Australian firms

“… we are being asked to do less with less”, Ann Klee of GE

Work in the legal profession for more than 5 minutes and you’ll hear someone say that clients today are asking the law firm to do “more for less“. It is probably one of the fastest terms to become a cliché in the English language.

So imagine my delight, when watching a video of a presentation given by Ann Klee, VP of Global Operations — Environment, Health & Safety, at General Electric Company at the recent Big Law Business Summit, in describing how (in part) GE managed to reduce its outside legal spend by $60 million in a year, she says that the bottom line is that the role of a lawyer today is about managing more risk, it’s not about just being asked to do more for less, it’s being asked to do less with less (see 16 minutes and 15 seconds into video).

This absolutely spot on.

Law firms today need to:

partner with the business to empower their clients,
always be looking to deliver on outcomes, not to be following procedure for procedure’s sake (or, worse, following procedure to blow out legal fees),
through the use of legal project management, agile or some other mechanism that works for you: identify and eliminate any workflows that are adding no value to the deal/advice.

In short: we need to be doing ‘less for less‘, but we need to be doing it in such a way that is “faster, better, and smarter” for our clients.

At the end of the day, clients like GE are already doing this – so law firms today can either get on board with solving their clients’ problems from their clients’ perspective, at a standard of accountability that their clients are being held to; or they face the very real prospect of becoming irrelevant.

Fannie Mae’s GC says “Call Me When I’m Not Sending You Work”

Part 1 of an outstanding interview with Fannie Mae’s General Counsel Brian Brooks was published to Bloomberg’s Big Law Business website on Friday.

Although full of insightful comments and suggestions for private practitioners, my favourite is this:

“[Then] there are lawyers who are really sources of market information and intelligence, who are always letting you know what’s going on in your industry, even when you yourself may not have a need for them that day. Those are the people who really become the trusted advisors.

I know that phrase “trusted advisor” gets overused. Maybe it becomes trite, but it really means something. What it means is that, even when I’m not in a position to send any work your way, you’re still going to pick up the phone and let me know what’s going on in my industry.”

Brian puts the dynamics of the client-lawyer relationship pretty simply really.

He also has something to say on ‘depth versus breadth’ that’s well worth a read, so wonder on over and take a read. In the meantime, I’ll look forward to Part 2.

Loyalty programs revisited

Back in March of this year I blogged that loyalty programs were likely an under-utilised means by which Australian law firms could differentiate themselves in a highly competitive legal market. I was, then, particularly happy to see that recently Australian Government Business (www.business.gov.au) blogged on a similar issue – ‘Customer loyalty or reward programs‘ – which looked at, among other things:

What customer loyalty programs are.
The benefits and risks of a customer loyalty program.
Tips when implementing a customer loyalty program.
Legal and compliance issues for customer loyalty programs.

A lot of which is directly relevant to law firms looking to implement a customer loyalty program.

Why you should think of implementing a customer loyalty program in your firm

As far as law firms are concerned, the perennial question has been:

How do we make sure that our customers [clients] understand the benefits of being exclusive to our brand?

Here, while we have known for a long time now that the ‘customer experience‘ has been the bedrock of customer loyalty, it has only been in recent times that we have been able to show that loyalty programs can, and do, add to this overall customer experience.

But customer experience isn’t the only reason why law firms need to think carefully about implementing a loyalty program. Other benefits include:

gaining a better understanding of the customer buying behaviour – which practice groups are they using, when, how often, why? Are they using more than one partner in a practice group or the same partner?
increase you brand recognition within your existing customer base – putting in place a formal loyalty program should go some way to helping you promote you law firm internally within your client’s business; if for no other reason than water-cooler chat.
increase your word of mouth referrals.
provides an added incentive for clients to give you work rather than a like skilled and experienced firm (i.e., all things being equal).
can be used to help recognise referrers to the firm – if you include referrers in the program, all things being equal they will more likely refer clients to your firm than a competitor.
it can help you implement formal and informal customer listening and feedback programs (as part of the program offering).
it will help members of your firm get to know who your key customers are and what they do.
it should provide your firm with a platform to cross pollenate into other service areas without looking like a hard sell.

You could also find that putting a customer loyalty program in place leads to greater use of your much underutilised CRM systems!

