Why Choosing an Employee-Owned Model Saves Law Firms - Jonathan Wearing & Richard Coulthard - S10E05

19:37Richard Coulthard:Yeah, it definitely feels more inclusive, more collaborative. I say it all the time. Collaboration is domination. We is greater than me if we come together as a team. And you've both been touching on this. But again, I really want to kind of go deep on this topic. So it's the first time we've really talked about this on the show. And I think it's fascinating. I see all the upside with it. And it's decision making. So Jonathan, you know, typically within law firms, it can be pretty hard for decisions to get made. And it can be really, you know, a headache. So having this EOT structure allows the firm to be more agile in making decisions as decisions are made by the employee council for the benefit of the employees and not by the individual partners who may have different priorities than the employees.

20:14Richard Coulthard:We've talked about that. So how is the shifting decision making then to an employee council rather than that small group of partners actually change the culture of accountability and alignment within the firm?

20:25Jonathan Wearing:Imagine that, and this may sound as if I'm overcomplicating it, but it isn't. It just drives more conversations. It doesn't drive greater complication. There are three legs to a three-leadded stool, okay? One of the legs is the board of trustees, okay? They're responsible for the ownership of the shares, effectively. They make decisions, the trustees, of which there will be a couple of employee representatives on there, a couple of founders in there and an external um independent uh trustee will be there as well they make decisions as to what the profit distribution will be the second leg okay of the stool is the board of directors they run the business they make the decisions so when you're saying before oh you know the partners aren't making decisions in a different if you just change the language around that effectively you've got eight partners making the decision but only eight partners within the firm of 400 plus so you haven't got 50 that you're trying to get a decision through with okay so it's tight and we are very aligned and decision making is easy there is a third leg to the stool and that is what we call the eo council and that's where the voice comes in they make very modest decisions but what they do do is feed into trustees and to the board in terms of the feel of the firm.

21:54Jonathan Wearing:And it's kind of like a breathing in and out, what is that? But they're all equally important. And that gets the best engagement as the ADO Council. We as a board make a lot of quick, very agile decisions, or else we wouldn't be opening offices this day, you know, twice a year and refurbishing and all the decisions that we have to make and dragging the business forward. And the trustees trust us because we'd report to them on a quarterly basis and they know about the performance of the business and that it's going in the right direction so they're kind of leaving us be but that's that's how it that's how it works Robert can I just answer that from a from a technical perspective I suppose because we I do quite a lot of advice work for all the law firms in terms of transitioning and it is a question and it's often a concern that I see is well does that mean the employees are making all the decisions and what control it it's really not okay and and if I draw by analogy you let's talk a lot about something like a plc okay plc has a board of directors who run the business okay they're not going to the shareholders all the time for each and every decision but every year they have an agm and there'll be certain updates and what have you and the shareholders can have certain influence on certain decisions and certain resolutions and things like that okay so on a smaller scale that's kind of how an eot works the board of directors are making the day-to-day decisions.

23:17Jonathan Wearing:They decide who's getting hired, who's getting fired, pay rises, contracts, all of that. That doesn't actually change. The board of trustees sits there as representatives of the shareholders to approve certain decisions or certain things that require resolutions. For example, the amount of the profit distribution. So the board of directors would make a recommendation to the trust going like, which is how much we think is sensible for to distributing profit this year. The Board of Trustees have to approve that because it's essentially a resolution. And now they could come back to us and go, well, actually, we don't think that's quite right.

23:56Jonathan Wearing:Or have you thought about this? Or you thought about that? And there'd be a discussion. But there's not a sort of a daily discussion between trustees and directors or any sort of tension there because the trustees are, they're a safeguard to make sure that the business has been run properly by the directors in part, actually. Does that make sense?

24:14Richard Coulthard:It does, particularly on that day-to-day point, because otherwise you would have so much friction and slowing down and you wouldn't be able to be as efficient. So a lot of trust is obviously, you know, in the word put into this as well between those parties. It all sounds great, but business is bloody hard and, you know, things are hard. So, Jonathan, I want to come to you in terms of challenges. Could you share some that you faced as a law firm sort of operating as an EOT and how you've perhaps been able to overcome them over the years?

24:41Jonathan Wearing:operating is an eot being a challenge um there are there have been very few for us we've got the same challenges as every other law firm but they're probably slightly dialed down so recruitment is less of a challenge because we're an eot we've got a story to tell it's about purpose values and actually look how we're treating others that feels right and it is right okay that's how people you know we're not selling something that doesn't exist for example retention is an issue but less so than for other firms i would say that uh marketing might be an issue but less so for the we've got more of a story to get now it may well be but um if they become more and more employer and businesses we become less special in that in that field so therefore we don't stand out but it is a bit of a differentiator it's been hard all of the regulatory which stuff is hard, all of the acquiring work or the marketing, it's all quite challenging.

