Compliance obligations of legal firms continues to increase with the structure and governance of practices becoming more important. Not surprisingly, a corporate model continues to be the favoured structure of legal firms according to a recent survey.
According to the survey of legal firms, 46% of respondents indicated that their firm operated with a corporate entity structure. This was a slight rise in responses from the prior year survey (43%). Partnerships of individuals remained the second most popular vehicle.
Taxation and stamp duty consequences continue to be the main impediment to the change of existing structures whilst new firms favour a corporate model from the outset.
88% of firms think they have an appropriate legal structure.
Of the individual partners surveyed, 90% of respondents indicated they thought their firm’s structure was appropriate, yet a number of partners did not feel their asset protection or wealth accumulation plans were adequate. This poses an opportunity for firms to engage with partners to more closely link partners’ understanding of firm structures with the management of their personal affairs.
Governance and risk management continue to have an increased focus in professional services firms. Compliance and regulation requirements have risen, and it is important for firms to have structured support to meet regulatory needs. The importance of these structures was confirmed by 81% of partners indicating that their firm had appropriate governance frameworks established. 80% of partner respondents indicated their firm had appropriate risk management frameworks in place.
Whilst the governance and risk management of the firm was given priority, only 65% of partner respondents indicated their firm had a documented strategic plan and only 58% were satisfied with the strategic planning process. This contrasts with the responses to questions around a firm’s culture and its governance framework.
Amongst partners who identified their partnership culture as collegiate, 79% said they were happy with their firm’s governance framework. The fact that 100% of firms who identified their partnership culture as collaborative said they were happy with their governance framework is unsurprising, given these partners most likely played a role in forming and driving change in that framework.
The responses highlight a gap between a firm having a strategic plan and whether partners are happy with the current plan.
This gap indicates that, in some cases, partners may be satisfied with the absence of a strategic plan if the status quo is meeting their structure and governance expectations. Of course, this highlights how challenges within a firm’s culture can arise.
- 35% of firms do not have strategic plans
- 58% are happy with the strategic planning process
This article was published in Pitcher Partners’ 2020 Legal Survey. To access the full report, click here.