Driving Growth and Sustenance in Competitive EconomiesBithika Anand
Higher Brand Loyalty, Stronger Client Relationships and Brand Positioning for Better Sustenance and Growth
The Indian legal Industry is going through a phase of re-organization. With growth rates dropping to single digits across the globe (Including India), most firms have recognized that a larger market share, consolidation, deepening client relationships and enhancing loyalties are the way forward for a better growth.
The legal departments at the same time are expanding their teams (handpicked from law firms) to reduce dependency on external lawyers and are being very selective in using assistance from law firms.
All of the above, along with growing competition, is pushing law firms to be competitive, proactive, efficient and value-driven. Hence, sustenance is becoming a major challenge for most law firms in India. The firms with higher loyalties and stronger client relationships are drawing better purchase.
Higher loyalties and stronger client relationships are the result of steady investment in building relationships, understanding what the client wants, correct brand positioning, and ensuring quality delivery consistently and efficiently. Therefore, it is important to learn more about the client, its business and competition, and the market in which it operates.
Regrettably, not many firms undertake the effort to understand more about their clients; the ones that do couple it up with innovation and promptness to create a differentiation. Knowing one’s client is also important to understanding whether their loyalties are transaction-based or relationship-based.
A transactional client is looking for best value and best deal. Their decision-making is based on services, convenience and price. They contribute to the bottom line but cannot be relied upon for sustenance and, most importantly, building one’s brand. Most clients will happily to go competitive firms for better deals. However, this is not to say that they can never be converted into a relationship-driven client. Once they start finding value beyond price consistently, it can pretty much become a relationship-driven client – which is exactly what any firm would want, as they value the trust, loyalty, and commitment to a specific brand more so than finding a great deal.
These types of consumers are more likely to stick with a specific brand that they have been using and have built trust in and are exactly the kind of clientele every business wants to have.
As routine legal work becomes more commoditized, what law firms offer is becoming less important to legal buyers. The clients are looking for law firms whose partnership helps them shape strategy and assists in achieving business objectives. This is where a strong, differentiated brand comes into play.
A brand with stronger brand positioning can build and sustain goodwill, providing the extra edge over the competition during evaluation and keeping the relationship strong during rough patches. When you have the right brand position, it becomes the driving force behind the firm. Conversely, the firm struggles with a weak brand positioning.
The India Story
The Indian legal marketplace has been more volatile over the past few years with senior partners leaving for independent chamber practice, partner movements, and more firms mushrooming – all of these, thereby, adding to the competition and reducing revenues for firms.
Therefore, it is all the more important to remain differentiated in a competitive market like India to ensure consistent growth as “me-too” firms may have a seat at the table but only the distinguished ones get the winning hand.
Important alert regarding IndiaGerry Riskin
For decades, I have spoken about India with the senior leaders of major law firms around the world. Because India was closed to the idea of foreign law firms practicing within its borders, the subject was academic to many.
This is changing now. My fellow Edge principal, Bithika Anand – founder of Legal League, India’s most prominent consultancy to the legal profession, and former executive within India’s most prominent law firm, Armachand – now announces that India is relaxing its restrictions. While India is opening its doors carefully, it is nonetheless doing so.
Many of the law firm leaders outside India have operated under the misapprehension that the legal market in India was fundamentally the inexpensive variety, utilized for outsourcing. That is a myth. The top law firms in India are among the best in the world. They are not only among the finest in terms of the substantive quality of legal work they provide, but they also employ management sophistication that is rarely seen elsewhere.
Notwithstanding that foreign lawyers have not been allowed to practice in India, top Indian firms have often involved the best foreign lawyers in the world in their efforts stay at an unsurpassed level of global sophistication in their substantive practice areas.
Read Bithika’s article contained in this special issue of Edge International Communiqué closely. If your firm wants to explore India, whether from the vantage point of having a “best friend” relationship, practising on the ground there, or simply attracting work from some of India’s top corporations, feel free to contact Bithika or any other Edge principal to discuss this in much greater detail.
Bithika will be joining select fellow Edge principals in Australia next month and in California early next year for informal meetings with law firm leaders who are interested in what Bithika has to say.
Talent Retention: A Big ConundrumBithika Anand
With the rise of the new East, emerging economies of Asia are undergoing a tremendous transformation. With the continued inflow of foreign direct investment and major policy changes, businesses are flocking to capture the opportunities presented by increased customer base.
