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Kevin McCarthy: “It’s not about private client or corporate client – it’s about clients.” Is there any merit in pigeonholing types of client in the new economic reality?
There are 9 opinions, see below
Kevin McCarthy
Kevin is a Partner in the Firm’s Corporate department. He advises on corporate finance and M&A transactions with a particular focus on private equity. As head of the Firm’s Private Equity Group he has established a strong reputation for advising management and investee companies as well as equity finance providers.
Kevin believes that the lines drawn between corporate work and private client affairs are becoming increasingly irrelevant. Do you think there is any merit at distinguishing between clients and their affairs in this way?
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I do not see any particular merit in pigeonholing clients, because it is unlikely to produce the best quality of service for them. Whilst a firm’s structure may lend itself to distinguishing between “types” of client, this benefits the firm more than it does the client. In my opinion it is more vital to understand the business of the client, and to structure your service around their individual needs, rather than to offer a pre-specified services from which a client can choose. The flexibility to provide this is the key in today’s economic climate.
Despite this, the term ‘pigeonhole’ does not have to be construed solely as negative and restrictive. Instead, labels such as ‘corporate’, ‘family’, ‘employment’ etc. should be viewed for what they are, signposts, informing potential clients of a firm’s particular areas of knowledge and expertise. Therefore, when I re-evaluate ‘pigeonholing’ as signage, I tend to find myself agreeing with Miss Cornick’s comment below that removing all distinctions between clients is unnecessary. However, I would not go quite as far as to suggest that these distinctions could be detrimental to a firm’s success as these signposts are useful to the client in identifying a firm’s strengths.
From an outsider’s perspective, law is riddled with issues of confidentiality. So many restrictions are placed on following strict rules of governance and on the freedom of information, that it is hard to see how what McCarthy proposes in relation to an evolving “continuum” of the way clients are dealt with can be possible. In my opinion, in view of the way in which the system currently works, it is almost unavoidable for clients not to be divided in relation to their affairs; be they corporate or private. This does not mean, however, that attempts to recognise and better satisfy a clients needs by breaking down boundaries and increasing communication should be avoided. It is undeniably a hard task to change the way in which legal services within any established organisation work, but it surely makes sense to combine where possible the services to any one client. In turn, by offering a more bespoke service whereby expertise from multiple jurisdictions is marshaled together, a client can sit safe in the knowledge that a firm is guarding their interests from every possible angle.
In addition to this, in light of the recent Goldman Sachs expose by Greg Smith, which branded clients as ‘muppets’, it seems increasingly important that firms should express that a client’s interests and needs are at the core of their practice. As it stands, what puzzles me is why these changes have not been made earlier. Given this, perhaps the real root of the question is to examine why the lines between corporate affairs and private client business became so distinct in the legal market to begin with, as opposed to why they now have become so blurred.
The recent downfall of the financial service industry and the subsequent crisis in Europe have shown that the commercial world is a repetitive circle and that we can expect such incidents roughly every 10 to 15 years. This is fairly problematic for law firms because many law firms did in fact favor the corporate clients over private clients. The result was visible, firms performed less well (not taking into account restructuring and litigation) and the past few years let us all feel the impact that the hunger for profit had. However, the world is changing and I do believe that the recent crisis made us aware that private clients, where less risk is involved, do gain an increasingly important role.
I have to agree with Mr McCarthy that a client is a client. It should not matter for a law firm whether the client is a corporate client or a private client because a law firm,ultimately, is a business too. In order for a business to prosper and to be profitable it has to take on clients and a diverse client portfolio becomes increasingly important especially when we look at emerging markets where the new prosperity will create a huge amount of private clients for law firms which will most likely want to benefit from the UK legal system as it is the predominant legal system for all kinds of disputes and transactions, the recent cases with prominent Russian businessmen in London are proof of this development.
I would like to conclude, following the given reasons, that a diverse client portfolio will become a necessity for law firms not only from a global perspective but from a domestic one too simply because, as I mentioned above, there will be stock crashes, credit crunches and other problems and only a diverse client portfolio offers adequate protection for these times.