All that said, a word of caution for those who are intending to implement a customer loyalty program in their firm:

customer loyalty marketing must start with the law firm demonstrating loyalty to the client. Much like the trust it is built on, you cannot expect loyalty from your client if you are unwilling to offer the same type of loyalty to your client,
the foundation of a customer loyalty program is a promise. If for any reason whatsoever you are unable to fulfil on that promise, then you shouldn’t implement the program, and
always keep in mind that while the lawyer inevitably gets the credit when things go well, it is the brand that gets the blame when things go wrong – so make sure that at the heart of you customer loyalty program is always a dialogue between you and your client.

Get it right though and a well implemented and executed customer loyalty program could be just he thing your firm need in order to differentiate itself from the market.

China, #Auslaw firms, and the $400 billion lost opportunity

Last week I blogged that Australian law firms were missing out on a massive opportunity by not being better at selling Australian law, and Australia more broadly, as an alternative venue to London and New York. One of the things that I commented on in the post was how Australian law firms were falling short on their ability to sell venues such as the National Stock Exchange (NSX) and Australian Stock Exchange (ASX) as alternative venues on which Asian, and Chinese in particular, companies could look to to raise capital.

It could not have been more timely then that later in the same week Reserve Bank of Australia (RBA) Governor Glenn Stevens added a monetary value to the opportunity being missed here – $400 billion.

Yeap, Stevens is quoted in this article as saying:

“…capital markets should prepare for a world where China invests $400 billion a year offshore.”

So, the question I asked in my blog last week remains:

“What is your law firm doing to capitalize on this opportunity?”

Because there is absolutely no doubt in my mind that while we ponder this question others in the region are touting the benefits of Singapore, Hong Kong or a whole raft of other suitable offshore venues.

Is a law firm in your pocket the next big thing?

A 54-page report out last month [July 2015] by UBS analysts in London, New York, Hong Kong and Japan, working with consultants at KPMG, titled “Is a bank in your pocket the next big thing?” (extracts of which have been published in today’s Sydney Morning Herald), that surveyed 67 bank management teams in 18 countries, predicts that as much as 11 per cent of Australia’s bank branches are threatened by closure over the next three years as a result of the proliferation of mobile banking.

According to numbers cited in the article, on the latest data available from the Australian Prudential Regulatory Authority (the relevant governing body), an 11 per cent closure of local bank branches would amount to circa 603 branches closing.

Thinking “this is banks, what have they got to do with law?“; or “law is different“?

If so, take a second to process this: we are no longer talking disruption of an industry here, we are now talking about transformational, fundamental technological change in society.

As the UBS report says:

“Going forward, emerging technology and innovation will further enhance mobile banking functionalities that aim to develop deep customer relationships and superior mobile banking experiences, such as communication enrichment, a comprehensive ‘mobile wallet’, and content monetisation, (for example) revenues related to music and e-book downloads.”

… not seeing it?

How about this quote from Commonwealth Bank of Australia (CBA) chief executive Ian Narev at a lunchtime function in July:

“These days, you have to understand in real time what your customers are doing and react in real time,” Mr Narev said. “And that aspect in the use of technology to drive customer engagement will be our number one priority.”

For any doubters out there, the final nail in the coffin for me was this:

“The report also showed how the mobile channel is catching up to the internet channel, with mobile expected to be used by more customers than internet web pages in three years.”

So, how are your customers buying your legal services? And how confident are you that they will still be doing the same in three years from now?

Because you never know, your law firm could very well be the next app in your client’s pocket…

“A bridge too far” : When international law firm mergers turn sour

“There were a lot of people who thought there wasn’t a very deliberative process around the decision, and a lot of people wondering how it would help us,” one partner said. “And when it didn’t go well, there were a lot of people who thought it was a bridge too far.”

The above quote is attributed to a K&L Gates partner in a recent Above The Law post by David Lat (‘Barbarians At The K&L Gates?‘), which was then linked to in Bloomberg BNA’s Business of Law overnight (‘Wake Up Call: What’s Going On At K&L Gates?‘), and is said to relate to the firm’s biggest single merger to-date, its deal with Middletons two years ago, which, apparently, has “has failed to bear fruit.”

First off, I don’t think K&L Gates’ merger with Middletons is alone here. Market chatter would indicate that a number of partners at international law firms who merged with prominent Australian law firm brands have since wondered what they got themselves into. On the flip-side, a number of the partners in the prominent law firms who merged with the international firms have felt likewise and since moved on.

So while not unique, what probably differentiates the K&L Gates situation is also, in my opinion, one of its greatest strengths – its transparency and openness.

