Lawyers must learn to adapt to a brave new world

Sir Nigel Knowles, the global co-chief executive of DLA Piper, said law firms must modernise and behave like businesses to successfully adapt to the “new normal” trading environment.

He said: “In this world you might think you’re on the right track – and indeed lots of us will be – but you will get run over if you just sit there.

“Life is moving very quickly and the pace is only going to increase.”

Sir Nigel was speaking to an audience of top lawyers at the Yorkshire Post Business Club, a forum for debate and discussion for the region’s business leaders.

The highly fragmented legal sector is facing significant change following the financial crisis, the onset of disruptive new technology and new business models ushered in by the Legal Services Act.

Sir Nigel said that Yorkshire law firms have a “fantastic opportunity” to gain a competitive edge over their more expensive rivals in London and cement the region’s position as the number one legal centre outside the capital.

He revealed that it costs DLA Piper – the world’s largest commercial law firm – between 25-35 per cent more to employ a lawyer in London than it does in Leeds. “It’s a very expensive part of the world to operate in,” he told the audience.

“The cost base in Leeds is infinitely cheaper. If you look at the rents per square foot, it’s more than twice in London.”

Sir Nigel said Leeds can take market share, but added: “It’s got to have a campaign of self promotion and collectively you will make the world aware this is a place that is looking at the future, is modern and has got a competitive advantage.

“If I was Leeds I would definitely be seeking to increase market share.

“All of our offices in Russia, they don’t send their corporate work to London, they send it to Leeds.

“You can take market share from around the world. Why does a business in Russia want to spend the hourly rate in London when it can get the Leeds price?”

DLA Piper’s office in Leeds is in the group’s top five for size, revenue and profitability, he said.

Sir Nigel claimed that Yorkshire’s professional and financial services are growing in national and international importance as the region’s corporates develop national, continental and global businesses.

He said: “If you start from a position of strength, you have to work out how to stay ahead, what the future looks like and what your strategy is going forward.

“We have all got to work out where the market is segmenting, where our competitive advantage might be and that your cost base and pricing structures are aligned to achieve that.”

Sir Nigel said continued globalisation in the corporate world is leading to consolidation among law firms and an oversupply of lawyers by as much as 15 per cent.

This means that Yorkshire law firms must attach themselves to as many large clients as possible to stay close to sources of work.

He said the global market for commercial law is worth around $300bn.

“No one firm has one per cent of the market yet, so the amount of consolidation still to take place in the legal services sector... is quite unbelievable.

“If our revenues are $2.5bn and we are supposed to be the largest law firm in the world... we are not yet at one per cent.”

He predicted that the rise of procurement teams for legal services will continue and their influence will increase.

Sir Nigel said: “They all want more for less or they want more for nothing, which is called investing in the relationship or partnering.”

Describing how the legal market will segment in the future, he said the global elite Magic Circle law firms are reducing in size and concentrating on work involving investment banks.

He added they will probably occupy the 10-12 capital markets in the world and do very well charging a lot of money for advising on the highest value, most complex transactions.

Global commercial law firms will come next, with 100 offices, 5,000 lawyers and will be similar to the Big Four accountancy firms, though with less of the market, he said.

Beneath these will be the niche and super-niche firms, either by geography or sector, and then the alternative business structures, he said, which will have far-reaching implications for the legal sector.

These new firms, which can be owned by non-lawyers, will provide a source of competition for high street firms, he said.

To date, the Solicitors Regulation Authority has issued nearly 200 licences for alternative business structures.

Sir Nigel said: “The size of the prize is still significant. If you have got a plan, and your plan gives you an element of competitive advantage, and you have got your cost base in line with your income expectations and you have got a clear understanding of which bit of the market you are aiming for, we should all be positive.

“The opportunities for us, for those people who are fleet of foot, are as good now as they have ever been and we should all have a degree of optimism for the future.”

Yorkshire lawyers took part in a debate following Sir Nigel’s presentation at the Yorkshire Post headquarters.

Legal services entrepreneur Ajaz Ahmed said: “Law firms acknowledge that change is coming, but the majority say ‘it’s not going to affect my firm’.”

Richard Marshall, managing partner at Lupton Fawcett Lee & Priestley, said: “The asteroid hit the earth and wiped out the dinosaurs.

“Pre the perfect storm, it was possible for non-business people to survive as lawyers.

“The survivors will be business people. Those that aren’t are going to die. They are dying now.”

Keep things simple

Life is simple, according to the grocer’s son from Sheffield who led the creation of the world’s largest commercial law firm, DLA Piper.

Sir Nigel Knowles, knighted in 2009, said: “DLA Piper is very simple. We either record and bill so many hundreds of thousands of hours a month and get paid and price it at a number that allows us to pay all our expenses and make a profit, or we’re bust.

“It’s not complicated. Lawyers can make it really complicated. Consultants can make it really complicated. But actually it’s really simple.”

When there is turbulence, there is a reordering of the market, which allows smart firms to move up the table, he said.

“If you think you’re a member of a profession shrouded in mystique and respect, you’re dead,” he added.