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April 22, 2008


Law Firms as Businesses - What Type of Companies Are They?

"When billions are at stake, nobody is sacked for hiring the best lawyers." - The Economist

The legal market is highly fragmented.

  • The top end of the market mainly serves corporate clients and is dominated by large firms which can offer a wide range of legal services.
  • Small firms can compete successfully by providing specialized expertise or by operating locally.
London and New York house the greatest concentration of law firms.

  • These cities house the world's largest capital markets and companies everywhere want to tap into them.
  • International business is therefore often conducted under English or American law regardless of the client company's own jurisdiction.
Demand is dependent on the volume of economic transactions.

Profitability depends largely on the reputation and contacts of the partners.


Happily for lawyers, salaries are the major operating expense.


Unlike most other industries, marketing is often aimed at other lawyers since a large amount of work is done through referrals.

  • Referrals are mainly inter-jurisdictional but some are inter-specialization.
Globallegalcustomerbase_6

Serving corporate clients is both the most profitable and the largest slice of the market.



April 22, 2008


Consolidation Trends of Legal Services

Consolidation is driven by the desire of some corporate customers, who require a host of legal services, to have one firm handling all of their needs, a "one-stop-shop".

Firms typically add specialist lawyers and practice groups to do this. However, they can achieve this more rapidly and on a grander scale by merging with other firms.

Non-global players traditionally share an international mandate with a local player, or refer the client to a firm which they recommended. An example of this is the Slaughter and May (UK) / Cravath (US) "best friends" relationship.

One of the hottest current debates regards whether firms will consolidate globally to offer cross-border one-stop-shopping or whether firms will be chosen on their ability to provide the best service in a particular jurisdiction similar to a specialist boutique.



April 22, 2008


Partners not Shareholders - Law Firms are Different

Margin not Profit
  • Unlike limited companies which aim to maximize total profits for their shareholders, almost all law firms operate as partnerships or LLPs.
  • With no shareholders to worry about, the profits are distributed across the partners. Therefore they are incentivised to maximize profits per equity partner (PEP).
  • This makes them potentially more concerned about maximizing profit margins (by keeping headcount down, for example) rather than increasing revenues by adding fee earning partners.
  • The same is not true about companies since the shareholders care only about margin in as much as it affects profit.
  • Most companies would happily exchange a small decrease in profit margin for an increase in profit. Quite the opposite can be true of partnership law firms.
Partners not Board Members
  • Law firms usually take decisions by reaching a consensus amongst the partners. If they don't, partners can defect to rival firms or set up their own, leaving the firm to disintegrate.
  • Therefore, legal practices tend to behave more cautiously than their clients.


March 31, 2008


What Is A Training Contract?

A training contract for solicitors is a practical training period for law graduates in the UK who wish to qualify as solicitors. A full-time training contract typically lasts for two years, and is undertaken by students who have completed the Legal Practice Course (LPC) , which is the professional phase for becoming a solicitor in England and Wales.

The training contract is mandatory for all law students graduating with a law degree or with a non-law degree. If a person is qualifying without a degree, a training contract is typically not required. In such cases, non-graduates typically advance toward qualification by passing exams administered by the Institute of Legal Executives (ILEX) - all the while working under the supervision of a solicitor.

To carry out a law training contract, a graduate must apply for an opening for such position at a law firm. The problem encountered is that the number of graduates applying for training contracts in the UK surpass the number of annual contracts available.

Websites such as www.TopEmployers.co.uk strive to resolve this problem by providing easier accessibility to the UK trainee recruitment marketplace. Students can expose their details and resume online in order to attract law firms which have yet to fill their training contract vacancy. These law firms invite suitable candidates to partake in training contract interviews.

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