Why Law Firm structure should matter to prospective clients (Part 2)Posted on Jan 7, 2016
By: Alex Hamilton
The Radiant Business Model
In the first part of this blog (published on December 1st), I suggested that there are a number of problems with the traditional law firm structure, which tend to make it less likely to be an innovative business partner. The purpose of Radiant Law is to lead the way at better meeting clients’ needs in creating commercial relationships. To deliver on this purpose, we have structured ourselves very differently from the traditional law firm. We operate as a company rather than a partnership, we have distributed decision-making within the organisation, and we operate a fixed price business model so we do not keep timesheets or have hourly rates like traditional law firms. Much has been written comparing partnerships and company structures. To us, the differences that matter are the core assumptions implicit in the partnership model. First, it’s assumed that decision making is reserved to a group of owner-managers. Although decision making will be centralised to at least some degree in the management team, the management team must keep the rain makers on board. Second, very few who are not partners have authority or influence. This leads to much hand-wringing over terminology such as “non-lawyers” but the issue is deeper. If you are not a partner or a COO, you will always be restricted in your ability to lead change. Third, partners have a wide discretion in how they deliver services. Associates and trainees are expected to become chameleons as they support different partners, adapting to their individual preferred styles. This means that there is no easy way to implement a standardised process or common approach to work practices. Fourth, partners are treated as individuals whose individual motivations need to be tempered through culture and pay. More effective would be everyone at the firm being aligned through a larger common purpose first and foremost. Finally, firm profits belong to the partners who have to agree collectively to retain them within the business in order to invest in improving the business (and when investments are made, the tax position can be sub-optimal). This doesn’t mean the partnership model is wrong but it does not lend itself to innovation as readily for these reasons. We didn’t think that these assumptions would help deliver on our core purpose. So we set up Radiant Law as a company, which allowed us to things differently:
- Decision making was centralised in the executive committee and board like a partnership, but that group didn’t have to contend with the vested interests implicit in a partnership when it chose to push decision making down to the wider team. In other words, we can act more decisively, even when that involves spreading power.
- We are not limited to the key decision makers being lawyers and our ability to involve individuals such as Greg Tufnell (former MD of Mothercare) as our chairman is an example of how we can bring in very different perspectives. We assume that lawyers don’t hold all the answers.
- We have a common way of delivering services (the Radiant Way), which everyone is expected both to follow and to contribute to developing. Our assumption is that we can improve together in how we meet client needs, rather than work in isolation.
- We set up from the beginning to work towards our purpose, rather than be an economic platform for partners. We are aligned first and foremost to deliver a better service that really meets clients’ needs. By achieving that central goal we believe we can be a profitable company.
- There are no assumptions that profits will be distributed to the owners. All of us are on salaries and performance related bonuses and the assumption is rather that profits will be retained for investment in the future.
Finally, by getting rid of the billable hour and the timesheets, we have aligned our interests with those of our clients. In a fixed price business model we are incentivised to find smarter and more efficient ways of working, rather than creating work. So how does this help our clients? Referring back to the questions posed in part 1 of this blog:
- Changes to improve how we meet clients’ needs are supported throughout Radiant Law, from the leadership team to everyone working with clients.
- We retain most earnings to invest in these improvements.
- We are fully incentivised to take advantage of more effective ways of working.