25:43Jonathan Wearing:But it's very difficult to unpick that from becoming an EOT from our business model because we've got a burgeoning business model. We're competing in certain markets. I don't think it makes any difference to Richard here, who runs our commercial arm, whether we're an EOT or not in terms of being able to pull a client or whether to or or indeed it you know how to how to how to network or anything like that you may have a story that all the hard graft still needs to be done as well it but it's it's it's not a it's not a silver bullet for anything it gives you an edge i think where business and we we did we haven't seen this but i have seen this in advisory work that i've done for other businesses where people can have a challenge on an eot is actually around the process of conversion it's in terms of whether it is a right solution for them as a business as to where they're at in terms of can they afford to do it?

26:46Jonathan Wearing:Have they got cash? How do repayments work? Can they get the people on board? Is there an expectation around equity partnership? That's a problem. Financing, any sort of deal. So there's challenges around the conversion process itself. But I don't think being in EOT causes a challenge beyond that which any other business has. And if anything, it is a benefit. It does give you a differentiator. We have won work off the back of being employee-owned because we are employee-owned. Or that's been the differentiator when we've been up against somebody else. I'll say, well, sorry to drop things off. But I would say that when I looked at other businesses, not just law firms who probably had difficulties after converting, it has either been because culturally they were really never going to be an employee.

27:46Jonathan Wearing:And the founders can't let go of this kind of ownership, the whole concept of that. up secondly they sold for too much or third you know to the trust which has to buy it out that pay the founders back over the other time so therefore they'd overcooked the price and or thirdly they weren't financially viable at the time and they've just they've gone too hard and so we you know we were fortunate in in in many ways with as regards both that culturally and

28:17Richard Coulthard:actually we were set up for this yeah and and look thank you for being so so thorough as well and talking us through it and, you know, some of the benefits, some of the similarities, some of the things. Because that was the question I was going to ask you, Richard, in terms of has it impacted anything. And maybe I'll move to where I was going to ask you next, which is around humanizing. Because, you know, I talk a lot about we're no longer in B2B, B2C. We're in this H2H, human-to-human connection with our clients and our people internally, all of our stakeholders. And you've spoken, Richard, about sort of the EOT model humanizing the legal profession.

28:47Richard Coulthard:So what does this look like in practice for you?

28:49Jonathan Wearing:I think we're moving in terms of society. to a position where, you know, younger generations, they genuinely care about the planet, about people, about stories in maybe a slightly different way. OK. And so you see when the businesses are employee owned, you know, actually, there's a genuine they're genuinely giving back. They're commercial outfits, but actually there's a shared wealth, there's a shared story, there's a shared community about that. And actually, EO businesses, not just talking about our firm, but actually EO as a community around the country is a thing. You know, EO businesses tend to do more work with other EO businesses, a bit of a tried.

29:35Jonathan Wearing:But you see that in other things, you see that in things like B Corp, having environmental policy, the ESG, all of that. I think it's, going back to what John says, it's one leg of a stool. I think it's part of a wider story about how we're evolving as a nation in terms of maybe being more socially conscious. And so I think that that's where this might fit in, that people like to do businesses with businesses that they know who care about their employees and care about the environment. And I think that's where the story fits in in terms of maybe the benefit and how we're perceived as a person.

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30:55Richard Coulthard:So help is always there when you need it most. It's no wonder Clio consistently receives 5-star ratings for its ease of use and top-notch service. If you're ready to leave frustration behind, visit clio.com forward slash UK to learn more and see why Clio continues to be the go-to choice for solicitors across the UK. Now back to the show. And stories matter, right? Facts tell, but it's the stories that ultimately sell and land with people and connect with people and give you that point of difference, as you say, because ultimately, you know, yes, you can slice and dice the pie in different ways, you know, different law firms will look at undercutting.

31:30Richard Coulthard:But actually, if people buy into, you know, why you do it, that story behind it, I think that's super powerful and clients and people can connect with that. So, you know, Jonathan, coming back to you, you've talked about sort of, you know, operationally, probably not too dissimilar in many ways to a traditional firm, You know, in recent times, AI technology, legal tech, it's everywhere. I'm just curious, as someone sort of running as an MD currently, you know, if you wanted to influence the adoption of a new piece of legal technology or look at AI tools, how does that work in practice, particularly in your sort of model?