This is intensifying the competition for talent and leadership – a trend that is cutting across all sectors including legal.
With shorter career progressions (associates getting promoted to partnership in just six to seven years), expectations are growing higher. This coupled with unclear growth path for seniors – post becoming partners – is making it increasingly difficult for the mid-sized and small law firms to retain their performing assets (lawyers). The buoyant legal-talent market is just adding to it. All these factors are seriously affecting the competitiveness, sustainability and growth of the mid-sized and smaller law firms in India.
While almost every firm identifies retention as a major challenge for them, only a few have started addressing this issue. There is a huge gap in managing expectations and aligning them towards the interest of the firm.
Realizing this gap, some firms have started engaging professionals to coach their lawyers and partners in a bid to retain their talent pool by helping them realize their progression and role in the growth of the firm. However, the focus is more on pressing and tactical priorities – immediate talent retention – and much less on long-term solutions.
Pinpointing a problem is only the first step to finding solutions. Some firms have started taking steps including reduced-hour schedules, alternative work arrangements, mentorship programs, steering committees, etc. However, most firms that have implemented such programmes feel that changing the firm’s culture has yielded better results than changing business models or billing requirements.
Respect, transparency, and a fair playing field are important in any organization. With lawyers increasingly having options to practice law in a way that fits into their lives (whether in a traditional firm or in an alternative practice model), it is all the more important to ensure that they feel valued and are appreciated for their contribution and good work.
Talent management and leadership development have been pretty low on the priority list of executive committees at law firms. With the Indian legal market going through an important phase (as the talks of liberalisation gain grounds every passing day), the key to growth will be managing the turbulent tides of talent scarcity, employee expectations and leadership shortage. Hence, more than ever before, law firms of all sizes need strong, guiding hands to steer them through rolling waves of change.
Acquisitions as an Exit Strategy in Indian Law FirmsBithika Anand
For most businesses in India as elsewhere, acquisitions are seen as a tool to further growth and diversification. For law firms as well, acquisitions are often seen as a method by which the acquiring firm is able to venture into new practice areas while achieving cost synergies brought on by the increased scale of operation. However, recently businesses in India have begun to look at acquisitions as a form of ‘exit strategy,’ or a method by which entrepreneurs are able to sell off their investment in a business that they founded. Thus, acquisitions have also begun to function as a form of exit planning for founders who are looking to retire in the near future.
This type of strategic acquisition becomes especially relevant in the context of law firms which have been started and managed by an individual or a group of individuals who would like to see that the firm continues to flourish even after their exit. For such founders, passing on the ownership to a suitable acquirer appears to be a far more favourable option than dissolution or liquidation of the business that they helped start.
This article seeks to analyse the feasibility of such strategic acquisitions for founders of law firms in India. It focusses further on the steps to be taken in order to begin the acquisition process and looks at the advantages that such acquisitions seek to offer.
Feasibility for Indian law firms
In India, law firms can be divided into two categories on the basis of their business structure and scale of operation. The first category comprises large full-service law firms, most of which are structured as limited liability partnerships. In such firms there is a clear succession plan in place, with the retirement of a senior partner resulting in a junior partner’s being promoted to take the retiring partner’s place. For such firms, acquisitions for the purpose of exiting are less feasible due to their size and scale of operation, nor are they required since such firms already have some form of exit planning in place.
Strategic acquisitions become more relevant for the second category of law firms in India, which are largely family-run businesses, smaller in size and often structured as sole proprietorships. Such law firms sometimes find a vacuum being created in the succession space when the founder is aging and wants to retire. For such firms, acquisitions form a feasible exit strategy as these firms are usually involved in niche practice areas which makes them a good acquisition target for larger law firms seeking to diversify. While an acquisition results in the founder giving up his control of the firm, often founders continue to work in the capacity of mentors even after acquisition, using their association with the firm to ensure the smooth transfer of clients as well as to maintain employee morale after the acquisition. They may continue in advisory roles for the specific practice area in which the acquired firm was specialised, using their years of industry experience to cultivate new leadership and management skills.
Preparing for the Acquisition
Once a firm decides to adopt this exit strategy, several steps must be taken before venturing further, in order to ensure that the acquisition is successful and founders are able to easily exit the firm.
