Partners confident of improving business nous

City lawyers believe they are increasingly delivering on their claims of commercial awareness, but partners are still slow to embrace risk-sharing fee deals with clients. Alex Aldridge reports

City lawyers' commercial awareness has come along in leaps and bounds in recent years, according to a survey of senior partners, with three out of four respondents rating the profession's business nous as 'good' or 'excellent'.

The latest Legal Week Big Question poll found 54% of respondents rated partners' commercial awareness at top 50 UK law firms as 'good', while 21% had it down as 'excellent'. A further 20% rated partners as 'OK' while only 5% viewed commercial knowledge as 'poor'.

The poll also illustrates a belief that the business savvy of partners has developed markedly in recent years, with 85% of respondents arguing commercial awareness had improved over the last five years, including 13% who believed it had 'massively improved'. In addition, three out of four respondents said partners generally understood their clients' business to a good degree, while only 5% thought their knowledge in this respect was poor.

Weil Gotshal & Manges private equity partner Marco Compagnoni (pictured right) commented: "Over the last few years lawyers have interestingly started to go by industry badge rather than practice area pigeon-hole. So an intellectual property lawyer, say, is now describing himself as a pharmaceutical lawyer. That perfectly illustrates the change in mindset."

Ashurst finance partner Mark Vickers said the shift had been driven by clients, commenting: "Commercial awareness has improved, [but] the big thing is the increased premium clients are putting on it - especially in areas such as banking where there have been such seismic changes of late."

Vickers continued: "In restructuring, for example, there is no point being technically excellent if you cannot deliver optimum commercial results."

However, there were mixed views over whether greater commercial awareness was translating into a willingness to use risk-sharing fee structures or value-based billing - both models designed to more closely reflect clients' priorities.

Forty-one percent of respondents said that large law firms 'could be doing better' when it comes to discussing fee arrangements with clients. Only 11% of respondents believed that law firms are performing optimally in this area, though 32% said they had moved 'a fair extent' down this path.

"I don't see a direct link," argued Vickers. "These days there is an expected level of commercial awareness, so alternative billing arrangements are more to do with individual preferences."

Compagnoni took a similar view: "The risk-sharing between lawyers and private equity clients we saw during the height of the market in 2006-07 was due to the buyer frenzy state of the market, not advisers' commercial awareness levels. As a result, I do not see contingency fee arrangements necessarily rising as lawyers get more business-savvy."

Accordingly, the majority of the 80 respondents believed there was plenty of scope for more risk-sharing or value-based billing in the next five years - with 52% believing there could be a major shift towards such billing. Set against that, 38% believed such shifts would be 'limited', while 9% thought there was little or no scope for further moves from hourly billing.

The thinking behind this latter view appears to lie in the conviction that the deployment of risk-sharing arrangements will always be limited by deal type - with some complex deals impossible to handle on anything other than an hourly-rate basis.

Allen & Overy corporate partner Alan Paul (pictured left) told Legal Week: "Really it depends on what type of transaction you are carrying out. If it is a simple domestic M&A deal, then you should be able to do that on a fixed - and therefore perhaps contingency - fee arrangement. If you have got something spanning multiple jurisdictions, then you are going have to look at hourly billing."

However, Paul added that, where possible, he finds value-based billing preferable because its flexibility helps build long-term relationships with clients.

He added: "Getting away from hourly rates allows you to look at fees in a wider context, not deal by deal - and clients appreciate that.