#Auslaw issues

Is anybody else getting tired of this NewLaw vs BigLaw debate?

Last week saw the latest publication of the Commonwealth Bank’s Legal Market Pulse Report. What was a quarterly report, became half yearly, and would now appear to be annual (a great shame if true as many of us saw this report as an important benchmark of how the industry was tracking).

Anyhow, leaving that aside – and despite some changes to the structure of the report (it seems to be missing growth practice and geographic areas for example – which I loved), it remains an important read for those of us in #Auslaw.

But now a brief rant:- as you would expect of a report researched/undertaken by Beaton (which I understand is the case), it’s almost zealous like in its consideration/debate of so-called ‘NewLaw’ versus ‘BigLaw’ (do a search of the term ‘NewLaw’ and see how many hits you get if you don’t believe me!).

And I don’t get this ongoing fixation.

And yes, I was part of the twitter conversation that saw the birth of the term NewLaw by Eric Chin (who was then at Beaton) and thought it to be an interesting term/concept at the time.

But I’m starting to seriously wonder if we haven’t moved on from all this? If, indeed, once again, we are having the wrong conversation.

So what I want to ask is this:

Shouldn’t we start to have a real discussion about whether or not your firm is ‘full service’ (BigLaw) or ‘specialised’ (NewLaw) – and what that actually means; rather than NewLaw versus BigLaw, with all the inferences that come with that around old ways of doing law versus new ways?

Because I genuinely believe that in a market that is increasingly hard to differentiate in, this is a far more important question.

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ACCA Report: there has been a 30% increase in external legal spend in 2 years

Last month the Association of Corporate Counsel Australia published its ‘2017 Benchmarks and Leading Practices Report‘. Two leading take-outs from this Report being bounded about are:

  1. ‘the average total legal spend for ANZ in-house legal departments has increased from $3.1M in 2008 too $4.3M in 2017’, and
  2. ‘[average] external legal spend has increased from $1.8M in 2015 to $2.6M in 2017, representing a 30% increase.’

In what many, including myself, have called one of the world’s most competitive legal environments, with most reports showing flatline revenue levels for law firms at best; the fact that a report by in-house itself shows that there has been a significant uplift in external legal spend over the two years between 2015 and 2017 should give us comfort. But for some reason that doesn’t seem to be the case. Clearly this uplift isn’t being shared equally among firms and there appears to have been some significant winners, with rather more losers.

Other take-outs from the Report include:

  • More than half (51%) of GCs time is spent on ‘urgent high importance/highly strategic work’ – with the most essential skills and attributes required to being a successful GC being ‘the ability to translate complex information into simple communications, active listening, strategic thinking, broad business understanding and influencing skills‘. I would argue that many of these skills need to be top of mind for private practitioners too.
  • 80% of organisations rate project management as an important tool for improving the efficiency of in-house legal departments – yet more than half of in-house legal team (63%) have ‘no formal workflow management system‘.
  • Worryingly, the dominate project management principle used for ‘complex matters’ briefed out to external providers is, to ‘scope the work‘ (49%) [‘Obtain quote(s)’ is number 3 among cited project management practices]. I believe that if external legal providers are genuine in their declared aim of being trusted advisors to their clients, they may want to look at helping in-house up-skill in this clearly important area.
  • The top three considerations used to determine when matters should be outsourced or in-sourced are: (1) Whether external expertise is required (82%), (2) Current and projected internal workloads (59%), and (3) Amount of budget available for outsourcing (30%).
  • Work types most likely to be briefed externally are (1) tax (33%), (2) litigation/arbitration/ADR (19%), (3) employment/workplace relations (17%), and (4) banking and finance / capital markets (17%).

All importantly, in such a competitive market, the primary reasons behind in-house legal departments choosing one firm over another are:

  • ‘the chosen firm demonstrates an understanding of their requirements’ (72%),
  • ‘has specialist expertise’ (67%)
  • ‘provides good value’ (53%)

With the drivers of satisfaction being:

  • ‘demonstrated understanding of the role of in-house counsel’ (91%)
  • ‘demonstrated understanding of the organisation and its goals and priorities’ (89%), and
  • ‘the provision of commercially applicable advice’ (89%).

On the issue of billing:

  • 42% said that ‘hourly billing was not ideal’, but no alternative was provided,
  • disappointedly, 71% cited ‘discount hourly rates’ as the most common form of billing arrangement, but
  • the adoption of AFAs has increased from 28% in 212 to 42% in 2017.

