#Auslaw issues

Happy 10th Birthday Clyde & Co Australia!

According to a post in Lawyers Weekly today, Clyde & Co is celebrating its 10th birthday here in Australia – “Happy Birthday!” .

How time flies; and there is no doubt that Clydes has done well here in Australia. As the LW article points out, the firm has enjoyed:

“a growth rate of 115 per cent in the country since 2018.”

Which, to be fair, is not a one-off year as the financial figures show:

“The firm has maintained yearly growth rates of over 20 per cent for the past five years.”

As sustainable growth, which over 5 years you have to assume it is, and an underlying culture that must be driving this growth, everyone would say have to say – “wow, can we have some of that!”.

As impressive as these accolades are – and I’m a huge fan* of how this one time shipping insurance firm has been able to pivot into one of the world’s leading cyber/privacy/technology firms which has resulted in Australia currently ranking its global operations as:

“Clyde & Co’s third-largest country by fees generated”

I have a concern.

And that is this:

“Clyde & Co exceeds $100m in annual revenue in Australia”

Followed by this:

As I first pointed out way back in 2013 and several times since, Australian-based law firms primarily earning/reporting revenue in Australian Dollars, but with accounting systems and tax years based on British Pounds (or US$s), face the dragon known as ‘exchange rates’.

So what does that mean?

The answer is in that chart, it is also in the Lawyers Weekly headline, but I suspect – most importantly – it is in the individual Australian partners’ direct contribution, because that chart tells me there is every chance they could be the third biggest revenue earning geographic zone for the firm globally, and a hell of a long way down the pecking order when it comes to partner distribution.

Anyhow, “Happy Birthday Clydes!”

As usual, comments are my own (*although in this case I will add that while I don’t, now ever have, worked at Clydes I do know a lot of people who do and I greatly admire the work they do).

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Photo credit: Morgan Lane on Unsplash

The ‘2022 Australia: State of the Legal Market Report’

The latest update on how the Australian legal market is fairing through COVID was published by Thomson Reuters Institute and Melbourne Law School yesterday (29 August 2022).

Some of my key take-aways from this ‘The 2022 Australia: State of the Legal Market Report‘ include:

  • FY22 (defined as being 1 July to 30 June) was a tale of two halves. In the first half, 1 July to 31 December, Australian law firms smashed it out of the park (6.4% growth in the first half), but the second half was much harder going and the market declined 2.1%, representing its weakest quarterly return since 2013
  • Drivers of growth were all the usual crowd: mergers & acquisitions, banking & finance, etc
  • Retention – especially at the Associate level – is a major concern with 31.6%, roughly one-third, of Australian associates having decided to move on from their firm over the past 12 months
  • Law firms are trying to counter this attrition rate by offering their star Associates more money, which makes sense when you consider how much it costs to replace lawyers, but more recently Associate demands have included demands outside of pure financial reward – including a belief that the firm is taking a strategic direction that aligns with their values
  • Your firm’s reputation in the marketplace is important if you want to keep your Associates
  • Diversity IS important:

Global research from the Thomson Reuters Institute found that female lawyers and/or those from under-represented demographics, as well as those who identified as LGBTQ+, were the most likely to leave their current firms.

Page 14
  • Lawyers in Australia from diverse backgrounds are NOT feeling the love:

lawyers from diverse backgrounds gave notably lower-than-average marks in both their own well-being and their leadership demonstrating the importance of diversity, equity, and inclusion (DEI) as compared to lawyers with non-diverse backgrounds

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Anyone who has read the ‘2021 Annual Profile of Solicitors‘ by the Law Society of NSW should be able to tell you why that’s a problem that’s not going away unless law firms demonstrate a change.

  • Innovation remains important, even though we are not actually too sure what that means as we continue to draw a hard line between “innovation” and “technology”

That said, there is a really cool ‘Innovation adoption checklist‘ on page 23 that is worth the download by itself!

  • Partners are leading the utilisation charge – there may be a whole host of reason given for this from “clients want partner time on the matter” to “we don’t want to over burden our associates because they may leave us” but an annual average utilisation rate of slightly over 1,200 billable hours tells me some lawyers out there are working very hard

  • Last, but by no way least, is an amazing graph on pages 26 and 27 that sets out the ‘4 roles of a law firm partner’ which is brilliant and makes me wish I had created it!