32:02Richard Coulthard:Give us a bit of a flavor and can things be much quicker to get done in the current situation that you're in in terms of that structure?

32:09Jonathan Wearing:Okay. Okay, a couple of things. Firstly, IT can allow you to do things incredibly quickly other than change IT. That's the bizarre bit about it. Anyway, because of our size now and our growth, we're actually bringing in one of our, he's done so well this year, but someone who effectively is working across the whole firm as a lawyer, and he's going to be working within the IT team in terms of innovation and development. And that will align itself to bringing in more of the AI efficiency solutions that we are looking at. My whole mindset around this, and we've got a variety, we've got a little team working on here, and I'm sure all firms are doing it.

32:55Jonathan Wearing:But my whole mindset about this is that this is going to create more time for us to be human. So if I can do the lease, if I can prepare a lease in a fifth of the time that I used to, that has released four fifths of your time to be brilliant with your clients. Whereas previously they were frustrated that you weren't communicating with them. Now you can over communicate. You might bring the price down. You might actually get a different piece of work from them because you spoke to them a little bit more. I was on a conference the other day with a chap who was discussing I think he just released a book actually it was the rise of the humans that is where my whole mindset is around this but the more efficient we can be with the words the more words human words we can actually have whether it be meeting with people in meetings and explaining the documents as opposed to simply sending them the document which has taken you an hour to prepare and you've now got no time to take them through it i do i do think there's something around that um that's probably not answering your question how we integrate i don't think as an eo we are as an employee-owned business we are in any different situation to any other business in terms of introducing ai eventually we'll we'll be charged a lot of money for using that new software that's all i see but

34:25Richard Coulthard:I think you make a really key point on the, you know, the efficiency gains and the opportunity to be more human and, you know, really be client centered. I think that's going to be the real key for any business, not just law firms. But, you know, the world that we operate in now is how do you use that extra time that you basically have been given back to be more client centered, to double down? Maybe it is to get further business, to get greater quality referrals, to just enhance that relationship, whatever it might be, opportunities that come with it. I think it's a very exciting time for those that choose to really be strategic with the time that they have.

34:58Jonathan Wearing:What I would say, and this may be of interest to you, is that our clients are not choosing us because of our price. I don't actually think that the introduction of AI, which would allow greater efficiencies, is necessarily going to produce something that the client wants, which is cheaper work. I think they just want more efficient work and a more human nature to it. So actually, for those firms who think, well, now, instead of doing one of these per hour, I can do five of them and stack them higher and do them cheaper. I'm not sure that's actually what clients want. Certainly not the clients who come to us because they're not coming to us because of our price.

35:37Jonathan Wearing:We just disrupted. We don't have to quote that much.

35:39Richard Coulthard:And ultimately, the price is what you pay, value is what you get. And if they see the value and all of that good stuff, they're going to stay with you. And you're right. I think that perhaps would create a race to the bottom, the latter point that you're making there as well, rather than, you know, actually, this is a real chance for good lawyers to become even better, greater lawyers with their clients and really set the bar nice and high. OK, we'll talk about succession planning now, Richard, coming back to you, because you've said in the firm article, Eison Harrison advises prominent regional law firm on employee ownership.

36:07Richard Coulthard:You shared, we have increasingly been engaged by a range of businesses, including other law firms, to advise on the transition of employee ownership as this continues to become an increasingly popular option for success planning. So what are some of the biggest misconceptions that we may not have already covered that you see organisations having when they explore this route? And how do you help them navigate those uncertainties?

36:28Jonathan Wearing:So I think the starting point, whenever you come to succession planning for any business, whether it's a law firm or anyone else, I see a lot of people leave it too late. I think if you want to get succession planning right, you need to be thinking, properly thinking, probably three to five years out as to actually what does succession planning look like? Because in many ways, there's two stages to succession planning. One is you've sold. I'm not an owner anymore. the second is i'm not in the business anymore i'm laid on the beach or wherever you want to be okay and those two timetables are not ordinarily the same okay so it doesn't matter whether you're doing a trade sale to somebody else or you're doing a management buyer or you're doing an employee ownership first or anything like that the time that you sit and takes you to get to a point where you have souls is probably different to the time when you are actually no longer in the business okay because you're probably going to want to or have to stay in the business for a period of time even after your souls so i think identifying your timetable individually but if you're in business with other people other shareholders i think there needs to be open conversations about that early on because we often see that people's timetables are different and people's priorities are different and that can cause tension so i think getting that plan And then getting a vision as to actually what are you wanting to achieve out of a succession plan?