If there is a distinction to be drawn between clients, “corporate or private” does not seem the right one. I would divide potential clients simply into those that can and will pay, and those that cannot or will not. Pro-bono not withstanding, this is the only distinction that I believe is relevant.
Equally, there is no such thing as a low-brow client. A tabloid celebrity’s money is just as good as an aircraft manufacturer’s money, if not more so. Whilst there is always room for innovation, in all service industries the markets are driven by the clients, not the providers. There are no prizes for going out of business because you stuck to your guns and only took on clients with particular provenance. If anything, it may be more a case of the clients pigeon-holing the firms, not the other way around. If a particular firm is well-known for Child Law or its Matrimonial work, a corporate entity with a patent dispute to resolve may instinctively look elsewhere, assuming that the firm cannot excel in an array. I would give priority to removing any signals that might propagate such a belief amongst clients, and show that attitude and excellence is independent of the nature of the client.
Certainly, there is a point at which individuals require different skills and a particular type of practitioner over businesses, but often the practitioners are pre-selected by their work.
What clients do all have in common is that they all want their desired outcomes delivered, on schedule and preferably for the lowest price. It’s unarguable that anyone wants inferior outcomes, over a drawn out period, at greater cost. I would maintain that the imperatives of the client (delivering the solution or outcome) and that of the firm (getting paid for delivery) are the essential values to bear in mind, and that the nature of the client is secondary to bringing that client in; building a relationship with them, understanding their situation, how they operate and what it is that they want.
Although adaptability is always key, as is inter-communication, I cannot agree that there is any merit in removing the barrier between corporate and private practice. For example, wealthy individuals looking to invest their funds in a corporate manner are looking for a very different end result, and come from a very different standpoint than a divorcee seeking their share of a home. Yes, they share an interest in their money; but client care towards them must be so very different.
I believe Ms Rowley’s point below that the individual is the only necessary classification is at the heart of this. Client care is one of, if not the most fundamental building block of a successful law firm; delivering personally tailored advice in a manner appropriate to each individual. It is about personalities, and how a firm adapts, presents itself and builds a relationship with these personalities. Due to the differing nature of corporate deals and private matters, the application of this will necessarily be distinct.
Market awareness is central to this concept. Although I cannot dispute the value of departments sharing their pools of skills, each in its own individual capacity must be able to provide experienced advice specific to a client’s needs. For example, advising the aforementioned wealthy investor about contingency plans in the case of divorce may be a practical way of covering every eventuality – but this is not what he has approached the firm for. This is where cross selling comes into its element, as here departments can be of most use to each other by sharing a client base. This in turn ensures that specialised practice areas are not diluted, and that each client receives a full and detailed response to all facets of their problem. As for the economic reality, it seems sensible to provide both cross-selling and high quality of service to generate as much repeat business as possible.
To conclude, I must add that although I do see the merit in using the law in all its facets, as Mr McCarthy puts it, I simply see the need for caution in allowing a blurred line to become invisible, as this risks the key factor in the equation, the client, not receiving the best service possible.
It must be borne in mind by legal advisors that client needs rarely exist in isolation. The new economic reality requires firms, now more than ever, to take a holistic approach to client care to enable all needs to be serviced – a win-win situation for client and firm. This calls for removal of any remaining distinction between private and corporate clients.
The changing face of those who were traditionally known as private and corporate clients is the driving force behind the new approach which is required. Take Mr McCarthy’s example of a high net worth individual who is financing a significant cross-border acquisition: it would be foolish to deal with such an individual using a standardised private client approach as the opportunity to identify further needs may well vanish or, at best, be reduced. Likewise, it is wrong to view corporate clients as simply part of the business they represent. Decision makers in a corporate world are individuals and want to be treated as such. Therefore, there should only be one classification of client: the individual.
