Historically, law firms have not been encouraged to articulate or account for the value of their brands (perhaps better recognised as reputation and name), even though most law firms do have brands with significant value. Perhaps this is in part because the brand is often ignored as an asset upon admission and retirement of partners under partnership agreements. The brand value is also rarely reflected in a law firm’s accounts and is just generally not talked about very much. As such, there has been no real requirement to consider what the value of a law firm brand might be worth and any discussion is largely confined to marketing activities such the ‘look and feel’ for brochures or the website.

However, in more recent years brands have been starting to gain more recognition and prominence in the legal community, as law firms increasingly realise their considerable value, particularly in generating business. More frequently, law firms are using their brand as a stamp to distinguish them from competitors offering the same or similar services, communicate the unique culture of the firm and also as a mark of quality.

With the introduction of reforms to the Legal Services Act 2007 in October 2011, which will allow law firms to use Alternative Business Structures (ABS) and admit non-lawyers such as accountants and other professionals as partners, it will become more important than ever for the legal profession to think about how the value of brands can be maximised ahead of ABS coming into play. Law firms will benefit from assessing what their brands are worth and considering what their brand stands for: how they are actually different to competitors; the strength of their brand; and whether the personal goodwill (or brands) of individual partners detracts from a firm’s overall brand value. This personal v corporate brand issue is especially relevant for SME law firms.

The strength of a law firm brand is generally measured in terms of the ability to retain and attract new clients and business, ability to charge a premium for services and recruit and retain high calibre staff. This also ties in with the firm’s ability to effectively differentiate itself from competitors, which can be rather difficult when most firms offer similar services and positioning statements begin to sound the same, emphasizing the same generic attributes such as quality and personal service. So how can a firm overcome the problem of differentiating its brand from its main competitors? Putting expertise aside, the key areas which an SME law firm can display a marked difference is focus on a specific area of expertise or its people. The challenge for law firms is to get staff to buy into what the brand stands for and pull together as a team to maximise its value.      

Strong law firm brands are not dominated by the biggest firms, namely ‘magic circle’ firms based on measures such as size, turnover and profitability. The truth is powerful law firm brands can be found across the spectrum from the Top 20 to many niche SME law firms. In fact, for certain types of work, a smaller law firm can be the preferred choice. For example, according to the UK Legal 500, Kingsley Napley is a Tier 4 firm within Financial Services but is regarded as a first tier firm within Crime due to its strong reputation and specialist expertise in criminal negligence and litigation. Overall, Kingsley Napley is ranked number 97 of the 100 largest law firms in the UK.

Another example of an SME law firm with a strong brand is Schillings. Schillings is a small but highly reputable London law firm that is well recognised for its expertise in defamation, privacy and reputation management and is rated by the Legal 500 as a first tier firm in that area. This shows that a brand can be valuable no matter what the size of the firm, as the brand carries a perception about what the firm is good at, the perceived quality of service. 

Some law firms have a strong reputation in particular geographic location. Based on a 2009 regional review of Edinburgh and Glasgow by the UK Legal 500, the Scottish transactional legal market was dominated by four main firms including Dundas & Wilson CS LLP, Maclay Murray & Spens LLP, Shepherd and Wedderburn and McGrigors LLP, all of which are outside the Top 20 largest UK law firms.

Undeniably brands are valuable assets which should be brought to the table when raising external capital, bringing in new investors and selling an existing business interest. Naturally investors will also be interested to know the value of the business they plan to invest in, including both tangible and intangible assets. Unfortunately, to date there has been very little material easily available in respect of law firm mergers which disclose the absolute basis and value of brands in transactions.

Under many existing law firm partnership agreements, when a new partner is admitted they make a capital contribution for their partnership interest and when they exit, they are entitled to receive their capital. Interestingly, what partners do not often pay for or get compensated for, is the value of the brand or goodwill which can be substantial. However if there is no partnership agreement a partner who leaves might be able to claim their share of its value. This can be substantial, as a rough indication the goodwill of a law firm can equate to around 1.0 to 1.5 times annual fee income.  

In a slightly different example, let’s assume there is a merger between a larger law firm of say 50 partners that has a strong brand and a smaller firm of 10 partners with a weaker brand. In this scenario, the smaller firm acquires an interest in the larger firm. The 10 partners in the smaller firm could benefit from gaining ownership in a stronger brand without necessarily paying for it, highlighting the dangers from avoiding valuing the brand and tabling it in negotiations. Now that ABS will give opportunities for law firms with strong valuable brands to take on professionals who perhaps do not have such strong brands, or take outside investment, it’s worth tabling brand value.

In the lead up to the introduction of ABS, there is significant opportunity for SME solicitors to maximise brand value. However, a tricky part is determining what value lies in the law firm name and what value resides personally with some individuals – a dilemma confronted by all law firms small or large. The danger that many law firms face, particularly SMEs, is that considerable personal goodwill can often be built up by individual partners and when they leave the firm, the personal goodwill, namely client relationships and business, tends to follow them out the door. Ideally, law firms should aim to capture as much value as possible under the law firm brand name so that this does not happen. This is undoubtedly challenging but is pertinent for any law firm looking to maximise its value position.

There are a host of strategies and actions that could be implemented to maximise the law firm brand. Here is a list of potential indicators or drivers of brand value in a law firm:
1. Strength of reputation: there is more value where the firm is well rated in its field, and this has been developed over a longer period.
2. Client persistence:  there is more value when a significant amount of work is repeat business. One of the most significant barriers for solicitors obtaining quality new work is existing relationships.
3. Contractual and relationships with clients: higher when good quality, and where clearly vested in the firm rather than individual partners or employees.
4. Developed relationships: for example good relationships through networks, solicitor referrals and in specific communities.
5. Depth of awareness. High awareness is hard to achieve, and should help to convey many benefits through a brand - such as quality and trust.
6. Level of competition: strong brands create barriers to competition.
7. Differentiation: clients always have alternatives, so standing out is important.
8. Facilities and technology: needed for quality and efficiency of service. Law firms have to communicate well and make good use of information and communications technologies.
9. Experience and quality of employees: this is fundamental for a service business where it is people’s time which is being sold.
10. Growth in core market and propensity for providing additional services: commercial opportunities are better in a growing environment.
11. Fee rates and ability to increase fees and margin: the price premium is often brand related.

It will be interesting to see how the legal profession prepares itself from a brand perspective as the market for legal services becomes liberalised. No doubt there will be a huge shake up in the industry as firms merge, new entrants penetrate the market and external capital is sought by existing firms. Those with a strong handle over their brands will be well positioned to take advantage.