In any event, to my mind what this story highlights is two issues:

mergers between international law firms are akin to the courting stage in any joint venture arrangement: a lot of trust is given on both sides without much due diligence.
when things turn sour in international law firm mergers, lots of reasons get cited by all parties; but rarely, if ever, is the reason that they hadn’t discussed the merger properly with the clients of both (all) firms to see if the client had any perspective on this merger (e.g., commercial conflicts, lack of trust, etc.) and whether they would support (financially) the merger.

I will add that it would be a great shame if the K&L Gates / Middletons merger turned into a public spat, because I really liked the legacy Australian firm of Middletons and given Australia’s interaction with the US market I believe there is a place for K&L Gates here.

That said with the A$ tipped to go below US70¢, its lowest level since the merger, the partners on both sides of the Pacific need to:

reiterate why they merged,
communicate this with their clients,

and move forward on that basis.

And do this quickly [preferably at, or before, the next global partners’ meeting] – something law firms are not known for!

Again though, I doubt very much that K&L Gates will be alone among international law firms in Australia having these discussions.

The battle for Asia’s inbound investment

I was interested to see that The Lawyer has an article today [27 July] by David Rennick, the head of Pinsent Masons’ relatively new Australian outlet, on the competition between English and Australian law firms for prize Chinese’s infrastructure investment work (‘Never mind the Ashes: England and Australia are battling for the Chinese investment prize‘).

When I first arrived in Asia back in the early 1990s, most of the conversations we had with governments and businesses around “investment” in the region nearly always took the path of inbound [into Asia] investment: in that investments largely moved in one direction, from West to East, and appropriately attractive and protective legislatively schemes around those investments were always being sought.

Possibly due to the GFC, although I would be more inclined to say as the likely result of a progression in time and a growth in Asian economies post the Asian Financial Crisis troubles, a shift has taken place: today when we are in conversations around “investment”, this conversation has taken on a new life and we are just as likely to be discussing outbound [from Asian] investments into the West or into other developing nations/areas (such as Africa) as we are about inbound [into Asia] foreign direct investment.

I love infographics and clear evidence (if it was ever needed) of the shift taking place in the conversation taking place here can clearly be seen in two amazing recently published infographics: one by the South China Morning Herald (‘Chinese outbound investment to rise to another record‘) and the New York Times (‘The World According to China‘).

And while both of these show a massive increase in outbound direct investment by China and Chinese companies (and people) over the past decade, decade and half, what they don’t necessarily show is the different reasons/discussions that are taking place for/around these investments.

To be clear, while Asian (including Chinese) companies and governments are investing overseas for a multitude of reasons, they largely centre around two principal reasons:

On the one hand, the governments – including State Owned Corporations – need better returns on their investments than they would otherwise be getting at home or else they need to diversify this investment. We typically see this type of investment with Singapore’s Temasek and GIC (Government of Singapore Investment Corporation). More recently we have seen foreign pension funds investing in Australian infrastructure in this way.

On the other hand, we see investments in western businesses by Asian companies and organisations looking to purchase technical knowhow in order to up-skill themselves. An example of this can be seen with today’s announcement that: “A major Chinese venture firm has launched a US$5 billion fund devoted to buying up Western technology, internet and biotech firms that are looking to enter the Chinese market.”

And it is for this reason that unlike David Rennick I don’t believe English or Australian law firms should be strategically looking at the Chinese for inbound infrastructure investment work (with the caveat that this doesn’t include strategies around the Chinese-led Asian Infrastructure Investment Bank (AIIB)), because I believe that type of inbound infrastructure investment work (once Australia can work out a suitably attractive investment vehicle for foreigners to invest in infrastructure) from Asia will more likely come from Korea, Japan and Singapore (under relevant FTA provisions with these countries).

For Chinese related inbound investment work, English and Australian law firms would do far better to be courting M&A and R&D work, and in this field they will find a much hungrier and more sophisticated competitor – the US law firm.

“We’re serious about this,” says the head of EY’s Australian legal services

“We’re serious about this,” EY’s head of legal services Howard Adams said

Finally, despite all protests to the contrary, the head of one of the country’s leading accounting firms has come out and said what we all know to be true – the Big 4 want in on law firm turf!

