We spoke to Clyde & Co about why (and how) firms are moving towards a sector-based approach…
Once upon a time, legal practice could be sorted into neat divisions based on lawyers’ skills. Nowadays things are more complicated, with client needs calling for a more nuanced strategy.
Why has the law historically subdivided into practice areas?
Ian Hopkinson: Practice areas are defined by areas of law and law firms as businesses have naturally divided themselves into groups along those lines, with lawyers who do similar work grouped together. Firms developed reputations for expertise in particular areas and so simple matters could be easily categorized by, and dealt with in a, particular practice area. There was no need to change what was working at the time!
Anna Myrvang: A huge part of being a good lawyer is knowing your limitations and knowing that there are things you do not know. No lawyer can confidently or properly say that they know the whole of English law. There must be some way in which you, as a lawyer can find one or more areas that interests you and that you can build sufficiently in-depth knowledge and understanding of, in order to advise your clients. You then need a label of some kind to communicate to the outside world what your field of expertise is. The market has traditionally used practice areas as these labels.
How would you define practice areas and sectors?
IH: Loosely speaking, practice areas are divisions of legal work by types of law, while sectors are divisions of legal work by types of client business, or industry.
AM: The concept of sectors is another layer to this idea of labelling and is another way of defining to the outside world and to people in business, who are not lawyers themselves, what it is that we do. There are many areas where businesses have market practices, customs and conventions that do not constitute legal rules, but are still important to know and understand in order to properly advise on legal issues. Having a sector focus means you can ensure that this additional business context is properly considered.
Sectors also cut across practice areas. To properly service a client from a particular industry sector you often need to draw on, for instance, tax, employment, litigation and property advisers, whilst keeping in mind a specific commercial context and set of market practices. The sector label means you can bring lawyers from different practice areas together, but still under one cohesive and easily understandable and explainable umbrella.
Do you see the market trending more towards full-service firms, or specialists in particular sectors?
IH: I am not sure that the two are mutually exclusive. It seems to me that an increasingly competitive legal market is driving firms to tailor their offerings ever more closely to the clients they serve, and thus towards a sectoral focus, possibly at the expense of a need to be seen to service every conceivable practice area.
AM: The market is always going to need both. Some firms do and will continue to do very well by staying specialist or tapping into a specific market, industry or practice area niche. These tend to be smaller, boutique firms, or firms which cater to a specific part of the market.
Larger corporate and institutional clients require full-service offerings from their law firms. A full service offering obviously secures good business from such large clients. A larger law firm is required to sustain this offering, with a range of practice areas. However, the full service offering still has its limitations, in particular because of conflicts issues that arise, which will inevitably cut off certain types of work, or work for and against types of entities.
“Incredible expertise and understanding can be gained by having a close relationship via secondments."
What is prompting the shift towards a sector focus?
IH: The shifts toward sectoral focus have primarily been driven by competition between law firms and the need for firms to differentiate themselves from each other. In an increasingly competitive market, clients understandably need lawyers to provide a service which works for them in all respects, not just in relation to time and cost. The service must consider the client's specific and increasingly complicated circumstances and issues, often across multiple jurisdictions. It is likely impossible to provide that service effectively and competitively without a good understanding of the client's business.
AM: Lawyers need to find a way to label their services so that non-lawyer clients will understand – presenting our services from the point of view ofsectors helps with that labelling and demystifies what we do. Where a client is operating in a particular business context, with established market practices and conventions, information and experience relating specifically to those practices and conventions forms an important commercial backdrop for our legal advice. Both lawyers and our clients benefit when we can find a way of properly pooling our knowledge and experience relating to that commercial backdrop, as this will make our legal advice better informed and more commercial.
What are the key ways in which a firm can build sector expertise?
IH: Internally, law firms are stuffed with lawyers who know a lot about the clients they represent, but these lawyers are not always in contact and the information is not always fully utilised. Lawyers in different practice areas often have different perspectives on the same client. Effective internal leadership to bring these people together, to share experiences and to push for a common aim is important. At least as importantly, there must be a change of mindset away from traditional metrics of profitability based solely on a partner's or practice area's billing. Finally, there must be investment both financial and in terms of effort in the change.
