Salford, here we come: Freshfields’ new mission

Magic circle firms would, we hope, forgive The Lawyer for saying they have not historically been the fastest moving law firms in the market.

One occasionally gets the sense that the majority of internal strategy and development meetings are spent rehashing the same commitments to ‘putting the client at the centre of things’ and ‘driving the firm forward’, and certain players remain stuck in their old, reliable ways.

But every few years, an opportunity for a major change of direction crops up. The stars align; perhaps average profit per equity partner drops slightly, a few big names are poached by a rival, and the partners express a collective openness to new ideas.

Slowly the firm wakes up to something that the rest of the professional services businesses have known for many years: that major decisions about costs, headcount, remuneration and location need to be made to keep ahead of new technology, client demand for cheaper, but often more, work, and intense competition from emerging providers.

Such a shift in thinking happened at Freshfields Bruckhaus Deringer back in 2013 and the strategy has continued apace since.

Revenues have inched up in recent years as the firm finally recovers from the aftermath of the financial crisis but profit per equity partner (PEP), net profit and the firm’s profit margin have all been rocky.

Meanwhile, US firms continue to pile into London, the Big Four accountants and consulting giants have become a palpable threat to traditional firms, London rents continue to rise and general counsel are increasingly reluctant to pay big bills for commoditised work.

Something needed to change, but what? The idea to open a behemoth of an office outside of London, from which it would handle all of its process-driven legal work, had been simmering in the firm’s disputes team for a while.

By looking at its clients’ expectations – and at what its competitors had done – Freshfields was able to map out a plan to lower costs, increase retention, and start laying the groundwork to put the firm on a stronger financial and operational footing in both the London and global market.

The conception

It emerged last February that the firm was looking at locations to open a legal services and back office hub in Manchester.

A few months later it took on 40,000 square feet of temporary space in the city centre, with plans to relocate its entire support staff from London to the new base and hire hundreds of paralegals to work with partners across its global offices.

But the story actually started with one disputes partner, Paul Lomas. Five years ago, Lomas was looking at the way the firm was working with paralegals, completely deconstructing the litigation process and noticing the firm was missing a trick. Freshfields’ disputes team was collaborating with firms in India, South Africa, Bristol and Watford, among others, to do first level document review and due diligence.

“Paul had conversations with me when I was head of disputes, then Ted Burke, then David Aitman and Will Lawes,” says managing partner Chris Pugh. “It was under Will and David that the project really got picked up and taken from concept to reality.”

It took the thought process of a litigator to plant the legal services centre seed in the mind of the firm. When Aitman took over in 2014, the firm launched a firmwide partner consultation on the plans, explaining in detail what it was trying to do and how the centre would work, before piloting it in London.

Years on, Lomas has remained the “constant voice throughout”, says Pugh, though his job in Manchester is now essentially complete as the legal services centre has been fully operational for several months.

“Now he’s helping us look at North America for our next global services centre,” Pugh says.

“We all need to work on making sure it works,” Pugh adds. “We need to constantly assess what we do and look at how much of what we do is process, and respond to that.”

Cultural shift

Whether it will prove to be a success five years down the line, the Manchester opening has undoubtedly marked a major cultural change at Freshfields. Far from being merely a cost-cutting exercise, the decision has meant the relocation of hundreds of jobs away from the City for the first time ever and shifted its focus firmly onto efficiency and process.

Though the firm is arguably behind the curve on ‘northshoring’, considering the trend for law firms to set up shop in Belfast, Glasgow and Manchester over the last five years, Freshfields’ new hub has become the smoking gun for a new era of profitability and change at a firm that has historically been resistant to shaking up the status quo.

Since Manchester was first floated as an option, questions on lockstep, practice group structure, innovation and collaboration have been opened up for discussion. The firm has also in the last 18 months introduced a reduced ‘second tier’ lockstep ladder to the global partnership, flexed its lockstep at the top end to allow for star partner hires and consolidated a number of the firm’s smaller practice groups such as IP into the umbrellas of corporate and litigation.