37:57Jonathan Wearing:Your financial being just one element, actually. You know, people always want to look after people who have supported them quite often. You know, they might not want to sell to somebody who, you know, might rip the heart out of the goodness. You know, financial is clearly the practical side of it. You know, there's all of these things. So in terms of employee ownership, specifically as an option of succession, okay, Yes, there are tax benefits to going down this route. They've changed because of the budgets in November, but it's still more tax advantageous to do employee ownership than any other form of succession conning.

38:35Jonathan Wearing:So you'll get a 50 % reduction in your capital gains tax. Your employees can earn up to 3 ,600 a year tax-free. That's not changing. There's also the least expense corporation tax. So there's huge tax inflators. I would never advocate that someone does it because of the tax incentives. They need to do it because it's right for them in terms of what they want to achieve, in terms of they've got to be right for their business and for their people. Okay, that's not a one-size-fits-all solution. If people are wanting to have a proper impartial advice to go down what the different strands looks like, we can take people down that process in terms of, right, this is what a trade sale might look good and this the advantages and disadvantages this is what a management buyer looks like this is the advantage of this advantage this is what an eot looks like family situation i think you need to get a picture of what life looks like and the money and all the rest of that will take care of itself afterwards

39:33Richard Coulthard:no and again really good advice there because like you say ultimately it's the dna the values and the fabric of the business that you need to understand they're going to match because yes you may want to think about doing these things but ultimately if it is just purely for that then it's probably not going to get the best out of all the benefits you've articulated today that EOTs can actually offer. I mean, just looking forward, just probably look to close. Jonathan, we'd love to get your thoughts in terms of, you've mentioned you're quite early in terms of Eison Harrison as one of the early sort of EOT type businesses.

40:02Richard Coulthard:In the coming years, what developments do you see? Do you see other firms following suits? Yeah, just give us a bit of a flavour of your predictions for the future when it comes to this model.

40:10Jonathan Wearing:I do see other firms following suit. I was expecting more to to have done it uh by now i think if i think if your your business is is i think if you're struggling a little bit it's really not an option i think if you're you're flying you you may keep going um that's you know to say you know comment upon what richard said in terms of um firms do you go long um and then it because and then they turn into a situation where they're not able to to do it anymore i think you do need to be financially secure you need to have a really good culture already of being a really flat hierarchy and people already engaged in knowing about what what's going on um and i think there's a this is i think possibly part of it is the accountants and possibly other law firms and i'm just a mindset of uh entrepreneur or owner can still be a bit cynical about employee-owner shares.

41:10Jonathan Wearing:I'm thinking this because the ownership mentality of owning the shares or being the founder is still significant. In some ways, that's the other side of the coin. That's a massive advantage if you are at an Eisen-Harrison because there are no equity partners for you to feel like you're a failure because I'm not an equity partner because nobody is. So therefore, it's quite liberating for those people who might in their minds have been told that that's what the Holy Grail was. Well, it's not available here. So actually, that's quite that. That's cool. So what do I do now? Well, I can be a manager.

41:47Jonathan Wearing:OK, cool. Let's do because I'm good at management. Actually, no, I just want to focus on being a good lawyer. So it takes away that sense of, I don't know, disappointment or failure or unfulfilled desire, I suppose. and that also probably applies to those firms that we speak to who would sell to us because who owns me now is never a question it's like okay we're joining this employee-owned business just as my secretary would be or the person to the reception or my colleague across the way i'm now going to be in a member of this employee-owned business and that's okay and i think that deals with the the vanity as it were or the status which drives so many um mortals and i i think that possibly passed part of it when when we're talking about the challenges that he sees in succession planning i usually think i'm sure he could agree because we've been in conversations with with clients like this a lot of people need therapy to get through the concept of no longer being younger.

42:50Jonathan Wearing:It is a struggle often for founders, and again, not just talking specifically for law, but generally people can associate their identity with being an owner of a business. And when they cease to be an owner of a business, it becomes something of an identity crisis in some situations, because they struggle to let go, particularly if they're working in the business. But also, just to go to Jonathan's point, as to your business needs to be doing all right. If you're looking at it in terms of doing an employee ownership, because the practical reality of an employee ownership, of course, is that there's still a sale.

43:28Jonathan Wearing:The founders are still selling the shares in the business for a market value. And that has to be funded out of the business over a period of time. So the business has to be generating profits to be able to sustain that. So if the business doesn't have those profits and is struggling, or has lots of debt, it isn't going to be suitable for them unless there are changes made in the run-up tier. I would say, and this is relevant to your listeners, but it's factually correct and interesting, is that when, because I was one of the founders, but the three founders that's been sold to the trust, around about a third of the purchase tribes was available already within the firm because we were doing very well and the cash was available.

