In this series of blogs we are looking at the motivators, success factors and pitfalls for start-up and early stage boutique law firms. In addition to interviewing those who’ve ‘been and done it’, we are also talking to a range of professional advisers on some of the key considerations.
Caroline Field, partner at Fox & Partners, brings two perspectives to the discussion. Fox & Partners specialises in partnership law, and so Caroline and her colleagues have broad experience of advising those thinking of leaving one law firm and setting up another. In addition, Fox &Partners is itself a boutique law firm and, while it was established over 10 years ago by Ronnie Fox, Caroline and two of her fellow partners took over the ownership and management of the firm in 2017. As a result, she can speak with first-hand experience about the opportunities and challenges of running a boutique firm.
Negotiating the hazards of departure
We start our discussion with the advice that Caroline would give to those contemplating leaving an existing role to set up a new firm. She’s keen to stress that this is a complex area of partnership and employment law, and that anyone in this situation should take professional advice, but there are some broad principles to bear in mind, depending on your circumstances.
The first point to establish is ‘what duties do you owe during continuing employment, either expressly or by implication?’. Caroline comments: “All employees owe a duty of fidelity to their employer but an employee is not generally prohibited from pursuing his or her own self-interest. A lot will depend on your seniority, your existing contract and the level of confidential information to which you have access and other facts which give rise to a fiduciary obligation.”
However, Caroline says the position is different if you are a company director, a partner or a member of an LLP (limited liability partnership) in which case your duties to your existing organisation are typically much more onerous. Fiduciary duties owed by directors and partners, and which arise where members of LLPs adopt specific roles and responsibilities in respect of the LLP, mean that they have to act solely in the interests of their company or firm, and not in their own interests. This is likely to mean you are obliged to disclose your new firm’s activity to recruit colleagues from your current firm.
She adds, “It’s also important to consider the commercial realities, as well as the strict letter of the law. Your existing employer’s attitude is going to vary considerably depending on whether you are going into direct competition with them, and whether it’s a team move situation.”
If a team of people are thinking of leaving, this adds to the complications – ideally, they should be able to demonstrate that they are taking individual decisions or have been recruited separately.
Other key points of advice are to avoid written communication or circulation of business planning documentation which may reveal an irrevocable intention to establish a competitive business contrary to the interest of your employer. And “Obviously if a client is unhappy, they are free to move to a new law firm but you must be very careful to avoid the charge of enticing them away, and may be prevented from dealing with them directly or indirectly following termination or retirement by court intervention if you don’t stay the right side of the line”.
“Ultimately a big part of it is optics for your existing firm, which cannot stop you from moving on” says Caroline. “Partnerships generally try to avoid public disputes, so it’s about trying to find a solution that is acceptable to all parties. All parties would generally prefer to avoid litigation.”
Commercial considerations argue in favour of an amicable parting
In reality Caroline says that contentious situations are generally avoidable if the founders of the new firm take a considered commercial standpoint. “In terms of market positioning, it makes sense to avoid going into direct competition with a previous firm and to find a clearly differentiated niche.
“Equally, staying on good terms makes huge commercial sense – the nature of the legal world is that many new firms grow their revenue based on referrals from their founders’ previous firms, either because of conflicts or because of the size of the matter. And being able to refer work back to your previous firm may also be important.”
Structural choices
When it comes to the legal structure you choose, Caroline emphasises strongly the need to plan carefully from the outset and take advice as, she says, “It’s difficult and expensive to make changes down the road, so you may have to live with the consequences of an ill-thought-out decision.”
As we heard from Claire Watkins of Buzzacott in an earlier blog interview, limited liability partnerships are the route chosen by most start-up law firms, and Caroline Field echoes her comments about the importance of the partnership agreement: “You need to be really clear and open at the outset about all the partners’ individual needs and the relative importance to each person of income, equity and control, or involvement in management of the firm.
“It can be difficult to discuss this at the outset when everyone is full of optimism, but you do need to consider formally, for example, in what circumstance a partner can be removed and what your succession plan is going to be.”
Business planning
Whether you’re setting up a completely new firm or taking over an existing business, as Caroline and her colleagues have done, she stresses the importance of a clearly-articulated vision and business plan. “If you don’t share the same vision and you don’t agree on the details of funding, or how you’re going to share management responsibility, then you should consider very carefully whether you’re doing the right thing. It’s much harder to fix these issues down the line.”
Like others we’ve spoken to, Caroline underlines the value of having a differentiated market position and a clear marketing and business development strategy, that is regularly updated. “It can be the difference between success and failure. A good business plan will make all the difference in conversations with the bank or PPI providers.”
Finally, she is a strong advocate for defining clear roles and responsibilities, along with systems and processes, from the outset. “Be clear around where you can add most value as a lawyer and partner, which is probably on BD and client work. Bring in the skills you need for the other roles, either with employees or from specialist outsourced providers.”
Her concluding advice is to remember that all law firms are people businesses: “in a small firm, every person makes a difference, either good or bad, so choose your hires carefully! Make sure you set out clear expectations of the contribution that each individual should be making and, equally, demonstrate how that contribution will be measured and rewarded.”