Externally, this is about getting to know the client and can be as simple as sitting down with the general counsel and asking what they need. Beyond that, secondments in both directions are a terrific opportunity to see how others work and what their key drivers and concerns are.
AM: To become an expert in a sector you need access to it and information about it. A firm needs to invest people and effort, over a long period of time. The firm needs to ensure that it looks beyond the client's own traditional 'silos' – often there is little inter-connectivity between different teams at a client. The more a firm can look at and understand the client as a whole, the better it can anticipate its needs. A culture therefore needs to be built where people within the firm genuinely work together to share information and contacts and access to clients.
Incredible expertise and understanding can be gained by having a close relationship via secondments, if possible and where appropriate going both ways – although this is not always straightforward because of client confidentiality issues.
What advantages does the new shift towards sectors bring?
IH: The primary advantage to a law firm is being able to maintain and hopefully increase profitability. Firms which have successfully made the move and become integral to a client's business will find it easier to sell more of their services to that client.
AM: Sector labelling is easily understandable and clear to industry clients. The more firms take this approach, the more this becomes an expected and acceptable way of presenting and pricing legal services.
That said, what challenges will come with the shift towards sectors?
IH: Change is often painful, and traditional law firms suffer more than most. Traditional ways of working are often difficult to displace. Making a change to sectoral focus requires clear leadership, sustained effort and real investment.
AM: Not all practice areas are industry or sector specific. It can be more difficult to raise the profile of certain more general practice areas in my experience.
“No matter what your practice area and what firm you join, you would hope to be and should expect to gain good experience of legal issues that are solidly grounded in their proper commercial context."
In becoming more sector-focused, might firms be letting go of or deprioritising certain practice areas?
IH: It is certainly true that some firms have dispensed with, or reduced their resources in, certain practice areas, but it’s not obvious that sectoral focus can be blamed for that. Clients' needs for advice from different practice areas will always fluctuate according to market forces and applicable regulation, irrespective of whether the law firm serving them is divided into practice areas or sectors. The more interesting question might be whether the way in which law firms deal with underperforming partners or define good performance, particularly in less popular practice areas, is changing.
AM: I do not think that firms are letting go of or decreasing practice areas because of the sector focus. There may be some areas that have to be reviewed because a particular sector focus will cause conflicts issues that may not have existed otherwise, and that may mean people whose business is impacted by those conflicts will have to take their expertise elsewhere.
The sector focus primarily changes how a firm describes its offerings; a firm will always keep its overall offering under review, but simply changing a label is not going to change the fundamentals of what offerings work from a business and commercial perspective – ultimately law firms will want to run profitable practices. And if a particular offering is not working, then the firm would move away from it regardless of the sector focus issue.
How will this shift affect the experience of trainees?
IH: The effects of sector focus have already impacted the trainee experience, most obviously through the increasing regularity of secondments. Being embedded in the client business is now very much part of the trainee experience. One might also expect to see increasing focus on transferable business development skills such as article writing and networking.
AM: No matter what your practice area and what firm you join, you would hope to be and should expect to gain good experience of legal issues that are solidly grounded in their proper commercial context. If you can understand the firm’s approach to sectors, you can use this to seek out opportunities both internal and external that might not have been as possible or easy when firms were more focused on practice areas rather than sectors. Hurdles are now breaking down and as a trainee and junior lawyer you can help remind more established lawyers of the benefits of increased cooperation and coordination.
What can students do to prepare for a sector-focused practice?
IH: Commercial awareness is key, because the focus of interviews and the training contract will require an understanding of both the sectors the firm operates in and the firm itself. This is more about developing a genuine interest in a particular business area, and understanding how it works, than it is about rote-learning the contents of the FT every day. My simple advice would be to find a part of the business world which interests you and follow it up. There are more resources than ever online.
AM: Don't be afraid of what can at a first glance often look like overwhelming jargon! Remember that legal services are provided in a commercial context, and all the sectors focus really does is to label and emphasise this.
The more you know about and can show genuine and informed interest in the commercial context within which a firm's clients operate, the better. You do not need to know it all – that will only come from years of practice and experience. The sector focus of firms gives a clear and useful signposting to which business areas you should be researching and trying to gain some understanding of, to understand what services the firm provides and to which types of clients.