Chapter 21 Guidance to answering the practical exercises

This is basic accounting: income less expenses equals profit, so higher income and lower expenses means greater profit.
Increasing income can be achieved in a variety of ways:
• Increase the number of clients. You have looked at the importance of effective marketing, not just to bring in new clients but also to nurture existing client relationships and make effective use of cross-referrals. In Chapter 13, you looked at the importance of social media as a marketing tool. However, the results must outweigh any increase in marketing costs.
• Increase the rates charged to clients. Remember that this can be counter-productive, and drive clients away. Clients want value for money, so a firm must be realistic about charges. Increasingly, clients are negotiating fees.
• Increase the productivity of your existing fee earners, making sure that all fee earners are fully utilised. There are various ways of doing this, e.g. increasing targets and offering incentives. Make sure that all fee earners keep accurate records of their billable hours.
• Adjust leverage. Leverage is the extent to which a firm delegates work down to more junior fee earners and support staff. This allows partners and senior associates more time to spend on marketing and existing client relationships.
• The speed with which bills are chased is important. Reducing lock-up increases profitability. It will optimise cash flow and help to reduce write-offs for bad debts.
• Efficient management. Law firms are no different from any other business in this respect. They must develop an efficient management structure and strategy to survive.

Reducing expenses:
• Keep an eye on costs, which must be met out of income and can dramatically reduce profits. Fixed costs, e.g. the cost of premises, salaries, IT etc are difficult to change. Variable costs, which depend on the amount/type of work coming in, e.g. telephone calls, stationery, travel expenses, costs of overdrafts etc are easier to monitor.
• Efficiency savings. Keeping track of what is being done (and by whom), ensuring that the work is being done as efficiently as possible, with maximum use being made of technology.
• Restructuring. Many firms have found that to survive in an increasingly competitive environment during an economic downturn, restructuring, invariably involving redundancies, has been a necessity.
• Outsourcing. This may be part of a restructuring process. Many firms are outsourcing secretarial and administrative functions with substantial cost savings.

If you look at the words in bold, (and do an anagram), you will see that you have conducted a 'RULES' analysis.
Rates
Utilisation
Leverage
Expenses
Speed

Devised by Robert J Arndt and propounded by other strategists, (e.g. see Stephen Mayson's book, Making Sense of Law Firms: Strategy, Structure and Ownership, Blackstone Press/OUP) this can be used by law firms to understand the important elements of profitability.

This question and question 3 below are examples of the type of question asked to show that you can present a logical, well-structured argument on topical issues within the legal profession with a carefully considered critical opinion of your own.

There is no right or wrong answer, so let's look instead at how you would approach it. Like any question you need to show:
• Knowledge and understanding of the issues, based on sound research
• Critical analysis of those issues
• The ability to form your own critical opinion on the issues

Knowledge and understanding
You should revisit Chapter 6 and the section on diversity in Chapter 21.1.10 which gives you the current statistics, and look at information from the Law Society, the SRA and the Bar Association. For example, the SRA's overview of diversity in the solicitors' profession based on 2021 data. You should make sure that you keep up to date as much as possible.
Don't forget that we are not just talking about gender diversity. Inequality is determined by factors such as ethnic diversity, age, background and social class.
The research shows that, certainly at senior level, but increasingly less so lower down the profession, the profession does not reflect society. There are a number of reasons for this:
• Education—schooling and choice of university and the impact
• Cost of qualification
• Opportunities for work experience
• Law firm culture
• Opportunities for progression within a firm
You should research what is being done about it.
• What the SRA, Law Society and Bar Association are doing to encourage diversity
• Introduction of the new Solicitors Qualifying Examination (SQE)
• Regulation and compliance, e.g. gender pay gap
• What law firms themselves are doing to encourage diversity—research the websites of various firms and look at their diversity policies

Critical analysis
You should explain why this matters. SRA research indicates that the public mistrust of the profession is partly linked to lack of diversity.
You should look at both sides of the argument on the effectiveness of action being taken: where it is successful and where more could be done.
Research views from lawyers themselves on, and (as above) keep up to date with commentary from the bodies that represent them, as well as the SRA, the Law Society and the Bar Association
Look for articles in the press. For example, this article from the FT.
To give you some ideas, go to https://www.ft.com/content/4930f09a-02cd-11e8-9e12-af73e8db3c71 for an example of an interesting article on this.

