
way to understand how the legal market has changed shape since the financial crisis — and what it could
look like in 2018 — is to analyze market data from 2007 until today. However, rather than overly focusing
on each firm’s turnover and profitability on a year-to-year basis through endless listings, we prefer to
compare movements of certain groups of firms. This is not a new method of looking at legal markets.2
In 2007, one could identify five different groups of law firms: (i) the global elite, (ii) the challengers,
(iii) the middle field, (iv) the Magic Circle, and (v) the global law factories. By 2013, the legal market had
changed significantly with the market of international law firms seemingly split up in two major segments:
the elite segment and the global law factory segment. The “middle of the road” firms have come under
extreme pressure, and the jury is out on their future. Will they eventually cease to play a role? This depends
on a number of factors.
Why only two segments (with sub-segments)? To start with the easy part of forecast, the premium
elite segment (group i and partly group ii) will remain. No one should be concerned about the prospects of
New York “white shoe” firms such as Cravath and Wachtell. They stick to their purist and elite approach
on the back of a strong U.S. economy, and, with their premium brand, their market position will be in
perpetual motion. The elite, however, will have to fight hard to defend their market position, focusing on
profitability rather than revenues. This segment has characteristics of musical chairs, but it is actually the
only option for the global elite, since becoming bigger would automatically cause them to deviate from
their elite model and become less profitable.
On the other hand, one will find the global law factories. Their international reach, focused on
revenues and global market share, goes together with a comparably easy-to-manage Swiss verein (or
2 Markus Hartung & Arne Gaertner, Game Over?, MANAGING PARTNER MAGAZINE, February 2014 (a discussion in which the reader will find
some tables and more data to better understand the current dynamics of global markets).
149
There are many John Does out there who try hard to navigate their firm through heavy weather. We
at the Bucerius Center on the Legal Profession, a think tank at Bucerius Law School in Hamburg, have
spoken to many of them. Our Center does research and analyzes legal markets in order to provide market
participants with knowhow and knowledge regarding the best practices of law firms and in-house legal
departments. Here is what we talk about when we spend time with the John Does:
Law firms should focus on three core areas when it comes to setting up a plan for the next three-
plus years. They have to:
1. Deal with their strategic positioning;
2. Focus on client service; and
3. Make sure that their partnership structure is well aligned with the strategic goals of the
firm.
Focusing on these three core areas is sufficient, but what about innovation? Profit sharing?
Governance? Mergers? These are each important, but first things have to be put in perspective. Just grabbing
a buzzword — e.g., “innovation” or “profit sharing” — has nothing to do with strategic goals and leads to
aimless activism without any success.
Before discussing the core items, one has to understand that all three topics are applicable for each
type of law firm, be it a global player, a boutique, an international firm, or a category killer. The questions
are always the same; the answers are not. The most important topic is strategic positioning; hence, we will
spend more time on this subject.
Strategic Position
Strategic positioning has a lot to do with knowing oneself and understanding the dynamics of
markets in general, not just legal markets. Law firms tend to look at themselves as something special and
unique; actually, they aren’t so special. The legal industry can learn a lot from other industries. A useful
way to understand how the legal market has changed shape since the financial crisis — and what it could
look like in 2018 — is to analyze market data from 2007 until today. However, rather than overly focusing
on each firm’s turnover and profitability on a year-to-year basis through endless listings, we prefer to
compare movements of certain groups of firms. This is not a new method of looking at legal markets.2
In 2007, one could identify five different groups of law firms: (i) the global elite, (ii) the challengers,
(iii) the middle field, (iv) the Magic Circle, and (v) the global law factories. By 2013, the legal market had
changed significantly with the market of international law firms seemingly split up in two major segments:
the elite segment and the global law factory segment. The “middle of the road” firms have come under
extreme pressure, and the jury is out on their future. Will they eventually cease to play a role? This depends
on a number of factors.
Why only two segments (with sub-segments)? To start with the easy part of forecast, the premium
elite segment (group i and partly group ii) will remain. No one should be concerned about the prospects of
New York “white shoe” firms such as Cravath and Wachtell. They stick to their purist and elite approach
on the back of a strong U.S. economy, and, with their premium brand, their market position will be in
perpetual motion. The elite, however, will have to fight hard to defend their market position, focusing on
profitability rather than revenues. This segment has characteristics of musical chairs, but it is actually the
only option for the global elite, since becoming bigger would automatically cause them to deviate from
their elite model and become less profitable.
On the other hand, one will find the global law factories. Their international reach, focused on
revenues and global market share, goes together with a comparably easy-to-manage Swiss verein (or
2 Markus Hartung & Arne Gaertner, Game Over?, MANAGING PARTNER MAGAZINE, February 2014 (a discussion in which the reader will find
some tables and more data to better understand the current dynamics of global markets).
149
