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Does More mean Better? Prospects for the growth of law firms in the CIS region and abroad

Legal business has existed a long time as an independent segment of the service market. This is the competition with its rules of the game, which, of course, change over time. In an environment of widespread automation and development of technologies legal firms also develop to be more successful, faster, more. But does always more mean better?

Eyes on large companies

Thinking about this issue, we should start with the fact that large firms are always perceived as the most successful in their case. And it’s probably so. But the reverse equality is not always true, and the indicator of the number of lawyers in the company is not the only criterion for its evaluation. Now there are all kinds of ratings, Russian and international, that rank law firms depending on the number of accompanied projects, the result of work (both qualitative and financial), the range of services offered, even the functionality of the company’s website and so on. Some firms are considered large and successful, some are medium, others are small, but with its own peculiarity... But colleagues and, mainly, clients, take for a model of those firms that occupy the first places and which are considered the largest.

What is the recipe for success?

In jurisprudence, people work with people and for people. This is true for both the project within the firm, and the customers. This approach allows foreign colleagues to manage the quality of service effectively, win loyalty of customer and, as a consequence, raise the price tag.

For this it is necessary to develop a quality control system that allows to monitor and to join in the process at any stage of the work with the client. When there is no organization in the company, it is difficult to manage, everyone in it will pull it in their direction like heroes of the fable a swan, a cancer and a pike. And if firm are not stable, it will probably become the victim of natural competitive selection and the client will go to the other firm.

Despite the fact that the Russian market of professional legal consulting is relatively young and generally quite scattered, it is sufficiently saturated with the proposals, which generate competition.

However, competition is quite linear. That is, for example, large law firms compete with other large law firms, and do not compete with small ones (such as lawyers’ offices, private practitioners or small firms consisting of one or two partners), they have no reason to sever customers, because they have different Positioning on the same segment-split market, with a largely different flight of customers. In addition, not all small firms tend to become large, they are also quite profitable in recounting of one lawyer, and are more agile in some cases.

The shortage of small law firms and at the same time, perhaps, the main obstacle to the development of any company is the lack of a corporate culture and insufficient funding in its own brand. The company must be recognizable, its mission and approaches to work must be open and understandable.

The Japanese concept of “kaizen”

Our Japanese colleagues «kaizen» has good concept of managing a law firm. Kaizen is a continuous process of improving the company’s internal development, which is based on quality control cycles. This concept speaks of process orientation, because in order to get better results, the process must be improved. A process-oriented mindset helps to bridge the gap between process and result, between goals and means, and between tasks and indicators. And having reached high quality results, firm should return to the quality control cycle again, because any result can always be improved by introducing new elements of the solution into the process, and so on.

It is necessary to manage each previous process and to perceive the project colleague as its internal client, for which it is important to obtain a qualitative result. For example, the quality of the contract, the quality of the claim in the pre-trial settlement of the dispute would help to protect the interests of the client, which would allow to build the position as qualitatively and protect the client’s interests in court. In addition, this approach creates and supports healthy competition within the team, and also allows to break down barriers between departments, ensures high co-completeness, and it will affect on any company’s success.

In this sense, kaizen is diametrically different from the way in which business is managed on the principle of the pyramid, which is still widespread in Russia and among many Western partners. The principle of the pyramid is when the firm, including the provision of services, is built from the top to down, where the adoption of strategic management decisions, the quality of service management is concentrated only at the top, in the hands of one or two people, although the main staff is directly work with clients.

Factors of success

According materials of the Federal State Statistics Service, in 2016, the number of registered organizations that declared «activity in the field of law, accounting and auditing as the main line of business; Consulting on business and enterprise management» compared to 2015 (which in this sense was the peak in the last five years), decreased by almost 4.7% (18,870 law firms versus 19,800). It’s a small recession, it’s not a sizeable losses, which indicates the need for legal consulting for business in Russia and the fact that lawyers find a way to «stay afloat even in a storm».

The law firm is also a business, and how it will evolve depends on many factors such as:

–in which direction Russia’s relations will develop at the international level;

–the state of the Russian economy;

–he development of legislation and law enforcement will develop.