44:24Jonathan Wearing:The other two-thirds was to be paid over a period of 10 years. Likely as not, that period of time will be more like five years because it's done so well. And then after that, there'll be no liability at all to the founders, which will actually be a second boost for the firm, where there'll be this kind of financial freedom, where there's even more money to be able to invest in return.

44:50Richard Coulthard:Being able to do that, you're going to continue to be able to innovate, you can continue to be able to be fit for purpose, continue to be competitive, continue to be able to lead, and all of that good stuff. This has been a wonderful conversation. Richard, love to come to you then, Jonathan, with a quick fire question. What advice would you give to those interested in pursuing a career in law in 2026, keeping in mind the times have changed over historical times?

45:09Jonathan Wearing:I think one of the most powerful, but in many ways underrated qualities that a young lawyer, young professional generally can develop is the ability to develop their own network and their own relationships, you know, in terms of professional contacts, you know, whether that's, you know, for us as lawyers, commercial lawyers, you know, you're going to look at people like accountants and IFAs and finance brokers and, you know, people advising businesses. Well, young lawyers have a great opportunity of developing relationships with people of a similar age, similar mindset, but in other sectors. And they can grow their careers together and have those referrals and have those relationships.

45:52Jonathan Wearing:and I fear that in the current society you know the the growth of social media and you know remote work and all the rest of it that there is a generation that is losing that skill set the way of standing out and doing something different you will always have a huge amount of benefit in your career by being able to have that skill of developing relationships and developing networks

46:17Richard Coulthard:I love that I always say contacts are good but it's the relationships pay you if you can sprinkle value over them over time and nsn never stopped networking um we'd love to come to you jonathan one piece of advice for those interested in pursuing a career in law you think would be

46:30Jonathan Wearing:invaluable um positivity just work hard put a smile on your face and whatever whatever is a difficulty today will be an opportunity for you tomorrow you will always well no you won't always we used to have youth on our side okay when you've got youth on your side you may not have experience on your side, but you have youth and your ability to adjust and change with a smile on your face and a positive outlook. Good things happen to optimists. When you look around the successful people, that is what you see.

47:03Richard Coulthard:Love that. I couldn't agree more. I bang on that all the time. I say everything is energy. The more positive energy you can put into things, the more positive outcomes will come. This has been a wonderful conversation. Jonathan, if listeners want to know more about, indeed, Ison Harrison or yourself, where can they go to find out more? Feel free to share any websites or any social media links we'll share them with you with our audience too

47:22Jonathan Wearing:okay well it will come as no surprise to know that ice and harrison have a website uh i i'm gonna have to say www.iceandharrison.com okay then go on there the confineers there i mean it's it's a busy website there's a lot on there it's all the different it's desired to clients obviously but also we put a lot of information on there i'll tell you what will tickle the fancy we put our five-year business plan on there i don't know one other law firm with a business you put a business plan on there and we've done that for each of our last four this idea business plans and it gives the whole story of us it gives our values our purposes where we're heading okay and whenever i hear it back a lot by the way because you know people will come for interview and they will just repeat it back to me because you don't want to read it

48:10Richard Coulthard:it's really it's quite interesting absolutely and richard if people want to get in touch with yourself or or reach out what's the best is there any social media or is there a best way for them

48:18Jonathan Wearing:to get in touch yeah i mean a website my email address is on there linkedin i'm fairly prominent on there so you know reach out to me email via linkedin via the website yeah happy if anyone wants to have a chat half an hour about to fashion planning or about eot's or anything like that um I'm more than happy to give my time. And, you know, if they're looking to something more formal in terms of advice and representation, we're happy to help with that as well.

48:44Richard Coulthard:Awesome. Well, love it. And yeah, I love that point, Jonathan, as well, about transparency on your website as well. And that's been a good conversation throughout this. Transparency definitely is key. Thank you both so, so much for your time today. It's been actually a pleasure having you both on the Legal Speaking Podcast sponsored by Clio. But now from all of us, wishing you lots of continued success with your future careers and indeed pursuits. But for now, over and out. Thank you for listening to this week's episode. If you like the content here, why not check out our world leading content and collaboration of the Legally Speaking Club over on Discord.

49:16Richard Coulthard:Go to our website, www.legallyspeakingpodcast.com. There's a link to join our community there. Over and out.