The million-dollar mark of revenue per lawyer has just been passed to King & Spalding. In addition, this year the firm is approaching a billion dollars in revenue, after a record $934 million in 2014, while simultaneously expanding its international presence. What is its hat trick of growing while remaining profitable? Robert Hays, Chairman of the firm, reveals the art of balancing multiple goals.
Leaders League. What vision helped King & Spalding’s successful market positioning?
Robert Hays. Today’s legal market is overly crowded, so we adopted a focused market approach and intentionally did not concentrate our growth on too many things. We have selected a few high-value practices where we are nationally and internationally competitive and stand out in the market.
Our main focus is on six practices and sectors, each of which represents $100 to 200 million in annual revenue. We have four industry-based pillars: Energy, Life Sciences / Healthcare, Technology & IP, and Financial Institutions (banking and real estate). We also have two practice-based areas: Global Disputes, and Regulation & Government Investigations. We have the benefits of the focused approach of a boutique but the international reach as we grow each of these six areas into a large scale, geographically or in terms of headcount. This strategy has played a key part in the improvement of our target metrics.
Focusing means making trade-offs, making choices. It requires willingness from the management team to commit to making choices and a lot of consensus building time. When we selected our strategic areas, we stated the objectives and were transparent with our partners because the conclusions we reached were often not in everyone’s interests, and we wanted the support of the partnership to move forward.
Leaders League. You have opened 13 offices since 2003. How do you balance between aggressive growth and careful profitability?
R. H. This is very hard! You may say we could not have picked a worse time for international expansion in 2009, the time we accelerated. The Paris office, opened in 2009, is symbolic in this aspect: it was almost the bottom of the global recession. We received a lot of critical feedback, ranging from “overly aggressive” and “too risky” to plain “you are crazy,” but we knew we were on a tough mission and had a number of constraints. As far as I know, no other firm in the world has expanded on such a scale in the last five or six years, without merger and without borrowing any money. We opened offices, beachheads and grew beyond this phase to have differentiated advice for our clients.
Resolving the tension between growth and profitability is not simple. Most firms choose not to try to achieve both goals: they either grow at the expense of profitability, or increase profits by shrinking the partnership. These strategies carry implicit risks: clients are becoming more global, and shrinking goes against a core trend, whereas growing at the expense of profits means leaving the firm at the mercy of headhunters for your talent.
So we went for both. To stand out in the market and serve global clients, we need scale; without profits, we wouldn’t have been able to engage in international expansion.
Leaders League. How do you attract top partners? And what profitability do you require from them?
R. H. Today’s legal market has a mercenary mindset, with tremendous turnover. We cultivate the opposite mindset: partnership loyalty. We don’t “recruit” partners (implying the check is the attraction); instead, we “attract” them, based on a vision, a challenge / opportunity for them, and a culture.
The client will have value from the depth of our practices if people work in teams and networks, so we try to motivate our people to work collectively and generate the greatest value.
We don’t guarantee income to our new partners. But we do things that are positively uncommon: first, we give them the time to grow their practice, their clients and their bond with the clients, as we know it takes patience; second, we treat them just as existing partners rather than newcomers.
Leaders League. But how do you build accountability, while being aggressively nice?
R. H. Achieving our goals is impossible without transparency and indicators of success. We set, share and watch clear (and hard to reconcile) objectives such as gross revenue, revenue per lawyer, profit per partner... And we have either reached or exceeded them. We also know the pace of growth in the industry, and if we find ourselves lagging in one thing, we don’t hide it.
Leaders League. Three engines can upgrade the quality of a firm: attracting external partners, growing expertise with existing people, and exiting some of them. Which one do you use?
R. H. We have done all three of these, very intentionally.
As for bringing in talent, we are very selective about that, and made mistakes at a point by “recruiting” people, which I now reject, because there is a notion of sales in that, as though by recruiting you actually talk-in people. Having abandoned this notion, we instead “attract” the talent: rather than painting a rosy picture, we encourage individuals to challenge themselves to feel whether joining us is the right fit for them. We explain our vision, our mission, the requirement of the tasks, clients’ expectations… We do this so well that during the interview process some people self-select out, because they don’t feel in line of what we are doing.
Similarly, some existing people self-select themselves out, because they feel that our strategy requires too much change and they are reluctant to make that trade-off.
Another element is about retaining the talent. We focus on what kind of work would be needed in order to motivate, inspire and interest people who do a really great job. To keep them, you must be able to offer the most challenging, significant and sophisticated work.
Leaders League. How do you handle the downward pressure of fees and upward pressure of internalization of legal practice?
R. H. Commoditization of work has gained territory, but hopefully we are going in a different direction.
Firstly, we have focused on building world class expertise in certain areas where we believe demands for legal work are and will remain high. We are present in three fields: complex litigation, complex deals and complex regulatory matters: these are areas where the work is sophisticated and where great value is at stake.
We are cautious about the work we do and don’t try to do all work for all clients. We devote ourselves to work that is critical for the clients. For this work, the primary focus of our clients is whether we can achieve their goal, how we can solve the problem, and whether we bring value to them.
This is a crucial distinction: the "value" vs. the "cost" of legal service. Law firms who have low rates can turn out to be very expensive, and great firms who have high rates can be very inexpensive if they have deep expertise and prosecute the work efficiently. Our partners are encouraged to have a clear view on the differences between value and costs.
Thirdly, we have worked very hard to assist our clients in budgeting to achieve value. We have an ongoing dialogue with them about our work on their cases: we ask them their opinions and whether they want us to devote more resources to create more value. We also challenge ourselves to make our operation and process more efficient by using technology, and encourage our people to think in an agile way like start-ups.
Read more insight regarding international legal services markets in our next International Report of Top 100 Law Firms. Publication in September 2015.