External investment: Can the legal profession really deliver a decent return?

My guest blog for Totum Partners (www.totumpartners.com) the leading law firm management recuitment consultancy.

This month we welcome guest blogger Andrew Hedley, who provides a few salutary lessons for law firms that are serious about attracting external investors.

There was much excitement from the private equity community a few years ago when the possibility of external investment into law firms first raised its head. I had a number of conversations with potential investors who waxed lyrical about the “mouth-watering” profitability available in the sector. They clearly had no understanding of the operating basis of the traditional law firm financial model!

Changed Expectations

“It may be hard for an egg to turn into a bird: it would be a jolly sight harder for it to learn to fly while remaining an egg. We are like eggs at present. And you cannot go on indefinitely being just an ordinary, decent egg. We must be hatched or go bad.”
C. S. Lewis

The legal sector is full of decent eggs; firms which are technically competent, deliver good service, price their work the way they always have and are structured along historic lines. They are operating a cottage industry model and are woefully ill-equipped to deal with the fundamental and far reaching change which is sweeping the market.

There are two dimensions to the challenges which firms must address. The first is external, dealing with a new set of client expectations and fast-emerging competitive forces. The second faces internally and is concerned with operational efficiency, new ways of working, structure and governance.