These factors directly create the climate of the market, but it is only an indirect factors of success. At the application level, the main things that drive the company forward and allow it to develop are:

–an active, competent team of professionals;

–unified, stable and understandable business processes that allow the firm to work as a unitary mechanism;

– the introduction of new technologies to optimize internal work, improve the quality of service provided.

Competence, client orientation and self-improvement are perhaps the three main components of the success of a firm working in the field of legal consulting, regardless of how large its staff is.

Sale of legal consulting

Legal consulting is provided both in industrial (service of organizations) and in the consumer market (service of citizens). It gives additional benefits to those companies that choose the path of development on one of market. Someone chooses the path of an narrower specialization, for example, such as the consumer market segment in the consumer protection subsegment, or labor disputes. But in Russia such firms are generally not large, successful and recognizable. For example in contrast the United States, where, both full service firms-giants (providing a full range of legal services) and firms-giant that specialize only in litigation or specializing in one or two practices successfully operate (for example, the law firm Littler, Which has a staff of one thousand lawyers who deal only with labor disputes).

It is difficult to say in which market segment in Russia the proportion of legal services is dominant. Legal problems arise both in business and among citizens in the era of the economic crisis and the stressful volatility of the ruble. The increase in the number of bankruptcy cases said about: for example, according to material of the Judicial Department under the Supreme Court of the Russian Federation, 41,996 cases were submitted to the arbitration courts for the debtor’s bankruptcy, and in the first half of the year there were already 34,481 in 2014. The need for legal support is high in bankruptcy.

On the other hand, for example, according to materials the Federal State Statistics Service, the number of registered private companies in Russia was more than 430 000 in 2016. Their economic activities should also be accompanied. So law firms that serve private business have a place to grow and develop in terms of their consolidation, and there will still be plenty of room for newcomers, which is also good for the client when optimizing their own costs and «choosing any wallet».

Transition to insourcing

It is another matter that legal consulting companies take away the work of in-house lawyers. PwC Legal conducts interesting studies on benchmarking the legal function of companies, that is, a comparative analysis of the work of the internal legal departments of various Russian companies. And it comes to interesting conclusions that among the surveyed companies in 2016 (in the general outline of measures taken to reduce costs and increase the efficiency of the work of its own legal departments) in 66% of cases Russian companies call the transition to insourcing as a measure to reduce costs and improve the efficiency of its own legal departments- as many tasks as possible to solve by themselves, as little as possible to outsource to external consultants. In Germany, according to PwC Legal, almost an absolute majority of 94% of the respondents are speaking about the transition to insourcing.

It means a decline in demand for services of consulting firms. But most of all it will be felt by those law firms that depended on such clients or positioned themselves as permanent assistants. The solution is to adapt and rebuild the work model from servicing current business activities (drafting contracts, developing internal corporate and labor documents and regulations), and specializing in more complex issues requiring a deeper approach and a comprehensive solution. The benefit that the service sector is not production where it is necessary to reconfigure expensive machines. I believe that the transition to insourcing will least affect the judicial work that begins after the passing of the claim by the internal lawyers, and, as a rule, and is generally given to an external team of competent lawyers.

In respect that the globalization focus is changing in the world, the future is probably for those law firms that have experts in international law and foreign economic transactions in general, and especially with the countries of the Asia-Pacific region (in particular China, Korea, Japan, the United States), in view of the dynamic development of their trade and economic cooperation with Russia or makings to such; Specialists with the degree of LL.M. (Master of Laws) or Ph.D (Doctor of Law), which can only be obtained in the course of an internship abroad.

Criteria for evaluating the success of a law firm are relative and very biased. But customers are oriented on them. Today law firms that are flexible, open, highly client-oriented and provide a professional approach are more competitive.

It is used in the work the materials of the site of the Judicial Department of the Supreme Court of the Russian Federation (1 http://www.cdep.ru); Materials of the site of the Federal State Statistics Service (http://gks.ru); Books «Kaizen. Key to the success of Japanese companies» Masaaki Imai, a publication in Russian, translation of T. Gutman, «Alpina Publisher» LLC, 2016; Materials of the PWC legal (http://www.pwc.ru) site, article «Benchmarking of juridical Function-2016: «Brief results of the study», legal Insight, No. 6 (52), 2016.