Signium Legal Group hosts London roundtable discussing the future of the legal profession
Summary of our latest Roundtable December 2016, hosted by our legal team in London
Panel members listed at the end of the article.
Rescuing the relationship
Are lawyers in danger of losing their coveted “trusted adviser” status and what can they do about it?
Viewed from a decade ago, the legal landscape today looks much more familiar than many at the time expected. The Legal Services Act 2010 (LSA) was set to transform the ownership and structure of law firms, the accountants were expected to renew their multi-disciplinary efforts as the regulations relaxed, the boundary between the Bar and solicitors’ professions was expected to dissolve and access to legal information provided through the internet, it was predicted by some, was set to undermine the position of legal professionals.
While the importance (and size) of in-house legal teams has grown and the LSA has brought fresh thinking and investment to some sectors, by and large the partnership-based law firm model cruises on, battered but unbowed.
“Change there has been, but it has been evolutionary,” said Stephen Williams, general counsel of the Unilever, who chaired the session. “Even if some of the circumstances outlined threatened revolution, it has not happened. Most of us have changed our behaviours enough to stay ahead of the curve, but have we changed them enough to stay ahead of the new curves?”
“Some of the challenges [ahead] are truly existential, coming from changes in how societies operate; how people who operate in those societies expect other firms to operate; circumstances we cannot control anymore and we will have to adapt to. The futurologists and big thinkers are challenging the nature of our service delivery, particularly our key USP as lawyers: our role as the trusted adviser.”
What are lawyers for?
One of the reasons that the status quo has survived for so long is that the role of the lawyer as a “trusted adviser” has arguably become more important in recent years as the business world has changed. The decade since the credit crunch of the late 2000s has proved perilous for many businesses and the need for informed, reliable and impartial advice is greater than ever.
Clients need someone who is indefatigably on their side and the conflicts of interest that larger organisational structures can create militates against too much consolidation or external capital.
However, it was noted by some at the session that many law firms fall short of trusted adviser status and suggested that those in this category face an uncertain future. Where once law firms could survive on their status as the repositories of legal information and knowhow, this advantage is rapidly eroding in the internet age as the raw material of legal knowledge is widely available online.
Charles Martin, senior partner of Macfarlanes, suggested that, for the upper echelons of private practice, gaining and retaining trusted adviser status would be crucial for their future prosperity and that law firms may need to make some radical changes if they are to retain it.
“We will not be able to simply claim trusted adviser status, as we have in the past,” he said. “We will have to do things that genuinely justify it.”
So what are the qualities required to become, and remain, a trusted adviser? For Norton Rose partner Jeffrey Barratt, experience is key. “With increasingly difficult regulations and other things affecting clients, the client will want people that he or she can talk to, to get a view on: ‘Is this a sensible thing to do?” he said. “The huge plus that the experienced private practitioner can provide is that you have been there before. “
In addition to past experience, understanding of both the client’s business and the sector that they operate in are also essential requirements for the “trusted adviser”, while from a more technical point of view, the protection provided by legal professional privilege is an important (if increasingly endangered) advantage enjoyed by lawyers in the lawyer-client relationship.
A further attribute identified by the roundtable participants is the ability to be able to provide advice and guidance without conflict of interest or commercial pressures limiting the scope of the lawyer to act in the client’s best interests at all times.
On a personal level, being able to communicate effectively with the client is also key as is the way that his or her advice is presented. As well as understanding the needs of the client to ensure that the advice is relevant, the trusted adviser needs to deliver that advice in a way the client can use.
Dr Tracy Long, founder of the consultancy Boardroom Review which advises on effectiveness of boards and committees, told the session that this is an area where many advisers legal fall short. “What is the board trying to do? It is trying to make decisions. I see many expert counsel coming in and giving presentations and what I observe is they often do not help directors make decisions. They are talking about background and the legality, but they are not actually giving a roadmap for the board to help it make a decision. If lawyers thought a little bit harder about trying to help individuals and collective groups make decisions that would be very helpful.”
In some of these respects, however, it was acknowledged by private practice and in-house delegates alike that recent developments are compromising private practice lawyers’ ability to perform the trusted adviser role.
The growth of legal panels and other procurement processes has also in many cases diluted the relationship between lawyer and client from a close personal one to a more transactional arrangement. Moreover, it was noted, the rapid increase in the size of law firms – whether organically or through merger – is damaging client relationships in a number of ways, whether that be through the need to cross-sell other parts of the firm or to institutionalise clients at the expense of personal relationships.