The changes also point to the legacy of Freshfields’ latest leaders. The Manchester base took shape under former managing partner David Aitman but the torch was firmly carried forward by new managing and senior partner Chris Pugh and Ed Braham, who took over last autumn.

Pugh has already made it clear his final vision for Manchester puts the office at a headcount of a colossal 700 people. The proposed scale far exceeds anything being done by its competitors either in regional hubs around the UK or elsewhere in the world.

In fact, so successful do they expect the Manchester base to be, the firm has already made the decision to open a second legal services hub, probably in Vancouver, by the end of the year.

If Freshfields’ critics were concerned by the possibility Manchester could end up sitting in isolation from the wider firm, the proposed Canada launch suggests Pugh and Braham have a watertight plan to keep Freshfields’ brand and reputation at the forefront of its new centre’s ­service delivery.

Pugh says that plan is currently in action in Manchester. “When you visit the Manchester centre it’s not just an echo of the brand, it feels like a Freshfields office,” he says. “Vancouver will be an expansion of the global centre in Manchester, so it will be an addition to the brand.

“We have a track record of opening offices around the world so the brand being expanded on in different locations is nothing new,” Pugh adds.

But not everyone is so sure, and a number of competitors who have already gone through similar moves away from London, say the difficulties of integration could prove a major threat to Freshfields’ future, particularly given the millions of pounds it has invested to get the centre off the ground.

As the head of one of the rival legal services centres says: “We’re talking here about creating new parts of law firms, not just opening offices. These are big beasts. Too much focusing on cheapness and not on how people experience working for you would be a disaster.”

Freshfields’ late entry to the trend of northshoring means there is no room for experimentation or learning from mistakes as it goes along. The bar has been set by a number of its competitors and the firm’s approach of ploughing into Manchester with a critical mass of 300 staff means the pressure is on for it to get it right from day one and turn the centre into a resounding success.

Low cost vs low-cost

When chatter surrounding the initial launch in Manchester petered out, Freshfields’ strategy was dubbed a “bit odd” by a number of senior market sources.

“They’re driving into Manchester at a time when the city is not that low-cost,” said a rival. “It’s lower cost than having everyone based in London, but it’s not truly low-cost. Neither is Vancouver.”

Though Manchester rents are typically half what is paid for commercial space in London, Freshfields will certainly not halve its outgoings as a result of the new centre. Salaries are not far off the London average, with the typical salary for a solicitor identical in London and Manchester at £37,500 per annum. Business rates in Manchester are going up as the city continues to expand and the cost of refurbishing an office is on a par with the capital.

“Freshfields is driving into Manchester at a time when the city is not that low-cost”

Freshfields has also likely paid out a significant sum in redundancy and relocation packages to support staff. The firm refuses to confirm the exact number of staff that have relocated from London to Manchester, but sources close to the firm say as few as 50 of the total Manchester staff were relocations – meaning around 250 staff were recruited locally.

Manchester is also one of the few regional hubs that does not offer financial incentives for global businesses looking to set up shop, and the local authority has not undergone the same commercial outreach programme to attract big business as cities like Leeds.

Freshfields has cited qualities including a good talent pool for both legal graduates and back-office professionals, plus Manchester’s good national and international transport links as ­providing the biggest ‘pull’ factor.

“What swung it was if we’re trying to have a top quality operation then we have to be able to attract the right people, and if it’s going to be a significant size then we need to attract a lot of good people to keep the quality up,” Pugh says.

Not everyone is convinced. “Yes there is a strong talent pool of both business services and paralegals in Manchester, but they would have seen a much greater cost advantage if they had been a bit braver and gone through the work to build into a new community,” a source says.

“Manchester is certainly not a Belfast,” comments another, and echoes the previous source by adding that Freshfields needed to be “bold” and enter a non-saturated legal market to really reap any significant cost benefits.

The firm did consider numerous other locations, and not all of them in the UK. “We didn’t exclude anywhere,” Pugh says. “We looked across continental Europe, Scotland, Belfast, Liverpool, Bristol. The main point was that we were looking from day one for somewhere we could have a 24 hour, seven days a week type service.”

