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David Beech is CEO of Knights 1759, the first UK law firm to raise private equity, and has compelling views on the most effective way to lead a professional services operation. He says: “Unlike most law firms, Knights is run like a proper business. The partnership structure is, in my view, out of date as a business model. Private equity gives us sufficient capital and a management structure to make commercial decisions quickly in the interests of our clients and the business as a whole.”

David’s ideas are a result of his entrepreneurial background: after qualifying with Grindeys Solicitors in Stoke-on-Trent, he co-founded Heatons, a boutique corporate law firm, seeing it grow from a £350,000 business to a £7 million business between 1993 and 2004. He then jointly created Arev and Verve Capital, two private equity companies, and “learned a whole new skill away from law”. In 2011 he returned to the legal sector with Knights.

In this hard-hitting and thought-provoking BDLN article, David explains where he thinks UK law firms are going wrong and outlines what he passionately believes they need to do to unlock their full potential.

The need for “proper” business thinking

The motivations behind most law firms are partner income and ego, and very few are run with a proper strategy or vision.

I came to those conclusions aged 45, after working in private equity and after co-founding Heatons. My experience taught me that generally speaking law firms are, to all intents and purposes, not run as a business, but instead by individually motivated partners.

Law firms are… not run as a business, but instead by individually motivated partners

At Knights I wanted to get hold of a law firm and run it like a proper business rather than a partnership. That idea still drives me today. Here, everything we do is a symptom of being a commercial business. We have a three-year financial plan, and everyday we know where we are in relation to that plan. Every decision we take springs from our thinking not as law firm partners, but as business owners.

In my opinion, it’s important to realise there are some major barriers to lawyers behaving like business people that need to be overcome. One in particular is that lawyers tend to spend their careers advising rather than acting as owners – for example, most employment lawyers have never fired anyone, but they’ve advised on firing lots of people.

As a result, few lawyers have developed a strong, practical, commercial mind-set that is necessary to own and manage a business properly.

Few lawyers have developed a strong, practical, commercial mind-set

The need to turn unbridled individualism into collectivism

“If he’s drinking Veuve, I want Dom Perignon.”

“If he’s got a BMW, I want a Merc because I’m more senior.”

That sort of thinking is rife at UK law firms. Unfortunately it creates waste because it means people are not thinking “profit”. Instead, they’re asking: “What am I going to get out of this?” But they should be saying: “Actually, let’s both drink Tesco Premier Cru so we make a profit.”

Most law firms – unlike commercially run businesses – do not technically make any profit. They simply make money to be distributed to pay partners’ salaries, and most firms don’t have anything left after those salaries. At Knights there is money left after salaries, enhancements and bonuses. We create profit. That’s normal, proper business practice.

What you do with that profit is up to you. You can distribute as dividends to the owners, pay more bonuses, or keep it in the business. The key thing is you must create profit because it makes your business sustainable.

At Knights we have to date chosen to reinvest our profits in the business to accelerate growth rather than distribute profit by way of dividend.

The need for one, clear culture

At Knights we have a single, top-down culture that is behind everything we do. We talk about our culture constantly and we hire people to fit that culture; if they don’t fit, we move them out.

We have a single, top-down culture that is behind everything we do. We hire people to fit that culture; if they don’t fit, we move them out

To have one clear culture, you need one top. At Knights we have a CEO, not a managing partner because we are a business, not a partnership. We call our senior employed lawyers “partners” because it still has an important meaning to clients and professionals, but there’s one leader, one decision maker.

It’s not about being autocratic: a good leader must be autocratic when needed, dictatorial when needed, and democratic when needed. It’s about doing the right thing at the right moment.

Many UK law firms are unable to reach their potential because they have many different working cultures, and that stems from the partnership structure. With lots of tops, all in charge of their own domains, you get lots of cultures. An operation with several different working cultures is not as dynamic because it is far harder to introduce new systems, strategies and general change.

UK law firms are unable to reach their potential because they have many different working cultures, and that stems from the partnership structure

However, a group working within a cohesive single culture is responsive to change. For example, our lawyers now prepare their own bills, send them out, and collect the cash. At a firm with more than one working culture, that new process would have been almost impossible to implement universally.

The need to learn the art of client engagement

There’s a desperate need for more lawyers to be coached in client engagement skills and to elevate the value of those skills within the profession. Out of 180 lawyers we’ve hired at Knights, just one had been previously taught client engagement skills and that was because he had worked in a different sector.

Engaging the client properly and skilfully is critical because it means you can build the relationship and find out what they want, so you can provide the right solutions. One of the first client engagement skills lawyers should learn is how to ask open questions: What’s your goal? What do you mean by that goal? How do you want to get there? You could equally call it the art of selling. Great sales people work out what customers want by listening and asking good questions. Many lawyers are afraid of engaging the client properly and that needs coaching out of them.

At Knights we started the journey in 2011 with 90 support staff and 60 fee-earning lawyers.

Only by moving away from the traditional partner model will law firms achieve their full potential in today’s post-recession market

We now have 180 lawyers and 50 support staff. We’ve trebled the number of fee earners and halved the number of support staff. And we’ve hired 50 new staff in 2015 alone.

So my message to the UK law industry is this: law does not have to be operated by a group of lawyers with their own individual and different agendas; partner income does not have to be prioritised above market rate salaries and retained profits invested for growth; firms can and should be run with one clear culture. Only by moving away from the traditional partner model will law firms achieve their full potential in today’s post-recession market.

Article written by BDLN Editor-in-chief Matt W