Law Firm Management – Survival of the Fittest

Charles Darwin knew a thing or two about evolution.  If I can cast my mind back to my human biology lessons, the term coined by the great naturalist was “Natural Selection”.  It took a little while for this radical theory to be accepted by the mainstream scientific community but now it is universally seen as the reason we, as humans, exist in the form we do today.  Of course not just humans, we can trace the origins of all living creatures through this process.

If Darwin were alive today he would no doubt be fascinated by our individual and organisational development.  He might also see how his theory can as easily be applied to businesses as it can to individuals.

A sector currently experiencing a significant series of evolutionary events, shaping their structure, relationships and existence is the legal profession.

Just last week we heard of yet one more familiar north east name going into administration.  The loss of 50 jobs and a history of 250 years, gone.  They are not the first in this recent wave of firm closures and they most certainly won’t be the last.

Why are we hearing of so many failures?  The answer, as in any scientific evaluation, is not straightforward.  The truth is that the myriad of challenges that have conspired to arrive at the door of law firms in the UK are individually manageable with care but when they arrive in rapid succession, they create a chain of events that leave only the very fittest and dynamic of practices standing.

The Law Society reported toward the end of 2013 that over 400 law firms had closed in the preceding 12 month period.  Last week the same organisation revealed that more than 4,500 solicitors had simply not arranged to renew their practicing certificates.  Without it they are unable to carry their work.

The events that have brought about the closure of so many firms include;

• The recession resulting in SME’s looking to save cost by avoiding lawyers’ fees – (Law Society Gazette May 2013), larger corporations driving down fees and personal clients unable to get divorced as they can’t afford to put their affairs in order. The property market is also only just waking from its lengthy hibernation.
• Personal Injury and Medical Negligence solicitors impacted by the Jackson Reforms seeing an immediate drop in fee income, volume of instructions and the departure of claims management companies from the market.
• The Government removing legal aid for divorce and failure of mediation to replace the lost fee income.
• Introduction of the Legal Services Act and “Alternative Business Structures” enabling non solicitors to offer legal services and large corporations such as Co-op, Direct Line, DAS, BT entering the market.
• Professional Indemnity insurance cover proving increasingly difficult to obtain, suppliers in the market cherry picking only the very best risks and others facing excessively high premiums.
• Solicitors Regulatory Authority introducing burdensome and expensive measures such as Compliance Officers for legal practice and finance.

These facts and more point to a series of tremors in the legal world that have built to form a seismic event.  The consequence of these factors is when the dust settles the clients, both personal and business will have far less choice.  On the upside, of those firms remaining we can be assured that they are resilient and very likely to be focussed on the needs and value they can bring to the client.

The conclusion we can draw using Darwin’s theory is that having survived the natural selection process those still standing will be fitter and more prepared for the future.  The advantage existing firms have at this time is their opportunity to still act, adapt and ensure their survival and avoiding a Dodo dilemma.

David Laud – Partner i2i Business Solutions LLP