Nonetheless, 88% of in-house counsel are ‘satisfied with their top provider’, meaning it remains extremely difficult to break an incumbent relationship.

One final take-out from the Report that needs to be seriously taken on-board by external (private practice) legal providers is this: – “women now account for 50% of head of legal functions“.

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How often does your law firm managing partner call clients to thank them for giving you instructions?

It may sound slightly crass, but when was the last time your firm’s Managing Partner phoned a client to thank them for giving you work? Indeed, have they ever phoned a client to say thanks for the work they give the firm?

Because, crass as it may sound, sometimes in life doing the really simple – right – things well gets lost in our haste to over complicate things and reinforce to all how important we are the role we play in this little merry-go-round.

All of this was brought home to me recently when reading an article on abovethelaw.com titled ‘Biglaw Idol’ — Or, How In-House Lawyers Actually Select Outside Counsel: Picking a law firm for a seven-figure engagement can take under five minutes by Stephen R Williams.

Stephen is in-house with a multi-facility hospital network in the US Midwest and in this article he sets out fairly succinctly and scarily (from an Australian business development perspective) near-verbatim transcript of a recent discussion on how the in-house team decided which private practice firm they would retain for “a rather sizable engagement” (the seven figure sum mentioned in the article’s title).

Turns out that once they had decided a select group of firms (5) who they thought could do the job, one of the deciding differentiators that set the winning firm out from the others was the fact that:

Their managing partner also called me this morning to thank me for considering them. He said he understood they may not be who we ultimately retain, but he appreciated the confidence we had in their firm for even considering them.

The GC’s response?

Well, it may surprise you:

GC: Wow, Managing Partner called? I passed over his shop a few months ago in favor of Biglaw 2 and thought he was still mad at me. I am impressed he called. Look, if we can’t get an answer from Biglaw 5 and Biglaw 4 is ready to go — I am signed-off, bring in Biglaw 4.

That Managing Partner just won his firm a seven figure engagement. With one phone call. And he didn’t even say thanks for hiring us. He said, “thanks for thinking about hiring us”. Pretty powerful stuff.

Food for thought…

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Medibank Idea Exchange

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For my sins I am a member of Medibank Private Health Insurance. I understand it has something to do with having a young family and the Medicare rebate. Anyhow, regardless the reason I get a lot of emails from Medibank that have always gone to straight to my trash folder. That is, until this morning.

What makes this morning any different? Well, I received an email inviting me to join the Medibank Idea Exchange community. In part wondering why they were suggesting the singular rather than the plural, I thought I would take a look.

What did I find?

Well, while I have no intention of joining, what I found was an offer to join an ‘invite only’ community where I will be able to share my thoughts and ideas on a variety of different topics and issues and:

  • Contribute to discussions and surveys – so you can tell Medibank what you think and help shape future business decisions,
  • Talk with other members – so you can share experiences and handy tips,
  • Earn rewards for participating – that you can redeem on a great range of products and services.

and I thought to myself: “there might be something in this for law firms to learn from“.

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Almost 20% of Australian law firms revenue is now coming from fixed fees

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It has been a full six months since the last CommBank Legal Market Pulse (conducted by Beaton Research + Consulting) was published and from what I can tell from this latest publication, not very much has changed in that time.

While some members of the Australian legal publishing world have commented on the rising optimism (note this is “perception”, and this has gone from awful to not quite so awful), what grabbed my attention was a piece towards the end of the report (page 19) that states:

“Revenue is still predominantly derived from hourly rates. However, almost 20% of all firms revenue, irrespective of size, is now coming from fixed fees.”

I don’t have to hand data from 5 years ago that would allow me to do a comparison to see what this means in real terms, but given that IBISWorld puts the size of the Australian legal market at $23BN, that’s a lot of fixed fee generated revenue.

Somewhat surprisingly, there doesn’t appear to be a huge difference in the percentage of fixed fee revenue being derived at “top-tier” and “mid-tier” firms – with fixed fees accounting for 19.4% of revenue at top-tier firms and 19.2% among mid-tier firms.

The types of work for which fixed fees are being agreed/charged is also very similar – 88% for transactional matters at top-tier and 89% at mid-tier.