Well done it all involved and make sure you read the report.

As usual, comments are my own.

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What are the functions and responsibilities of the Managing Partner in 2022?

An article was published in today’s Australian Financial Review by Aaron Patrick (‘Ashurst should accept its purpose is not extraordinary‘) that, frankly, I disagree with. And when I say “disagree with“, I acknowledge and respect Aaron’s comments, but Ashurst (like Allens) are celebrating 200 years so we should cut them some slack.

Anyhow, that’s not why I’m posting tonight – although it kind of is.

Because, included in Aaron’s story is a 1978 memo written by Geoffrey Hone -‘Functions and Responsibilities of the Managing Partner‘ – that’s an exert from a book Ashurst have published to celebrate their 200 years – ‘Ashurst, the story of a progressive global law firm‘ (2022) which I think is light years ahead if its time (the memo that is, not the book):

So, aside from the use of “he”, which given who the MP of Blake and Riggall was at time could be forgiven, can you see any fault at all in this manifesto?

I’d go so far to say – not only is this a brilliant piece of work, if you want to set up a law firm in this day and age, follow it!

As usual, comments are my own and I welcome feedback from anyone who can think of a manifesto for your law firm managing partner that would include items outside this – because we should always remember, our MPs work for us!

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Report: The top 5 measures of ‘Value’ – in your client’s eyes

If you missed it, the recently published ‘The Legal Spend Landscape for 2022‘ by Apperio sets out the ‘Top 5 Measures Of Value‘ in the eyes of the survey respondents – aka, your clients!

In order, these included:

  • Outcome of legal matters – 66%
  • Hourly cost per lawyer – 60%
  • Spend forecast vs Actual spend – 46%
  • Risk exposure – 43%
  • Overall spend by law firm, matter type or business unit – 40%

Interestingly, in the same Report, the Top 3 answers to what the ‘Most Effective Techniques For Controlling Legal Costs‘ were:

  • Structuring more legal work under AFAs – 74%
  • Utilising specialist software for monitoring and maintaining cost – 63%
  • Centralising all legal spend through the legal department – 49%

And I very much suspect that the last of these – “Centralising all legal spend through the legal department” – is going to be a post in the near future, either here or on my other blog.

As usual, comments are my own and I welcome feedback.

Have a great week all.

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Kick off 2022 by providing real value to your customers using the 3Es!

Happy New Year to you all, and welcome to the new calendar year that is 2022.

During the holiday period here in Australia (published 13 December 2021) I was fortunate enough to read a really insightful article in MIT Sloan Management Review by Andreas B. Eisingerich, Deborah J. MacInnis, and Martin Fleischmann titled ‘Moving Beyond Trust: Making Customers Trust, Love, and Respect a Brand

which set-out how service providers, like law firms, could provide real value to their customers using the 3Es:

  • enable
  • entice,
  • enrich

Where:

  • Enable = help your customers solve problems in ways that are economically feasible, reliable, efficient and convenient
  • Entice = making your customers feel good
  • Enrich = build self-affirming identities.

And the benefits of using this method?

Evidencing the research outcomes of this methodology, the article sets out 6 benefits you should see:

  1. Higher Revenue
  2. Lower Costs
  3. Higher Barriers to Entry
  4. More Paths to Grow[th]
  5. Stronger Talent Pool (within your firm as lawyers want to do this type of work for this type of client), and
  6. Greater Retention Rates in your firm.

All of which – should – result in higher profit.

Well worth a look, take a read – and certainly food for thought!

As always, the above represent my own thoughts and would love to hear yours in the comments below.

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(ps – I would recommend you add a 4th ‘E’ to this list – Empathy’ 🙃)

Photo credit to Jon Tyson

Will law firms introduce ‘Anchor Days’ in 2022?

You’d have to have been hiding under a rock for past two years not to have seen an article or two on the benefits/pitfalls of remote working. But, as we move into the next phase of this pandemic/endemic, one in which we must start to learn to live with COVID, law firm management now need to be asking:

What does the future of the office look like for our firm?

Truth is, there’s no simple answer to this question. On the one hand, we have those who advocate that “distance breeds distrust” and “out of sight, out of mind”. On the other hand, we have a lot of people saying we’re not going back to the old ways – and if you make us, we will part of the Great Resignation.

