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Until comparatively recently the very idea of a large law firm going bankrupt might have seemed almost preposterous.  But things have changed. Standards of corporate governance have increased and continue to do so as a necessary consequence of the October 2011 regulatory changes that allowed non-lawyer organisations such as accountancy firms to perform some legal work. Changes to the Legal Services Act permitted external investment and ownership of law firms. Almost overnight the days of the old-fashioned partnership law firm were over. The sounds of ticking clocks and the quiet snoring of ancient partners in the corners of offices was replaced by the hum of activity from driving a business. A business that could, without due caution, fail.

As competition has increased dramatically and law firms have awoken to the need to evolve or die, one particularly notable development has been the rise in the number of non-executive directors (NEDs) now employed to sit on boards. Almost 24% of UK law firms now employ at least one, as do nearly 33% of global firms. This is in marked contrast to US firms, the vast majority of whom remain sceptical about the value NEDs bring… but this may change. Research shows that those firms with NEDs have seen growth of more than a third above those without. Recruitment firm Edward Drummond published research showing that, among the UKs top 100 law firms, those with at least one NED have seen revenue growth of an average of 12% between 2010 and 2014, compared to just 9% for those without one. It would be interesting to see how this has changed over the last four years… years that have seen more and more firms recognising the need to think creatively and outside of traditional legal business models.

A NED, typically, will be appointed to be impartial but to bring a host of skills to the boardroom table. Often retired law firm leaders, accountants and management consultants, they are there to be sounding boards, advisers, strategists, coaches and observers. Importantly, they are at their most effective if they avoid day-to-day involvement in the firm. The business owners and the managing partners have so many conflicting demands on their time that they can struggle to take a sufficiently wide overview of a firm’s performance and direction of travel. The NED, sitting at a remove from the daily grind, brings an objective external view of factors affecting the business, monitors all aspects of management including the financial, assists with succession planning and, where necessary, acts as Devil’s Advocate to test the effectiveness of a firm’s strategy, uninfluenced by internal politics.

In addition to this they may bring with them business contacts and a profile that can contribute directly to the positioning of a firm at the forefront of excellence. Their advice on business, service delivery, client relationships and growth may bring amazing insight. They may consult on every type of governance matter from partnerships and succession planning, through risk management to marketing, and where necessary they will be a confidential adviser when times are tough. There is an irony that lawyers who often recognize the benefits of NEDs on their clients’ company boards overlook the need for them on their own.

Lovells appointed the first NED back in the 1990s, and reaped significant benefits. Notable firms that have since followed their example include Nabarro, Weightmans and Ashurst.

Consultants can perform an invaluable role in taking an in-depth look at a firm’s business practices and giving a snapshot of where the work is needed at a specific moment. However, consultants may be extremely expensive, they will disappear at the end of their contract, and there is a natural limit to the vested interest they can have in the long-term success of what is, for them, a client with whom they have a fixed-term relationship. NEDs in many cases will bring the same insights, suggestions and strategies, but they come with the expectation that they will be in it for the duration and will be able, therefore, to modify and adapt their strategic advice over a much longer period.  

For any growing law firm looking to expand further and position itself to be a leader in the future, the question may be less about whether they can afford to employ an NED and more about whether they can afford not to. In today’s crowded marketplace, the need for law firms to be business-minded and business-focused is greater than ever. Firms with NEDs on their boards are more likely by far to have a greater and more reliable structure in place for their decision making processes. In turn, there can be little doubt, they are more likely to be the leading success stories of the future.