- The first step in this regard is to search for an acquirer that best suits the firm’s strategic goals. It is necessary to determine which law firm would be the best acquirer – ideally one that has similar management ethics as the target firm, so as to ensure efficiency in operation even after the acquisition.
- It is also necessary, once certain possible acquirers have been identified, to evaluate and improve the existing systems and policies within the target firm as well as create a comprehensive profile of the firm’s areas of expertise, in order to make the firm more appealing to the acquirer.
- Since structuring of the acquisition would be largely dependent on market trends, it is also necessary to carry out an in-depth market analysis of recent market trends.
- Correct valuation of the firm’s assets should be undertaken before the process of acquisition can be started. This will include determining the value of the firm’s fixed assets, liquid assets, and goodwill, as well as human capital.
- A thoroughly undertaken Conflict Check is another critical aspect which comes into play while considering a merger.
Since each firm remains unique in the manner in which business is carried out, as well as other management practices, it is not possible to pinpoint an exact plan that must be followed before approaching the acquirer. The strategy adopted would depend on the acquirer and the target’s objectives and goals as well as the time frame available.
Advantages of Acquisition as an Exit Strategy
Selling the business of a law firm to a market competitor has a substantial advantage for persons who are looking to give up complete ownership control over the firm, as this allows for the fastest method of achieving maximum liquidity. For the founder of a law firm looking to retire, therefore, such a sale would be an ideal exit option. Smaller firms which are involved in niche practice areas also form the best targets for larger law firms seeking to consolidate the acquired business and diversify their practices. An acquisition by a competitor could also result in increased valuation of the firm if the target is a well known firm in the specific practice area in which it specialises, since the price of the business would be what it is perceived to be.
In a country like India, acquisitions form an appropriate exit strategy for law firms in the country which are structured as small, niche, family-run businesses. In addition, acquisitions in general have the known advantages of increasing the value of the company and making operations more efficient by increasing their scale.
However, for law firms in particular, it is also important to remember that acquisitions risk making clients nervous, which might lead to loss of business. Thus when a founder wishes to completely give up his ownership control over the firm, an acquisition might be the step forward, if carried out cautiously after adopting a plan that takes into consideration the unique position of the target firm, allowing the firm to embrace a deal best suited to its needs.
The Evolving Role of General Counsel in IndiaBithika Anand
What are the essential qualities of a good lawyer? Someone who knows and understands the law, prioritizes his work accordingly and delivers the results in a specified time. But in today’s ever changing world, the qualities of a good lawyer are not just limited to the above thresholds. For a lawyer who is a general counsel (GC), possessing the knowledge of law and adhering to time lines is not enough. A GC is also expected to understand the intricate details about the deal, idea or the context and to be completely involved in the functioning of a company.
The role of GCs in the Indian corporate sector has witnessed a drastic change in the last twenty years. With the beginning of globalization and liberalization in the 90s and with the increase in the number of compliances, the responsibilities of GCs have increased substantially. Where on one hand GCs play an important role as members of management teams, on the other they are also responsible for advising on compliance issues of rules, regulations and statutes.
In the late 80s, GCs did not have a very significant role in the corporate scheme of things. They were the people who kept a check on the compliances and played a very little part (almost negligible) in the matters related to strategy, risk or business. Usually, they were planted in the corporate by law firms with the intention of creating a strong relationship with the client.
Over the years as corporate responsibilities kept growing, GC took on more important, responsible roles in the corporation. This led to a vast change in the quality of GC. Outstanding lawyers were recruited to the client, often leading to responsible management roles, sometimes graduating to the board.
Anyone who has been observing the corporate world as an outsider can see that the role of GC has undergone a transformative change. But in the past decade, the transformation of the role has led to a revolution in responsibilities and expectations. The GC of today is positioned within the highest ranks of senior management, while also serving as a legal advisor to the board of directors.
Transition from Cost Centre to Profit Centre
Technically speaking, the partners at law firms and the GCs are all lawyers, but when it comes to putting knowledge into practice, they follow completely different approaches. Since the corporate culture is focused on performance and values, GCs today are well positioned to contribute to organizational performance. They are allocated a large budget for legal fees and they prefer spending it on building the in-house team rather than on outsourcing the services of a firm or counsel. This helps them in controlling legal costs and impacts the profitability of the organization. Finding such ways to generate revenue within the company makes the in-house legal department profit-centric.
The Evolving Role of GC: What does the future hold?