A different route

Manchester is well developed in terms of legal services and has seen a flurry of activity from both UK and US firms since Addleshaw Goddard launched the first legal services centre there in 2010.

While not the UK’s official second city, Manchester has certainly become the country’s second biggest legal market and a number of firms there are primed for major short-term expansion.

Berwin Leighton Paisner (BLP), for example, opened its legal services delivery team in Manchester in 2014 with 21 staff, although it expects to increase its headcount to over 100 this year. Meanwhile, Latham & Watkins also announced last year it would open a Manchester office following a period of global growth.

Other firms investing in turning Manchester offices into true full-service offerings include DWF and DAC Beachcroft.

But Freshfields’ launch into the city and ongoing strategy remains distinctly separate from any of these firms.

For a start, the scale of its final proposed offering dwarfs anything being done currently, and recent news that the firm plans to eventually offer both apprenticeships and training contracts from Manchester have led some to question whether it will, in fact, become the first magic circle firm to open a Manchester office for client work.

It also opened with a bang into legal services, when many of its competitors favoured dipping a toe in the water by first moving back-office staff followed by a slow trickle of paralegals.

“We wanted to do the process of legal services better, so developing the centre to improve two aspects of our delivery to clients was crucial,”
says Pugh.

“We weren’t as quick in to the business services offshore model but we have developed our own strategy in combination with recent advances in the tech sector that’s much more responsive to what our clients now want.

“When you visit the Manchester centre it’s not just an echo of the brand, it feels like a Freshfields office”

“When we first looked at doing it 15 years ago, we saw some benefit in the offshore back services type of operation but it wasn’t significant enough to deliver cost efficiency to clients,” Pugh adds.

The other dividing factor between Freshfields and its peers is its ambition to create a 24-hour centre, one of the key objectives fuelling its upcoming North America launch. The second site, it is hoped, will work more seamlessly with the firm’s Asia partners and clients, in part thanks to Canada’s strong links with Asian communities and large Mandarin-speaking population.

The recruitment ceasefire

If commentators were expecting a recruitment war sparked by Freshfields’ entry to the Manchester market, they will be disappointed.

Despite Freshfields embarking on a nine-month recruitment programme to draft in 250 back-office and legal services staff in Manchester and the surrounding cities, the majority of its local competitors say their own hiring processes haven’t been affected so far.

“There’s plenty of paralegals to go before we start to soak up the market, even with big players like Freshfields,” says the head of BLP’s Manchester centre, Richard Sawtell. “However, we can’t rule out the possibility that other firms will follow suit now that Freshfields has opened, so it could become a problem in the future.”

“Occasionally someone we’re interviewing might say they’re also interviewing at Freshfields, but I wouldn’t say it was an emerging trend,” adds another senior Manchester source. “For now,
we haven’t felt that squeeze on recruitment.”

Addleshaws’ transactions services team head Mike Potter adds that he also has not seen a drain in talent from one firm to another. “We have just recruited 28 people to the team and haven’t seen any of our paralegals transferring to Freshfields,” he says.

Freshfields did not take a light touch to its recruiting process. The firm targeted legal recruits through all universities in a far-reaching radius, also contacting graduates and high street paralegals directly on LinkedIn, encouraging them to apply.

Once through the door, applicants were subjected to a training day that a number of its new recruits admitted to being terrified by. After all, Freshfields’ new office provided a route into a magic circle firm for graduates of northern universities with no intention to move south for the first time – they were feeling the pressure.

The firm’s promotional literature to potential paralegals, competitors say, played on both its global reputation as well as the fact it is doing something new.

“The advantage they have is there is something exciting about what they’re doing,” says a source. “We had that a number of years ago.”

There was some speculation that Freshfields’ planned move to its permanent home in Salford at the end of this year would affect its chances of attracting the best paralegals keen on working in the city centre. But geographically the difference is too small to be of any consequence, and local sources say a Salford postcode is much more likely to affect its chances of winning local business – which Freshfields isn’t interested in – than its recruitment strategy.