Taking an individualised approach to each client is the foundation of building and nurturing rapport, both personally and in terms of business. This is important in both the short and long term. In relation to the short term, it enables deal specific advice to be offered in addition to support on any wider implications of proposed actions. Longer term, it leads to the ability to effectively cross-sell – a hugely important practice if firms are to grow – as further needs can be easily identified and the client signposted accordingly.
Regardless of the identity of the client, lawyers are required to demonstrate objectivity, creativity and the ability to communicate advice in a pragmatic and accessible way. Erasing the existing line between corporate and private clients ensures such skills are equally demonstrated to all clients.
Providing for unity of approach through removing the distinction between private and corporate clients gives clients more incentive to use the firm for all needs in the future, whether personal or business. This is due to the reassurance that they will be working with the same people and getting the same excellent service which has been provided in the past by other departments. These valuable long term, multi-need relationships are exactly what firms are looking to build and retain to guarantee steady growth. This I would argue has long been true but the arguments in favour are even stronger in this “new economic reality”.
I agree with Mr. McCarthy’s argument that clients are effectively clients, and that providing a direct distinction between corporate and private clients is becoming increasingly difficult and increasingly outdated in a globalised world.
The argument that I have found most compelling in this piece regards the utilisation of the law in providing clients with the best possible legal service. Clearly, what Mr.MrCarthy seeks to emphasis is the need for practicing solicitors to operate under less of a stringent guise and instead adopt a more fluid approach in offering a legal service.
Mishcon de Reya, with particular regard to its corporate department advises changing and growing businesses, it is also famous for the work it does with entrepreneurs and high net worth individuals. The ability to adopt a more fluid approach in offering a legal service ensures that individuals with a “one off” situation or a delicate international matter can be safe in their knowledge that the most suitable legislation to their specific predicament will be outlined rather than the most typical of that practice area. This is reiterated in Mr. McCarthy’s declaration that the law must be best utilised in all its facets. In an increasingly competitive legal market, one could argue that it is the individual distinction that ultimately separates legal entities. Mishcon de Reya’s meticulous approach to ensuring that the firms individual brand remains robust and competitive seems particularly relevant to Mr. McCarthy’s specialist practice area of private equity.
In applying Mishcon de Reya’s dedication to recognising each and every client as a singular entity, the firm will possess the experience in confronting the challenge of a depressed private equity market in the Western World as it continues to expand into developing economies. The experience Mishcon de Reya possesses will ensure proficient knowledge of subtle differences in international culture, enabling it to represent clients effectively with a clear desire to address the needs of each and every client to their best possible effort, and confront the challenges offered in a more globalised world.
As society itself progresses at a phenomenal speed with new technology and business niches arising all the time, the nature of corporations and individuals is evolving as well.
The categorisation of clients as corporate or private has become very outdated and also commercially impractical for commercial law firms looking to expand their client base. In recent years, it has become apparent, through investors in Premiership football and rugby clubs to name but a few, that private investors are entering the market as what would usually be referred to as a corporate client. We are talking about incredibly wealthy individuals with very strong business acumen looking to invest their fund and turn a profit on a corporate scale. Furthermore, taking a business such as Formula 1 for example, we can see the emergence of hugely valuable businesses with single owners which for the most part, can be treated as corporate clients but still have the potential to develop into very personal affairs depending upon the personal life of the business owner.
Conversely, perhaps something of a product of my parents’ generation, we are currently in a world in which family-run businesses are developing into national organisations and can therefore no longer be treated as private clients so as to best serve their needs.
My points here raise two arguments for the walls between corporate and private client being broken down. Firstly, the decision as to whether or not to treat a client as private or corporate may not necessarily lie in the hands of the law firm, the client themselves may view their status in a particular way, something I think may exist more as private clients seeing themselves as corporate in nature. Secondly, as a global population in general we are breaking barriers, whether it be trade barriers in the EU, national barriers for businesses going overseas or technological barriers, and we are therefore becoming a more liquid population, drawing in knowledge and practice from several areas so as best to advance our desires and goals.