One answer to this issue might be in what the Australian Financial Review recently termed ‘Anchor Days’.

As per the AFR article, ‘Anchor Days’ are days on which a group of employees (in the same team) agree to go into the office on the same day each week with the aim of enhancing collaboration and ensuring a more lively office culture.

While I like the concept of Anchor Days, I think I should also point out that, from my reading, it comes with a couple of major misconceptions:

  • we all work in the same physical location (geographically in the same State/Cities, but also on the same floor of a building!).
  • that collaboration is more likely to happen in physical presence, when what we actually find is that collaboration more likely occurs with inclusion, and inclusion is more aligned with trust. QED, if you want more collaboration within your team, then trusting that your team can get it’s shit done here remotely/agile and not dictating collaboration top down, is a big step in the right direction.

My final comment: if Anchor Days become a thing, what day(s) would you chose?

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Report: ‘Five simple steps to transform your firm’

Last week I spent some time reading Macquarie Bank’s recently published ‘Law 2024: the future of legal business’ report.

Overall it’s an interesting read and probably worth 45 or so minutes of your time (lots of graphics should mean it won’t take that much longer of your time), but it was the last section on ‘Five simple steps to transform your firm’ (which funny enough has very few graphics) that really grabbed my attention. I thought they were useful tips/insights to keep in mind, so I thought I would share them here:

  • Assess where your firm demonstrates value to clients – understanding where you provide value to a client will inform how you create a sustainable business model.
  • Implement innovative practices – finding opportunities where you can innovate processes within firms will keep it competitive over the long-term.
  • Harness the power of data and analytics – having a better knowledge of where your firm spends its time will help in understanding where potential client value can be added.
  • Construct, and embrace an employee value proposition – having a central purpose will go a long way towards unifying four generations of employees at very different stages of their careers.
  • Embrace diversity and inclusion – bringing a variety of perspectives to your firm will help in retaining your team at a time when loyalty is at premium.

Take a look at the report – let me know if you don’t agree with any of these or if you have any you would add, and enjoy your week!

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Photo by Nick Fewings on Unsplash

How are Australian law firms fairing in this post-pandemic world?

Citing a recently published Thomson-Reuters ‘State of the Legal Market 2020‘ report, The Australian Financial Review (AFR) published two articles last Friday (28 August 2020) that, collectively, provide one of the first insights in to how Australian law firms are fairing in this post-pandemic COVID-19 world.

How is Australia doing compared to the rest of the world?

The first article ‘Law firms prove world-beaters as virus strikes‘ by Michael Pelly would, at first blush, seem to suggest that law firms here in Oz are doing far better than the rest of the world.

Looking at the five key metrics of:

  1. billable hours,
  2. hourly rates,
  3. fee revenue,
  4. productivity, and
  5. lawyer growth,

Australia’s results look spectacular.

But kick the tires a little and you’ll see that a June Q19 to June Q20 period is an Australian Financial Year – and not all, in fact none of the other regions, works to that same time line.

So these results should be read with caution, in that they are a moment in time which may not be a true reflection of how the other markets are fairing (it would be interesting to run those same numbers on a Jan to Dec timeline which would probably be a truer period [admitting that even then the UK numbers would be out] because, as we know, not every month is equal – in that we don’t split an annual budget by 12!).

Nevertheless a good result for the Oz firms – but that ‘red blip’ of productivity would be a concern to me if I were a Managing Partner.

Which leads us to…

…who is doing the work?

One of the more interesting takeaways from the chart above is how the hourly rate in every geographic region has increased, even where fee revenue and number of billable hours has decreased (and in some cases significantly).

If you are asking yourself how can that possibly be, look no further than my post of two weeks ago – ‘When does the law of supply and demand not apply? – when you’re running a law firm of course!‘ – and this is also (in my opinion) reflected in the second of the AFR articles last Friday: ‘Law firm partners working harder during pandemic‘:

Look at that spike in partner hours!

For those who may not have read my post of two weeks ago there are, in my view, two reasons why you get that kind of spike:- (1) the work is more complex and needs more grey-haired thought, or (2) senior lawyers need to protect their budget – your choice.

So where are we at really?