“One of the key ingredients to being a trusted advisor is that you put the client’s interests ahead of yourself,” Slaughter and May’s senior corporate Nigel Boardman said. “If you do not do that, you are not going to be a trusted advisor. We saw, when I started my career, that the senior audit partner of the accounting firm was the trusted advisor, and then they started selling consultancy services and other services alongside it, and then they had Sarbanes Oxley, and they are no longer the trusted advisor because they took on too much cross selling, which benefited them and not the client. The investment banks tried to step in to the role, but are selling, not advising, and lost it.
“I would say that, by and large, in private practice we have done the same thing,” he added. “We have started cross selling services even when we know they are not the best services. We sell to a client our office in wherever it is, Timbuktu, when in fact there are much better offices in Timbuktu. We tell them to use our litigation team and they are not the best litigation team to do the job. We lose our trusted advisor status because we are putting our own interests ahead of the interests of the client. In 10 to 15 years, we will lose our trusted adviser status if we are not careful.”
So what can law firms do to defend their coveted trusted adviser status? One suggestion was to replace the focus on growth that has dominated in recent years with one on quality, using technology to deal with the bread and butter work at the price and speed that clients demand and investing in the technical and ‘soft’ skills required to perform the trusted adviser role.
“I think the opportunities are there for law firms to really gain huge measures of loyalty back from corporates, but they have to be prepared to invest,” said Andrew Garard, general counsel at ITV plc. “This means not only investing in technology and training, but they have to invest in people terms as well. Client loyalty now is a person to person loyalty, it is not a corporate loyalty to a law firm. Things like secondments are not necessarily just a means for in house teams to fill gaps. They can be a vital learning experience for a lot of law firms. They have to be prepared to invest in that if they want to survive into the next century.”
For Charles Martin at Macfarlanes, this process may lead to a smaller profession in future. “The days when growth was high up the agenda and the way in which we judge success are long past,” he said. “In a way, growth is a threat to the trusted advisor role, partly because it creates a less intense environment: an environment where it is more difficult to create the kind of culture that brings ‘trusted advisors’”.
Has the trusted adviser gone in-house?
The rise of these headwinds for private practice led the session to ask whether the role of the ‘trusted adviser’ was in the process of shifting in-house, from the experienced private practitioner to the seasoned general counsel. Many of the attributes of the trusted adviser outlined above are enjoyed by in-house lawyers, whose number and prominence have both clearly grown in recent years.
Perhaps surprisingly, one advocate of this view was Nigel Boardman. “By and large, with most corporates, the trusted advisor has moved in-house to be the in-house lawyer,” he said. “The in house lawyer who does not play politics internally, does not seek to go on the board and does not seek to expand their empire – in other words, does not put themselves ahead of their own client – is the person who has the ear of the organisation and has the ability to help and to advise. When you look at the States, that has happened to a much greater degree than it has here, but it is happening here. In 10-15 years’ time, we will not be trusted advisors. We will be an audit firm, unless we are very careful.”
If this scenario does play out more widely, where does this leave law firms in the race to be the trusted adviser? “The growth of the general counsel’s status in corporations means that the practical ambition for most external lawyers is to be the trusted advisor to the GC rather than to vault over the GC and expect to have a relationship with the CEO,” suggested Stephen Williams.
While this proposition was not universally accepted by private practice participants at the session, DLA Piper’s Sir Nigel Knowles said that this role is something that law firms are well set up to do. “I think a partner in a law firm can be a good trusted advisor to the general counsel, who might want to talk about an aspect of life that they do not feel able to talk about to somebody who reports to them or kick it up and talk to the CEO about it,” he said. “What a general counsel does not want is a partner in a law firm going direct into the CEO unless invited to do so.”
And, as in-house teams get bigger, the opportunity for law firms to develop trusted adviser status further down the hierarchy will also be key, according to Nicholas Cline, partner in the London office of Latham & Watkins. “It is broader than just the relationship with the GC, he said. “You could be a trusted adviser to a contract lawyer within an organisation, just as you could have a trusted advisor loyal to the GC.
“It is important to focus in on what that means - it is an understanding of the business, an understanding of client delivery and an investment in the relationship. We can certainly talk about trusted advisors to the board, and that is first of all what comes to my mind, but I think as a law firm we need to develop trusted advisors at all levels and within our specialisms as well.”