And if you doubted this, you need look no further than yesterday’s article in the Australian Financial Review (‘Big four accounting firms push into legal services‘) from which the quote that opens this post is taken and which also included the following gems:

“In Asia Pacific, EY has hired 206 lawyers since January last year. Sixteen of them are based in Australia, focused purely on transaction, corporate commercial and employment law.”
“PwC legal services – which just recruited K&L Gates’ national head of antitrust, competition and trade regulation, Murray Deakin – has about 340 lawyers throughout Asia Pacific. About 120 of these are based in Australia, of which approximately a quarter are dedicated solely to legal work.”
“In the last six weeks alone, PwC has hired 13 qualified lawyers to its Australian practice.”
“EY recently admitted a Hong Kong law practice to the EY network and expects to be open for business in HK by the end of August, after which it will target Indonesia and Malaysia. Its ultimate goal is a pan-Asia boutique law practice with hubs in every commercial centre across Asia.”
“KPMG Legal has an ambitious target of doubling revenue in fiscal 2016 under the leadership of David Morris, who previously co-led the Asia-Pacific corporate practice of global firm DLA Piper.”

So we now know that not only do the Big 4 want in, they also want to be Top 10 legal providers in Asia [any doubt about that? PwC is quoted as saying they are looking for revenues north of A$75 million a year by 2019].

Thanks to this same article, we also get insight into how they [Big 4] hope to achieve their lofty aims, with Howard Adams being quoted as saying:

“We’re going to market with our advisory team in health care, government, financial services, procurement and supply chain. It’s a new, more hands-on approach, to providing legal services,”

Should law firms be concerned?

Well, not according to quotes attributed to Baker & McKenzie’s national managing partner Chris Freeland. Nor Ashurst vice chairman Mary Padbury.

My own take?

If you are the Managing Partner of law firm with a pan-Asia practice, then you need to be keeping a very close eye on who your fellow partners are talking to. After all, where do you think these accountancy firms are getting their staff from?

In KPMG Australia’s case, alumni.

“You actually need to be in Asia to understand Asia.”

“You actually need to be in Asia to understand Asia. You cannot look at it from a distance, or certainly run a business in Asia from a distance. So, unless you are actually in Asia and focused on Asia and the different markets in Asia, it’s very difficult to understand the different markets, their stages of development, and how you need to run your business in those markets. And certainly you can’t do that from London or New York. That’s a fundamental point.” – Stuart Fuller, King & Wood Mallesons

The above quote, which I couldn’t have put better myself, is from an interesting interview between columnist David Parnell and Stuart Fuller, Global Managing Partner of King & Wood Mallesons (‘Stuart Fuller Of King & Wood Mallesons, On Vereins and Succeeding in China’s Legal Market‘) posted to the Forbes website on 20 July 2015.

A lot can be said about the ‘Mallesons’ strategic approach to Asia (or, probably more to the point, the lack of it) in its days as ‘Mallesons Stephen Jaques’ – when the firm was rumoured to be heavily courted by the likes of Clifford Chance and Linklaters in the UK – but since the tie-up with King & Wood (and the subsequent merger with SJ Berwin), the firm that is KWM, as it is now affectionately known, has certainly turned a corner, got its strategy ducks lined up and come a long way.

To my mind evidence of this is clear in the following two paragraphs by Fuller:

“Secondly, it’s a business model issue. If you come into Asia and run a Western business model, then you are likely to lose money. That’s quite difficult for many of the international firms because they have such powerful and strong business models in their home markets, and they export them to the rest of the world.

Thirdly, some markets are more developed than others, so if you come into Asia and think that because the law firms are younger, that they are less developed, or frankly, in some ways less professional, then you’ll be surprised. There are firms here — us for instance — who have 1200 lawyers and 2000 people across 12 cities in China alone. We have an impressive international business in China operating at an international standard. There are a number of firms across the market like us, and I think that is a surprise to Westerners.”

Absolutely spot on!

Indeed, probably the only thing missing from Fuller is the strength that relationships play in the overall marketplace throughout Asia – both at government level and in many of the region’s family run businesses.

Then again, possibly that’s what Fuller is eluding to when he says:

“And for Western business coming into Asia, the big thing you need to know is how to get things done. The system is different. It’s the lore as much as the law.”

In any event, it is clear that KWM has moved forward a long way since 2012, and I’m not sure the rest of the pack are giving this firm the appropriate credit they deserve.

“Berlin is closer to Beijing than Brisbane is”

“Berlin is closer to Beijing than Brisbane is. And it will always be so.”

– Andrea Myles, CEO China Australia Millennial Project (CHAMP)

I recently had the great fortune and pleasure to attend the opening ceremony of the inaugural CHAMP. Unlike many other events I attend, this one was driven by a group of young adults looking for ways to improve cooperation between China and Australia, principally from what I can tell in the areas of research and development (R&D).

Leaving aside the fascinating work being done under the CHAMP banner, two comments that Andrea Myles, CEO of CHAMP, said in her opening remarks really resonated with me.

The first was the opening quote to this post: “Berlin is closer to Beijing then Brisbane is.”

