Meet the Boss: Michael Greville

The managing partner of Watson Farley and Williams (WFW) says swapping partnership for an alternative shareholder structure would allow firms to spread their equity.

Are you happy with the firm’s financial performance over the last year?

Yes, we were pleased with the financial performance for the year ending 30 April 2009, during which revenue rose 23 per cent and overall profitability stayed the same in a period where our fee earner headcount grew by 17 per cent and the world economy went into free-fall.

There is always room for improvement but compared to many firms we found ourselves well positioned for the downturn.

What is the outlook over the next year? Are you expecting to grow? Which areas are causing the greatest headaches? Is it too soon to talk about "green shoots"?

The outlook for the current financial year is reasonable. We had budgeted income to be broadly flat against last year and, so far (after 5 months), we are comfortably ahead of where we expected to be.

The critical question is whether that will be sustained for the remainder of the year but there is no reason to predict a dramatic fall in activity.

We have some limited expansion in the pipeline through lateral hiring but otherwise we are not building the teams with assistants in the same manner that we did last year. We don’t have any practice areas that are causing major problems; work levels are patchy in places but generally speaking people are busy.

Our greatest management concerns relate to cash flow and collecting debt, which had grown earlier in the year but is now reducing after several months of close attention; also controlling costs without strangling the business.

WFW’s business is very international with many clients and the majority of fee earners outside the UK. Much of the firm is involved in core sectors of ship finance, energy projects and natural resources, all of which are continuing to generate legal fees. For this reason we don’t expect to encounter many “green shoots” but equally don’t expect them to have a dramatic impact on our business.

Can law firms recapture the profit growth they have been used to in the past decade?

I doubt that the profession will experience the same levels of growth either in terms of revenue or profit, which was significantly driven by globalisation and polarisation of transactional business to US and English firms.

That has happened now and one can expect some consolidation and then, hopefully, a stable picture.

Where do you see your firm in five to ten years? What are the biggest challenges you’ll face?

It’s very difficult to say. Assuming that we do not merge (which I do not expect but cannot rule out) I would like to see the firm having taken advantage of its stable platform and strong brand to strengthen its core practice areas and at the same time to develop those which are less competitively placed.

The biggest challenge will be maintaining our market share in a consolidating market; also maintaining the firm’s culture, brand and market position becomes increasingly challenging as we expand.

Clients are getting increasingly impatient with paying high hourly rates for
younger lawyers who may not add much and are seeking greater attention from partners. So how are law firms going to deliver value to their clients? Is hourly billing doomed?

WFW’s practice has never been very highly leveraged and one effect of that is that the partners are closely involved with clients and transactions.

We have found that in the current market less of the work lends itself to high leverage and more to partner led advice. Transactional fees have for years been the subject of negotiation where the number of hours spent is not wholly determinative of the price.

The more commoditised work is done for what is in effect a fixed price; this is particularly prevalent in the finance sector where lenders and borrowers are experienced purchasers.

Time charges are highly relevant to pricing decisions but since we do not incur costs on an hourly basis the main driver of profit is turnover. A deal completed quickly through intensive work over a short period is generally more profitable than one drawn out over several months and can therefore more readily sustain a discount on time charges.

On the whole, do you think law firms are well-managed? Would they be better run if they recruited more non-lawyers as executives?

Many English firms are well-managed, although there is always room for improvement and a strong brand and uncompetitive market can compensate for many management shortfalls.

I do not agree that people who trained as lawyers do not make effective business managers; an aptitude for understanding the fundamentals of a business across core financial, business development and human resources areas is not simply down to training.

Firms need to be managed by people who demonstrate these skills and have the confidence of the owners of the business. In a professional partnership it is practically impossible for someone brought in from outside the firm to enjoy that confidence, particularly since the most difficult aspects of the job involve decisions about partners in their professional capacities.

As a general proposition, I do not think that firms would be significantly better run with more non-lawyers in senior management positions.

Is so-called "Tesco law" just talk or set to fundamentally change the legal market? What has your firm done to prepare for it?

Some areas of the UK legal market which are already under serious pressure, such as the high street, have changed and will be affected but it is unlikely to affect WFW’s business or markets.

The prospect of being allowed to create a shareholder structure as an
alternative to a partnership is, however, interesting. This is not so much to attract external capital but rather to spread the equity and to move away from full distribution to a business which is capable of proper valuation.

What’s the hardest decision you’ve had to make as managing partner?

The most difficult decisions in managing a professional partnership concern profit
sharing. Otherwise, perhaps the most difficult decision was whether to put myself forward to be managing partner at all.

Which person outside the legal sector do you most admire?

Margaret Thatcher – who demonstrated a powerful instinct for what was right and was not deflected from tackling any issue because it was too controversial or too difficult to deal with. Her failings were to stop listening and not to plan her succession.

If you could hire one lawyer from a competitor who would it be and why?

I’m going to duck this one.

Are British lawyers overpaid?

Some are, some aren’t. Expectations have been raised in recent years, yet compared to our peers in the investment banking world we are some way behind; perhaps this is a trade off against greater job security.

Michael Greville has been managing partner of WFW since 2001. He also advises on disputes in the construction, shipbuilding and offshore oil and gas sectors.