Notable, and surprisingly, is that top-tier firms would appear to be much more willing than mid-tier firms to offer fixed fees for litigation work – 50% to 33%.

But the test is always in the tasting (for wine lovers at least): so how good are Australian law firms at fixed fee pricing?

Well, not very if the data is to be believed. Asked for the margin on fixed fees relative to hourly rates, the responses were:

  • higher: 13% top-tier / 15% mid-tier;
  • lower: 0% top-tier (which seems a little hard to believe) / 56% mid-tier (which is probably being too honest)
  • about the same: 75% top-tier / 19% mid-tier; and
  • not sure: 13% top-tier / 11% mid-tier (which should be worrying some managing partners out there).

As well as finding out that Australian law firms are not very good at fixing fees, the report also tells us that over 67% of all law firm revenue still comes from standard hourly rates or discounted hourly rates. Here though, over 25% of revenue comes from “discounted” hourly rates – which begs the question: when do you start saying your discounted rates are your real rates?

Lastly, almost 3% of all law firm revenue now comes from retainer arrangements (2.6% for top-tier, 2.8% for mid-tier). Now that’s certainly something worth keeping an eye on!

 

Are we seeing the start of shared services within in-house legal teams?

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Last Friday, 12 February 2016, the Australasian Lawyer published an interesting article detailing how the in-house legal teams at Telstra and Westpac had ‘swapped’ lawyers as part of a three-month pilot secondment program.

That this is a fairly novel and innovative approach shouldn’t come as a particular surprise: both Telstra – with its fixed fee arrangement with the law firm Gilbert + Tobin back in 2009 – and Westpac – most recently with its hackathon with legal teams from (again) Gilbert + Tobin and its legal start up LegalVision – are seen as being at the cutting edge of developing in-house innovation around legal services.

But… as pointed out in a tweet by leading legal market observer, Mitch Kowalski, on Friday night… what makes this recent arrangement between Telstra and Westpac particularly interesting is that it shows every sign of potentially being the start of shared legal services among Australian in-house teams.

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If true, and I cannot see why it shouldn’t be, you have to wonder what the ramifications of this would be more broadly to Australian private practice firms?

Take on board the comment of Rebecca Lim, Westpac’s chief compliance officer & group general counsel that:

“Given the success of this pilot, we are certainly inspired to look for similar forms of ongoing engagement with other in-house legal teams. I believe there is much to be gained from collaborative programs such as this.”

Disruptive springs to mind!

Report: ‘HSF bets growth on Asia’

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The Australian‘s weekly Legal Affairs section is reporting (subscription required) today that global law firm “Herbert Smith Freehills will seek to more closely integrate its Australia and Asia practices.

Sorry to be blunt, but what!?!

According to the Lawyers Weekly website, HSF officially merged on 1 October 2012 to open as the “largest fully integrated law firm in Asia Pacific based on number of lawyers“.

That was 3 years ago.

This begs the question: are all of the recent global law firm entrants to Australia going through the same issues?

My guess here is “yes”. Even though nearly all of them (arguable K&L Gates used US-Australia as its strategic reason for opening in Australia) made specific mention of using Australia as a springboard into Asia, pretty much none of them – to my knowledge – has a specific liaison Business Development Manger person (or higher) located in Australia who assists with joint business development activities.

As I understand it, there may be cost related issues involved in this (who pays for the resourcing – Australia or Asia). There may also be personnel issues involved.

Who knows; but the short answer is that for the life me I cannot understand how 3 years or more (in some cases) on from when the global firms arrived in Australia they still don’t seem to:

  • have dedicated Asia-wide practice and support teams
  • be able to tell you the number of referrals across jurisdictions (inbound and outbound)
  • be able to tell you which partners are referring work [championing] across jurisdictions
  • be able to tell you how many referrals are going to other firms within the jurisdiction where they have an office – particularly where there may have been a relationship prior to the merger (in Australia’s case, would you like to take a punt that Gilbert & Tobin gets referrals from international firms with an on the ground presence in Australia?)
  • know which of their clients are referring work to them across multiple jurisdictions.

To me, this says that both the back-end and front-end operations of the merged firm are still working in geographic and practice group silos (which they most certainly would appear to be from today’s article).

Don’t get me wrong, it’s great that HSFs is seeking to more closely integrate its Australia and Asia practices. I hope other firms follow suit. I’m just frustrated that this initiative is probably about 2 and half years late!