Simon Slater urges legal firms to embrace change and exercise control over their destiny.
Far be it from me to call into question one of the most celebrated men of the last 300 years, but here goes!
This was the man who said: “In this world nothing can be said to be certain, except death and taxes.”
Curious that for a man who lived for 84 years and wielded so much influence in so many walks of life, he didn’t appreciate the amazing social change he helped bring about.
Then again, he was a true altruist.
I must admit, I don’t particularly like the word change. It has become overused, especially in business. But, like it or lump it, it’s a fact of life.
Why is this relevant?
Some commentators have recently predicted that there will be as many as 30 mergers among the top 200 UK law firms in the next few years. Should these mergers transpire and, in all cases involve firms within the top 200 (rather than one party lying outside the 200), 60 firms would be affected. That’s 30% of our leading firms. Big change.
This is consistent with a survey covered in the Law Society Gazette in the first week of 2012. It stated that a third of practices in the SME section of the profession expect to merge in the coming year. That’s roughly 3,000 firms!
Though it needs to happen (9,000 law firms is economically unsustainable), it won’t.
And here’s why:
The research showed that whilst 43% of firms with more than 10 partners indicated they were likely to merge, only 21% of firms with fewer than 10 partners felt the same way. The fact is that the vast majority of firms outside of the top 200 have fewer than 10 equity partners. So we can only deduce that 79% of them do not anticipate merger any time soon.
That’s 7,000 practices effectively in denial. Seven. Thousand.
The conclusion is that whilst we could see some 1,800 – 1,900 firms merging, we’d still be left with a profession which remains grossly fragmented – with many thousands of players.
In addition to 66 cities in the UK, there are around 2,000 towns. Even if each of these towns could, on average, support two strong, independent and sustainable law firms, we are looking at 4,000 practices at best. The majority of city-based firms are already among the top 200. If we allow for another 300 or so new entrants, national chains, online practices and specialist firms, it is a market that can support 4,500 entities – half the current number.
A reduction of 1,800 – 1,900 is likely therefore to be the first tsunami in a series of transformational waves over the next 5-10 years. But for this to be the case, a further 2,500 small (sub 10-partner) firms will have to wake up one day, finally, and smell that coffee
I, for one, hope they do. Nobody likes to see a business wither on the vine.
These firms must embrace the inevitable (change); and they must seize the opportunity to maintain at least some control over their own destiny. As Charles Darwin – another of history’s wisest men – said: “It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change.”
Of course, being open to merger, identifying the right partner and agreeing the terms on which to merge are only parts of the solution. Business mergers rarely live up to their potential. This is due to a variety of “missed opportunities”, which are reflected in what I call the 5 critical success factors. It is these that I believe make any corporate marriage not just harmonious but greater than the sum of its parts.
Crystal clear strategic vision
Close alignment of ethos
Effective planning, implementation and integration
Strong, positive leadership
Conversion of increased scale into real improvements in operational efficiency
Even though, like death and taxes, change is inevitable, the golden rules of business remain the same.