I’d treat the financial results of the Australian law firms above with a pinch of salt till the end of February 2021, which -in my opinion – will be a truer barometer of how the industry is doing down here.

As always, the above just represent my own thoughts and would love to hear your thoughts (and; ps: if you want to know why I say end of Feb 2021, email me).

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This week’s photo credit shout-out goes to Joey Csunyo on Unsplash

‘Annuity Revenue’ – who wouldn’t crave some financial certainty in current circumstances?

Annuity revenue – a predictable revenue stream from new or existing customers who buy products and services associated with new or previously purchased products. 

As the Managing Partner of a law firm today, what would you say if I walked into your office and told you that I could:

  • provide you with a guaranteed monthly revenue income,
  • with a product that creates loyal customers, and
  • where those customers become – at no additional cost to you – brand champions and refer your services to their network, free of charge, via the Holy Grail of marketing – positive ‘word of mouth’ referrals.

Sounds great doesn’t it. Almost too good to be true.

Well all I can say is that if you were anything like one of the Managing Partners servicing customers who responded to the Pitcher Partners recent ‘Legal Survey 2020 Report‘, that’s exactly what you would be saying: “thanks, but no thanks we are happy with the billable hour”.

Pitcher Partners - Billing Methods

The fact that the billable hour remains the ‘go to’ method of billing (not the same as pricing) for Australian law firms and their customers does not, in and of itself, surprise me. I must admit, however, to being a little surprised with the 1% increase in this billing method (up from 58% to 59%) year-on-year.

Given the times (even pre Covid-19), I was also a little surprised to see that both ‘fixed fee’ and ‘value-based’ pricing remain relatively static (although it should be added that from what I could see the report lacks a definition of ‘value-based’, probably purposely so).

To me this represents a massive lack of foresight on the part of law firms and a significant lost opportunity.

In much the same way as software as a service (SaaS) companies have come to realise that one-off payments around shrink wrap contracts were not servicing the long-term financial interests of the company (unless it’s a legacy product that will no longer be supported), the time has come for law firms (and professional services firms more broadly) to realise that if we want to maximise revenue and, potentially, profit we need to rethink how we generate that revenue.

One alternative that the likes of Ron Baker and Mark Stiving have been banging the drum about for some time is ‘subscription based pricing’.

The benefits of adopting a subscription based pricing model

I have posted previously on this blog about the benefits of subscription based pricing (see here), but leaving all that aside for a second; as Amy Gallo wrote way back in October 2014 in the Harvard Business Review (see ‘The Value of Keeping the Right Customers) with the acquisition costs of acquiring new customers running being between 5 and 25 times more expensive than servicing existing customers, it makes economic and financial sense to find, and keep, the right customers.

How you price this is probably the most important step along that path.

The weakness of having billable hours as your default billing method is that you are pricing to the transaction. Whereas one of the greatest benefits of the subscription based pricing model – or even a retainer based pricing model if you must at the start- is that you start thinking about pricing the customer or even the portfolio.

In other words, you start to think about the customer and their needs first. And for an industry that always talks about the customer being at the centre of everything we do, doesn’t it makes sense that our pricing structure reflect this claim?

But it also makes sense internally, because it:

  • is smarter pricing
  • leads to smarter collaboration
  • moves you away from seasonal end of financial and calendar year pressures, and
  • helps remove any discussion around the ‘commodity’ tag.

Not to say, in these COVID-19 times, when you are talking working capital facilities with your bank, it provides you with a guaranteed annuity revenue stream.

Now who would not want that comfort right now?!

These just represent my thoughts though and always interested to hear your views.

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2018 was a great year for AusLaw firms*!

As we close out the year that was 2018, the graph below – from the recent (December 2018) Commonwealth Bank ‘Professional Services’ report – would appear to support the fact that 2018 has been a financially beneficial one for all those involved in private practice in Australia:

Screen Shot 2018-12-30 at 8.37.01 pm

The question I have though is this: is this a true correction?

And what I’m really asking here is this:

  1. have the underlying structural changes that we all know need to be made been put in place?
  2. if so, are we starting to see the benefits of these, or does this chart represent a false dawn?

And as we entered 2019 I’m going to leave those two questions out there, as I think many of us know what the real answers are here.

As always, would be interested in your views.

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* or was it?