The biggest challenge for the firm in terms of recruitment will be two-fold: creating a working culture where employees in its Manchester and Vancouver offices feel part of the wider firm, and retaining good workers by providing them with a well-defined career route.

“Attracting people to work for you is one thing,” says a source. “Retaining them is an entirely different and ongoing challenge.

“The bigger Freshfields’ legal services hub becomes the more remote it could feel from the core business, then it becomes much harder to keep ambitious people.”

Sawtell says BLP’s centre has grown from offering solely paralegal positions to associate roles, supported by its local office. “We’re focusing on making sure whoever joins us has a clearly mapped out future into law,” he says.

“The bigger that Freshfields’ legal services hub becomes the more remote it could feel from the core business. Then it becomes much harder to keep ambitious people”

Freshfields does not have the luxury of a local established office to support its paralegals moving into a local training contract programme, though two paralegals recruited in Manchester in the last year are currently doing training contracts in London, relocating for the position.

While Freshfields does have ambitions to start training contracts in Manchester, a concrete launch is likely to be many years in the future. Legal apprenticeships will begin in the shorter term, though the firm has so far been unable to clarify start dates, pay, the number of apprentices it will take on, or the level of qualification they will be trained to.

Until then, competitors advise the firm to make sure it allows its junior recruits to “get involved in the complex, high-process stuff”.

“It gives them exposure to working hand-in-hand with partners and makes them loyal to the firm,” a source points out.

If Freshfields is weighing up how its competitors work with its most junior staff members, there is one standout centre it should watch. Herbert Smith Freehills (HSF) has built perhaps the most prolific legal services centre to hit the UK market in recent years, with paralegals and junior lawyers handling more complex work as the centre grows in size and prominence around the firm’s global offices.

Belfast succeeded in drawing in HSF in 2011, when it opened with 26 staff including 19 fee-earners to undertake “document intensive” aspects of litigation, arbitration and regulatory investigations. The firm has rapidly grown in Belfast, relaunching the centre as a 240-lawyer global alternative legal service last year.

For Freshfields, it is of course important that partners find using the centre both efficient and faultless in terms of what it can deliver to their clients. Partners are also encouraged to share their experiences of using the centre with their colleagues, so use begins to permeate all practice areas and regions across the firm.

“It’s hugely important for partners to like it, but the firm as a whole needs to see what we’re doing here,” says Pugh. “There’s a danger in limiting the perspective to partners. We want everyone from associates to PAs to understand what Manchester can help them to do.”

The three pillars

“There are three important strings to getting what Freshfields is doing right,” says a senior market source. “People, process and tech.”

It takes equal focus on all three to motivate, support and develop talent and help it all “come together”.

“That’s how you make them feel part of Freshfields,” the source continues. “You hire the right people, make sure they’re properly trained and then connect them with people elsewhere in the business.

“We want to be known as a firm that’s constantly getting client feedback on our service, then improving what we do”

“Developing processes that are tightly managed is boring, but it’s key. Getting the boring stuff right makes everything much more efficient and collaborative later down the line.”

As it stands, some are concerned that Freshfields is currently focusing too much on the people element of its growth. Others, such as BLP, have been criticised for focusing too much on process.

For Pugh, the technology element is just as crucial, though the firm has been much quieter about its investments in technology to make Manchester work than its efforts to hire young graduates.

“We will now invest most in process, technology and innovation,” says Pugh. “The tech sector has assisted in so many ways with speeding up how we do things.

“We realised that having a group of people focusing on technology and process means we can free up the people who should be concentrating on the complex legal stuff and so improve the quality of service to clients.”

And it is that end result of what clients think, not costs savings or partner feedback, which is how Pugh will measure the success of Manchester as an experiment.

“We want to be known for being a firm that’s constantly getting client feedback on the service we provide, then improving what we do and going back to the client again,” says Pugh.

While Freshfields looks firmly to its clients for approval, the rest of the Manchester legal market is watching its next moves closely, with tensions likely to be amplified as the magic circle firm sets about more than doubling the size of its legal services hub.