The second was this:

“China is Australia’s largest trading partner, but also the largest trading partner of 124 other nations.”

Yep, 124 other nations can claim that China is their largest trading partner.

So if Australia isn’t geographically closer to “Asia” than Europe is (and flying time from the UK to Thailand is roughly the same as Sydney to Bangkok), and if economically (from both a trade and investment perspective) Australia isn’t streets ahead of the rest of the world in the eyes of those conducting business in Asia, why in the world would so many law firms be “Driven here by the lure of Asia” – as the Australian reported last Friday (3 July) [“International legal firms see Australia as a hub for Asia” NB: subscription may be required to read this]?

Personally I’m not 100 per cent sure I understand the need for global firms to be in Australia if the only reason they are doing this is to create a hub for entry into the Asian market more broadly. I rather suspect better cases to that type of strategy could be made for Singapore (which historically it has been) and even Hong Kong.

Nonetheless, Patrick Sherrington, Hogan Lovells’ regional managing partner for Asia and the Middle East and author of the said article in last Friday’s Australian sets out his case for why he thinks this might be so.

These include:

“The Australian legal services market is characterised by its concentration, innovation and sophistication. Although globally the sector is generally characterised by low concentration, the market shares of the major players in Australia have been and remain particularly high, especially compared with the US, where no law firm accounts for more than 1 per cent of the industry.

This concentration yielded high levels of competition between those leading firms, which spurred innovation and sophistication throughout the market.”

Sorry, but having worked in the English, Asian and Australian legal markets during the course of my working life I can categorically say that the Australian legal market is no more innovative nor sophisticated than any other. While this might have been the case in the 1990s, I would venture that the US market is probably more innovative than the Australian market is at the moment and the stuff that the likes of A&O, Lawyers on Demand, Eversheds, and Riverview Law – to name but a few – are doing in the UK is streets ahead of where the Australian market currently is.

Sherrington then goes on to write:

“More critically, it [the GFC – my comment] affected the faith many leading national firms had in their business models. The hitherto boundless belief in the limitless growth of legal services in a country accounting for nearly 40 per cent of the Asia-Pacific legal services market was lost to the existential and strategic dilemma of how and where Australian law firms should operate in an increasingly global market.

Suddenly, market entry became a practical proposition for the major international firms. Since then we have seen the large national firms scramble for Asian and global exposure through alliances and combinations of varying intimacy.”

I’m of the view that flat, depressed markets in the UK and Europe more widely made the bigger English firms look up and think of other markets where they could still get growth. The mining boom that was going on in Australia at the time, plus historic highs of almost parity in exchange rates between the Australian and US dollars, meant that the Australian market looked very attractive at the time.

Ironically, a shift in the sands have now made these much less favourable reasons to be in Australia (the Australian dollar has fallen off to somewhere in the region of 75 cents now) and one has to wonder if the internationals would still be clambering to get here if the current market existed then.

Sherrington also notes that:

“We [Hogan Lovells] concluded that not having a focused high-end legal practice in Australia would be strategically detrimental to the ambitions of our long established practice in Asia and would have an impact on our ability to service global clients.

Australia is uniquely positioned to assist international law firms achieve growth in Asia. With the third largest pool of investment funds under management in the world, the largest stockmarket in Asia (ex-Japan) and the fourth largest economy in Asia, as well as being the single largest beneficiary of Chinese foreign direct investment since 2005, Australia is an integral part of the Asia region and also a global player.”

I think there is a lot to be said for the second part of this quote. Much less so for the first part. Having an Australian practice is one thing; having an Australian presence as a hub to Asia is a completely different issue.

If you have an Australian practice for all the reasons Sherrington sets out in the second part of the quote above, and you have a core client-base operating in Australia, then I commend you and wish you well.

But if what you are saying is this [Australia] is your hub for Asia, then I ask: “where does your senior Asian management sit?” Because one firm aside, nearly all of the senior “Asian” management teams I’ve seen sit offshore (ie, outside Australia).

A final comment of Sherrington’s is that:

“While the manner and mode of market entry will continue to differ between international law firms, it is a trend that will not be reversed.

The regional and global economic case for an Australian presence is too strong. It remains to be seen whether the flood of international entrants will reduce the concentration of the Australian legal service market.”

Sherrington and I will have to disagree on this one. I think it is a trend that could very easily be reversed – and to some extent already is.

And we should always remember that law is a very fickly business – who knows what might happen if you had a downturn in the Chinese economy and a European nation that was refusing to pay its debts.

Oh wait…