There has never been a more challenging time to be an independent law firm. The continued globalisation of the legal industry has made the independent firm – by which I mean those with practices that are largely or entirely situated in a single office or market – an increasingly rare breed. This is particularly true for those targeting high-end work in developed markets, where firms that have eschewed international expansion are swimming against a strengthening tide of consolidation.
Later this month, a group of these stubborn holdouts is set to meet in London to discuss how to remain competitive in a fast-changing market. The event, hosted by Legal Week and The American Lawyer, will see law firm partners, general counsel and industry experts chew the fat on a wide range of subjects, from tackling emerging jurisdictions to adopting new technology and retaining talent.
It will be a timely gathering. The trend in recent years has been for clients to trim their external adviser relationships and move toward working with fewer firms globally, often via formal panels. This has made the already formidable task of competing against international rivals even tougher. When pitching for cross-border matters, independent firms can’t just be as good as global firms – they have to be better. Or, at least, cheaper. The former is no mean feat; the latter is hardly an ideal long-term strategy.
Smaller firms may also have less buying power when it comes to making investments in technology and other areas that improve efficiency and client service. This will become increasingly pertinent as technology continues its gradual shift from back-office to front-office: artificial intelligence is currently one of the hottest topics in Big Law.
That’s not to say such investments are out of reach. Slaughter and May last year signed a deal with AI software provider Luminance – but Slaughters has resources that few other independent firms can match.
Similarly, many independent firms would be unable to afford – or generate enough work – to justify running legal and business services support centres in lower-cost jurisdictions, an increasingly widespread practice among global firms. An independent firm in the UK or the US could send commoditised work to a referral partner in another market where the rates are lower, of course. This practice would generate savings for clients, but it would not make the same contribution to the firm’s own bottom line.
It isn’t all doom and gloom, however. Opportunities remain – for firms with the right strategic discipline. The independent firms that succeed are generally those that specialise and excel in a limited number of practice areas. Avoiding mission creep, if you’ll forgive the jargon, is key. That will on occasion mean having to tell clients that there may be another firm better placed to handle a particular matter. So be it.
As the legal market continues to consolidate, the value associated with independence increases. Every time an independent practice combines with a global firm – in March, for instance, 70-lawyer Dutch firm Boekel agreed to join Dentons – the remaining independent firms in that market have one less competitor for referrals. This also shows the inherent risk with the independent law firm model, however: firms that previously worked with Boekel may now have a Netherlands-shaped hole in their network.
One thing is certain: independent firms live and die on the strength of their relationships – with clients and, just as importantly, with other law firms. It is absolutely critical for firms to invest in managing and developing these ties. Independence doesn’t mean going it alone.