Critical Opinion
Decide what you think, and be prepared to give a succinct answer, expressing your own opinion. Remember that this can be an emotive issue, so you must give a balanced view. This is not an opportunity to give an off the cuff condemnation or justification of private education or government policy on education. Refer briefly to your research to give authority to your answer.

Again, you should demonstrate knowledge of the topic. Go back to section 21.1.10 on Legal Tech. You could discuss this in two chunks:
• technology which, to a large extent already is in place to improve efficiency; and
• innovative technology which has the potential to revolutionise legal practice in the future.
There is a wealth of information on Legal Technology and it is easy to get bogged down in this topic. Make sure that you find reputable, and up-to-date, sources that give you a clear overview of what the main changes are and innovations and are likely to be. See for example, the SRA's 2021 report on Technology and Innovation in Legal Services and The Law Society's 2018 article on Legal tech.
Section 21.1.10 also mentioned Professor Richard Susskind, a leading expert on the role of technology in the delivery of legal services. An interesting interview with Ralph Baxter from Law Technology Now podcast followed the publication of new book: Online Courts and the Future of Justice (OUP, 2019). This could give you some ideas.
Remember that the question asks you to discuss the impact on the traditional law firm model. You should be aware of how firms have traditionally worked, based on face-to-face client relationships with a linear partnership structure and career path progression.

Critical analysis
See for example an article by The Lawyer: 'Travelers roundtable: change must come to the legal sector… and come quickly'.

As the Law Society website points out, every challenge for the profession brings opportunities as well as threats. You should weigh these up.

The SRA sees the main benefits as:
• improving access to legal services
• meeting demand
• driving competition
• improving standards of service
Threats include:
• Ethical issues
• Privacy, data protection and cyber security
• Lack of transparency and bias
• Poor quality assurance and testing

There are fears that technology will herald a generation of 'robot lawyers' which will decimate the number of jobs available to 'human lawyers'. You should look for practitioner articles and commentary on how lawyers themselves foresee the future and what they see as the advantages and disadvantages.

Knowing how to conduct research into law firms is a must for any student wanting to succeed in the legal profession. We have pointed you towards the Chambers Student Guide but once you have identified a firm that you would like to apply to, you must then thoroughly research the firm itself, starting with the website.

First, when you see the types of client it is trying to attract, it will help you decide whether or not you want to apply to that firm. It goes without saying that if you are not interested in corporate work, then there is no point putting in an application to a firm whose website is clearly geared towards attracting corporate clients.

Once you have successfully navigated the application, and been offered an interview, inevitably, you will invariably be asked to explain why you want to work for that firm (see below). One thing that makes a firm unique is its client base. This may have influenced your application, and you should be able to explain why.

Interviewers will generally question you on areas of law and practice in which you have expressed an interest. Make sure you research these areas carefully. If you look at some of the firms which are mentioned in this Chapter as examples:

• Linklaters. The website provides a wealth of information. If you are interested in Mergers and Acquisitions, you will see that, amongst an impressive client list, the firm has recently acted for the brewers, SABMiller plc, on the US$108bn recommended acquisition of SABMiller plc by Anheuser-Busch InBev SA/NV or Deutsche Börse AG in relation to its proposed but ultimately aborted merger with London Stock Exchange Group plc. Go to the "Client Services" tab and then click on "Corporate/M&A". Research some of the deals mentioned. Be prepared to say why these are of interest to you.
• Trowers and Hamlins. If you have expressed an interest in Housing, you will see that they act for several major housing associations. Affordable housing is a topical issue, and the firm has advised on several high profile regeneration and housing schemes, e.g. Newcastle's Byker Estate, or London's Barking Riverside.
• Some websites give rather more general information about the type of deals with which they have been involved, e.g. Wedlake Bell. If you have expressed an interest in intellectual property, you will see that they advise 'a leading supermarket chain' or 'a major car manufacturer'. This gives you an indication of the type of work involved, and you can get further information by looking at Chambers Student guide: The True Picture for each firm.
The examples above are intended to give you an idea of what you are looking for. It is up to you to conduct thorough research into any firm to which you apply.