Forging the right links

by Nick Jarrett-Kerr

I was recently talking with an environmental law partner from an 80-partner commercial law firm. He told me that he felt his firm was just about the minimum size necessary to support a two-partner environmental team; for him, scale was definitely an issue. This conversation is similar to many I have had with law firm partners over the past year or two. Except for the perfectly formed specialist practices, the question of size is increasingly on the agenda. For clients, size is seen, among other things, as a safety or comfort factor. For law firm partners who wish to pursue better work (whatever that means for them), increased specialisation needs to take place in the context of a firm large enough to warrant deep teams across all the heavy-lifting core commercial areas. For the recruitment market, especially at senior level, the incoming lawyer wants to board a vessel that is capable of travelling safely, but speedily, through the water. Additionally, potential law firm investors will only be interested in firms that have strong track records in managing fast and sustainable growth over reasonable timeframes.
The majority of law firm managing partners have appreciated for some years now that mergers – or even growth generally – are not strategies on their own but form the means to a strategic end. Size for size’s sake is not the relevant point. The strategic question on the lips of many is: ‘What might we need to look like in three to five years’ time to attract and retain the best lawyers, to continue to serve our best clients and to attract both better clients and better work?’. For some, the answer may be to continue steadily on the course that has already been chosen and is tried and tested. For many, however, profitable growth – carried out strategically in a consolidating marketplace - will be an inevitable part of their plan. Such strategically directed growth needs to consider at least four imperatives, all closely linked with the firm’s strategic positioning. First is the growing client-driven need for depth of expertise – smaller and more general practices, with skin-deep expertise, are finding themselves most exposed to the client-driven demand for greater specialisation and deeper levels of expertise. Second, the more sophisticated clients also expect increased depth of service – the ability to progress larger matters quickly and efficiently, with the work being done as a team effort and at the right level. Third is the need to increase depth of resource – the increasing imperative for investment capacity and management capability to develop and maintain a supportive infrastructure. Fourth, depth of brand is also important to give the profile and market perception necessary to provide a winning business recipe. In this context, many firms are striving to cast off their image as local firms in favour of a regional profile; at the same time, regional firms are seeing the need to become national, while national firms are striving to extend their reach internationally.
In the light of these trends, we are already seeing a growth in the number of strategically-generated merger discussions, and we expect the momentum to increase. Such discussions are never easy. To ensure that that the right links are forged requires strong leadership, a clear strategic focus and the ability to take a long-term investment perspective.

Nick Jarrett-Kerr is a member of Kerma Partners. He can be contacted at Nick.Jarrett-Kerr@KermaPartnerscom