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What has gone wrong with the national/regional law firm model? The question is relevant because, as we alluded in our top 50 UK coverage last week, this band should be excelling now. In a market where big-ticket deal work is scarce and clients are bound to become more fee-sensitive, the theory goes that the cheaper cost base of the regional practices should shine through.

Except, so far, it has done nothing of the sort, as firms from this band proved among the worst financial performers in 2007-08. To be fair, there are a number of forces that are particularly challenging for such firms. Key among these is the group’s higher-than-average exposure to the property market and the preponderance of volume businesses currently taking a beating.

But there are deeper problems with this model that have been exposed too often. Remember that regionally-focused firms were indifferent performers during 2002 and 2003 when market conditions should have been ideal. Actually, these firms have built highly cyclical practices that generally benefit from bull market excess when they win run-off work from City firms.

Certainly, it seems that too many regionally-focused practices have become caught between two markets, struggling to service either satisfactorily. This is because some nationals reacted to their initial struggle to break into the City and upper mid-market by getting forced back into handling relatively commoditised or low-value work. Sometimes that has been for big-name clients but the track record in trading up has been poor. At the same time, the need to compete in the City has seen charge-out rates kept too high. General indications are that top-end regional rates are roughly two-thirds of the City equivalent. Given the disparity in work and the lower cost base, it should actually be far lower – and if it were you would probably get far more clients transferring work to the regions.

But something more fundamental holds back many national firms and that is the failure to focus obsessively on moving the top end of their practices that bit higher up the food chain every year. After all, the advantage of a national model is that it allows you to maintain a wider practice than is economically viable for a City firm, but you still need to be able to compete in the City. If you’re not in that business, your business really is mainly about cutting rates and working the margins. There’s nothing wrong with that but just be honest about it and you’re likely to find more success.

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