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Diversify and conquer

Legal clients value law firms that straddle different areas of the law, finds study co-authored by Dr Lionel Paolella of Cambridge Judge Business School.

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Organisational experts have traditionally frowned upon “category spanning” – the provision of a broad range of distinct services – because it’s commonly seen as draining a producer firm’s core appeal to audiences.

Compared to “purer” competitors, category spanners have traditionally been more poorly rewarded and less feted, and conventional wisdom dictates that clients prefer more focused producers.

Yet when it comes to corporate legal services, a study of hundreds of law firms in New York, London and Paris over a decade finds that this generalised theory just doesn’t hold up.

The study – entitled “Category spanning, evaluation, and performance: revised theory and test on the corporate law market” – was recently published by the Academy of Management Journal. The co-authors are Dr Lionel Paolella of Cambridge Judge Business School and Rodolphe Durand of HEC Paris.

“Particularly related to acquisitions, legal clients expect sophisticated services and are willing to pay higher prices for them,” says Dr Lionel Paolella, University Lecturer in Strategy & Organisation at Cambridge Judge, whose research is utilised in the School’s Executive Education programmes for professional services firms. “When issues are more complex, we find that clients assess a producer as a broader entity instead of looking at particular elements of expertise in isolation.”

The study therefore concludes, at least as far as legal services are concerned, that clients have no general preference for a single category of expertise. Instead, what matters is the “theory of value” – clients’ perceptions of issues and solutions, and how these can best be provided from a goal-based perspective.

The study examined eight practice areas that span most of corporate legal practice: competition; litigation; intellectual property; property; tax; mergers & acquisition; bankruptcy and employment – covering the period 2000 to 2010.

The authors analysed rankings given the law firms by three guides for the legal profession – The Chambers and Partners, The Legal 500 and PLC Which Lawyer – which ranked according to practice area and location; additional information on such metrics as numbers of partners and gross revenue was compiled from a journal focusing on each city: American Lawyer for New York, The Lawyer for London and Juristes et Associés for Paris.

The study found that clients focus more on their own ability to identify and appreciate the combinations of categories offered by law firms, and not whether the law firms straddle practice categories.

The ability to convince clients that such a combination is beneficial also helps boost law firms’ bottom lines. The Paris-based partner of one US law firm told the authors that the way to develop the more profitable areas of practice such as litigation and M&A is to show skill in tax, property, employment and other less glamorous areas of the law – because demonstrating diversity can be the best way to close the high-profitability deal.

Some might suggest that clients often stick with their diversified law firms not out of appreciation of their many skills, but simply due to inertia – to minimise the cost of searching for another provider and haggling over a new contract. Yet the research found no evidence for this, and one study even found that 56 per cent of big companies from 60 countries use up to 10 multi-practice law firms.