For that investment you get an annual dividend, which for four out of the last five years has been considerably less than what you have invested. Please take on board that it’s been a difficult economic climate so we can expect your dividend to go up soon....once we’ve paid off all of the loans that we took out to keep afloat. So let’s accept there’s another couple of years before it will be worth having this investment, but stay with me on this.
To get this dividend I should also highlight that you are going to be expected to work at least ten hours per day, basically free of charge to qualify for the annual payout that I referred to earlier which is spread over 12 months. However please also be aware that if we pay you too much over the year having over-calculated the projections then we reserve the right to claw some of this back. Also if the profits are down then we may also ask you to pump additional capital into the business, but we can cover this further at an appropriate time.
In this difficult market you may have to accept that your dividend may be considerably less than the salary paid to the new guy sat across the office two levels lower than you in the hierarchy. In exchange for this you can also expect to be held partly-liable for the firm should the worst happen, liabilities which the new guy doesn’t have to share.
Also the chances of the venture failing are perhaps slightly higher than usual, as the person in charge of running the company has little or no management training although we hope that they will turn out to be a success. As insurance thought we are all going to rely on the brand and marketing efforts of you and the other employees to bring business in.
And if I haven’t sold this opportunity enough I should point out that when you decide to cash in your investment you will not get back a penny more than you put in, even if the value of the firm has grown tenfold in that time.
Interested?
No? Well why not? After all, there’s every chance that I’ve just pitched you the opportunity of equity with your current employer.
From October 2011 the legal profession is facing its biggest shake-up in a generation. The introduction of the so-called ‘Tesco Law’ means that as well as non-lawyers becoming partners there is also the increasing likelihood of firms realigning to incorporate much more of a ‘conventional’ business structure.
Some practices are already mooting the possibility of floating on the stock market, meaning that those partners who hold equity within the firm will essentially change to shareholders. How this will all pan out is open to interpretation, but this will certainly prove to be a useful tool in the short-term in order to recruit new partners at equity level who may wish to speculate with their own careers in terms of making a healthy profit in the short term. Firms which have a model which easily transfers to a ‘sellable’ business or where there is a clear sector focus which can be embraced by a strategic partnership or takeover stand an excellent chance of recruiting top talent in the near future, with a glance at the legal press indicating that a number are already exploiting this.
Not all of this willingness to embrace more business-like structures is new however. A number of firms have for years employed non-lawyers in key strategic roles such as business development and even chief executive posts, recognising that being a lawyer does not make necessarily make you the best person to run a law firm. Indeed, sometimes being brought up in an industry with a three hundred year precedent for ‘how things are done’ is not the best upbringing for dealing with the demands of a modern business, particularly in a market with increasing numbers of firms coming in from different jurisdictions and with different approaches.
Sometimes it takes the eye of an accountant or even a sales manager to be able to look at the workings of a practice and break it down into the simplicity of a balance sheet, identifying areas of profit and loss and also putting forward solutions which may not meet the traditional law firm model in order to maximise these gains. In truth firms have had alternative business structures for some time already:- look at the evidence of those running separate debt recovery arms or those who held an interest in a bulk conveyancing practice during the property boom for evidence of this.
Where the big firms will need to reassess their approach is that those firms out there who are providing legal services in a non-regulated capacity already will be able to come under the Law Society arm as of October. Niche will writers and bespoke commercial drafting firms are already in place and suddenly will become more of a consideration to these larger practices as they start to pitch for work with the promise of regulated work at a fraction of the price. Firms will be left with three choices:- rest on their laurels and pray that their client base remains loyal; differentiate their service level by purely chasing the ‘Big Ticket’ work; or else amend their own business to meet these challengers head-on.
It’s a difficult one to call exactly where change will be seen the most but you can be sure that over the next decade, with increased external investment and increasing numbers of non-lawyers in key partnership positions, that they legal market is likely to look very different to the one we have now.
To discuss your options in the pre-‘Tesco Law’ climate, either as a candidate or as a firm, with a view to how things will progress or chance in October talk to one of our specialist consultants on 0121 233 5000 / 020 7649 9094 or visit our website at www.vgcharles.com.
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