In 2012, KPMG International conducted a survey of 320 GC in 32 countries which reflected on how the role of the GC is changing and the ways in which they are managing the transition. The survey identified that the main challenge was the transformation of GC into business decision-makers. “This transition requires a shift in mindset and behavior from the GC as well as the wider organization, if the value that GC can bring to the top table is to be maximized,” the report said.
Understanding the business issues and providing viable solutions is what is required and expected out of a legal counsel.
The following are the challenges faced by in-house legal teams:
- How to manage the legal risk?
The GC is required to understand the risks and issues involved in a decision from a legal point and further communicate it to the management. This will enable the management to make informed choices and decisions within the acceptable risk profile.
- How to manage efficiency?
Making strategic decisions that maintain an optimum balance between cost efficiency and effectiveness and educating the business about the same is essential for a GC.
- Transition and lack of resources
In private practice, lawyers usually focus on a speciality, whereas an in-house role has a more general profile. This transition coupled with lack of resources and general know-how presents challenges for in-house lawyers in developing markets.
As GCs are being vested with a weighty tome of (ever-growing) responsibilities, they have the opportunity of becoming indispensable. With the laws and regulatory compliances becoming more complex, companies face various risks and challenges. If one can manage the complexity and the risk, one may become a successful GC, but in order to achieve that, they must first understand the dos and don’ts of business. And once this is accomplished, the GC will be able to become the expert of their evolving turf.
Foreign Law Firms and the Indian Legal MarketBithika Anand
The topic of liberalization of the Indian legal profession has once again gained steam to become a hot point of conversation, both in India and globally.
The new Indian government has pro-liberalization lawyers at the helm of the ministries of Law and Finance. India has the third largest GDP as per the Purchasing Power Parity Index, and with the new government having a clear reformist approach across industry sectors, there has been a substantial and meaningful movement towards clarity in the legal sector as well.
As a signatory to GATS, India has an obligation to open up the legal sector. After years of see-sawing, in 2014 the Ministry of Commerce began working on a cabinet paper through a 15- to 20-member inter-ministerial group with limited representation from non-government experts.
The indications are that the proposal will contain a phased-entry strategy for foreign law firms, which will begin with progressive reforms for strengthening Indian law firms and then the gradual entry of international law firms in all non-litigious areas of practice.
Over the past decade, Indian firms have grown in both financial and manpower numbers. The frequent ups and downs of the market, international expansion of Indian corporations, introduction of new practice areas such as competition law, cyber law, etc., and a mix of fragmentation as well as consolidation of law firms have all helped the Indian legal profession to grow in strength and learn from its experiences.
While the world eyes India, a host of Indian firms have opened offices in places like Palo Alto, London, Geneva, Dubai, Singapore and Tokyo, as part of their own plans to go global.
What should foreign law firms do?
Over a hundred international firms have increased their focus on India in the recent past. Even without liberalization, evidently there are opportunities well within the legal framework that these foreign law firms find profitable. These firms stand to gain immensely with the opening up of the legal industry.
The following are some aspects that international firms who are already in India – as well as those looking to enter India – should consider in light of India’s current environment.
Strategise: As is the case with any venture, the most important factor is to reduce “ad-hocism. “Having a plan in place with a long-term vision is imperative. There are pros and cons to the various ways that international firms plan their India strategy, including best-friend relationships, referral arrangements, India desks and outsourcing. The differentiating factor for success is to strategise the strength of the firm and the kind of work the firm is planning to undertake.
Understand India better: As the world’s largest cultural mix, India’s diversity is often difficult even for us Indians to completely understand. International firms that are interested in India need to account for this diversity, including such simple steps such as wishing your clients well on important festivals, learning key words in the different languages, and understanding the food and other local preferences
Show that you care: A sure-shot way for gaining accessibility in any new country is to cater to the society. Law firms can look at offering lectures to law students, taking up pro-bono initiatives and tying up with NGOs as some of the ways that this can be achieved.
Invest in India: Show clients in India and in your home country that you are serious about India. This could include making India-specific collaterals and knowledge kits, increasing visibility by writing and taking up speaking opportunities in India related journals and forums, amongst other activities.
With or without liberalization, one thing is for sure: there are exciting times ahead for the Indian legal industry. Some of the above thoughts will help international firms make the most of their foray into India, while staying well within the stipulated legal framework.