Finally, as markets become more saturated with corporations offering very similar, if not identical services, the need for an individual brand is essential. I think this is the strongest argument against classifying clients, as the ethos, history or moral stamp of one, something that is highly significant to the brand image, will undoubtedly be different from another. This means every client should be approached as the individual that they are, whether it be a person with an individual personality, or a business with a recognisable history or advocacy to something such as humanitarian work: a corporate personality if you will. This point allows me to finish very nicely as I think an example of a saturated market is that of commercial law as the vast array of commercial firms evidently leaves clients with a dilemma in whose services to request. It is here that a firm such as Mishcon would need a unique corporate personality and the non-compartmentalisation of clients, private or corporate may be an element of this unique brand recognition and show just an example of how a corporate client may be as individual as a private client.
There is truth in what Kevin says about the blurred distinctions between clients’ affairs, however, there is still a need to distinguish them into different categories. Forces of globalisation have made society increasingly interconnected, with corporate businesses having to have more social awareness and individuals, such as sports personalities or celebrities being able to build an entire brand and business around themselves. It is important that the different areas of legal practice are combined in order to tackle challenges thrown up by these situations, however, there will still be clients needing a solely corporate solution to their affairs, requiring an entirely commercial business outlook just as there will still be divorces concerning only the marital assets. It is not that clients ought to be ‘pigeonholed’ with rigid barriers to departmental interaction, but it is not practical to remove the lines totally else there is a danger of a ‘too many cooks spoil the broth’ scenario, with the case not receiving the focused expertise it requires. Particularly in private client matters, there will always be those who aren’t looking to divide up a lucrative family business as part of a separation, therefore, it is not necessary to open the case up to the corporate teams. Kevin’s point bears more relevance to the business world requiring the private client teams. Increasingly, companies are being called to account for their actions. It is possible for an individual to bring a personal injury or discrimination case against a large corporation as was seen by the Walmart employee, Betty Dukes, this year. Similarly, defamation of a business’s CEO will have a huge impact on the company as a whole. It is important for there to be free and regular communication between departments when the case requires it, however, completely removing all distinctions between clients is unnecessary and could have a detrimental effect on the case’s outcome.
Mr. McCarthy’s summation that ‘clients are clients’ reflects my own viewpoint. Providing an adversarial service to clients is a law firm’s only source of revenue. Consequently, in order to determine whether there should be a distinction between clients it is necessary to take a step back and ask what clients want from their solicitors? I believe the singular desire is trust and an absolute confidence in the person dealing with their affairs. Therefore typically, but more so in this economic reality, clients are looking for a central point of contact within firms; someone whom they have built a rapport with and whom understands their requirements, as a reflection of the trust built.
I believe that the current approach to clients within law firms is too parochial and change is needed. The ongoing case between Boris Berezovsky and Roman Abramovich, is a typical example of the merging of private client services work and corporate advisory work- the former an exiled Russian obligarch who is claiming that Abramovich coaxed him into selling his shares in Rusal, at an undervalue.
As a new entrant to the profession, it seems strange that the proposition by Mr. McCarthy is not actually the norm. Having had the opportunity to work in client offices, i.e. looking in from the other side of the fence, it was evident to me that the more amenable and adaptable that external lawyers are, the more accessible it makes them to the client.
Looking at Mr. McCarthy’s sentiments from a slightly different angle, another reason why clients should not be pigeon holed is because a client’s issues never exist in a vacuum. For example, a corporate client may have individual board of directors that also need personal legal advice. Segregation of clients in law firms, depending on their affairs, can result in clients losing, what I term, as their point of contact. Clients not only want someone who is technically very good but also, as stated above, someone whom they have build a relationship with and hence can provide context to their advice. The trend of compartmentalising clients is demonstrative of the fact that large corporations often put tenders out for positions on their legal advisory boards. If corporate clients believed that law firms could offer more rounded services, adaptable to the challenges they face, I believe firms would be retained for longer.