Cracking the inner circle
While in-house lawyers enjoy some advantages over their private practice colleagues, both corporate counsel and external lawyers alike have a challenge in gaining the ear of chief executives, who are more likely to lean on the CFO, external bankers or even the director of HR in times of need.
The rapid expansion of the regulatory environment has in many ways raised the profile of lawyers, but has also made the role of lawyers more technical than strategic. For CEOs, regulatory compliance is often seen as a “plumbing” issue – important to get right, but largely invisible until it goes wrong – rather than a key competitive advantage plank of the company’s strategy. Consequently, lawyers are summoned if there is an issue, but are less likely to form part of the CEO’s inner circle for key strategic decisions, or in a crisis.
“In my experience, the chief executive turns first to his CFO, then his HR director, and, only on certain things, then to the general counsel,” said Rosemary Martin, general counsel at Vodafone. “Most of the chief executives I know do still see law as a difficult thing that needs to be sorted out, as opposed to a business advantage that is going to make us win.
“Most of the people trying to run businesses, in banking and elsewhere, find the regulatory pressure they are under a complete pain, so the lawyers are asked: ‘Help us get out of this pain’, as opposed to, ‘Help us to take our business forward.’ For lawyers, moving beyond that role is quite a challenge.”
For ITV’s Andrew Garard, the regulatory role is as much as an opportunity as a threat to lawyers, particularly those in-house. “You are not going to bridge the gulf between regulatory nerd and corporate saviour in one fell swoop, but I do not believe most general counsel are regulatory nerds. Although they think they are managing regulation, I think what they are doing is actually looking to regulation for the threats and the opportunities. If you are anticipating regulation that is coming down the stream, you can position your company in a much better way and maybe gain a leap on your competitors.”
This process, he added, is fuelling the rise of the in-house lawyer as the trusted adviser in many organisations. “Because of the way that the private practice profession has gone in the past 10 years, they have ceded the ground and the trusted advisor is now the general counsel” he said. “Increasingly there is a triumvirate who essentially lead the business, and that is the CEO, the CFO and the general counsel. So if trouble strikes the company, do you as general counsel push it out to private practice? No, you do not; you actually seize it with both hands and you demonstrate to the board what you can do.”
Nevertheless, others at the session expressed the view that both in-house and external lawyers are still failing to fully demonstrate their worth to with executives and boards. One major reason, said Louise Ruppel, Group Legal Director at FirstGroup plc, is that too many lawyers are unable to speak the same language as their clients, alienating them in the process.
“Many lawyers speak a different language from the people around the board table and the people that they are trying to service” she said. “Lawyers speak legalese. Lawyers speak in words. They do not speak in numbers. They do not speak in concepts. They do not summarise. They do not present a concise picture of a decision-making process that the board has to go through.
“This is what a good general counsel does – to take the information coming from the ‘regulatory nerds’ in the legal team and present it to the board in a way that helps them recognise the risks and take the decisions they need to take. They need to know that their back is covered, and they need to know that there is somebody there who is going to do things properly, who is going to tell them when things go wrong, recognise the risk for them, present it to them in a way that makes their life easier.”
Fit for the future?
The challenges facing businesses are unlikely to get any easier and the need for the trusted adviser will always be there in some form. The danger for lawyers is that there is no guarantee that it will be they that will fulfil the role. Private practitioners and corporate counsel alike will find themselves increasingly marginalised if they fail to nurture and develop what will be an evolving role as the new challenges emerge.
For law firms, losing the trusted adviser role potentially relegates them to the commoditised part of the market, subject to ever downward pricing pressure as technology makes the provision of legal knowledge and advice less expensive. For in-house lawyers, it risks a fall down the corporate hierarchy and diminishing access to the board. Trust, clearly, is a very valuable and appreciating asset indeed.
Stephen Williams, Unilever (Chair)
Dominique Graham, Signium/Graham Gill (Host)
Rosemary Martin, Vodafone
Jeffery Barratt, Norton Rose Fulbright
Nigel Boardman, Slaughter and May
Andrew Garard, ITV
Tracey Groves, PwC
David Isenegger, Centrica
Matthew Kellett, Ernst & Young
Sir Nigel Knowles, DLA Piper
Charles Martin, Macfarlanes
Louise Ruppel, First Group
Nicholas Cline, Latham & Watkins
Dr Tracy Long, Boardroom Review
Al Giles, Axiom
Mike Polson, Ashurst