Australian law firms

Where to next for the Swiss Verein law firm business model?

In a case that appears to have gone largely unreported outside of the US, last week (31 August 2022 – reported on Bloomberg’s website) Ohio’s Supreme Court rejected an appeal by international law firm Dentons to a relatively long running case that could, possibly, shake-up the accepted business model of many similarly structured international law firms – including some with a presence here in Australia, such as: DLA Piper, Squire Patton Boggs, Baker McKenzie, Norton Rose Fulbright and King Wood Mallesons.

‌So what is this all about?
Core to this case was an actually or potential conflict of interest, with a specific twist on the way law firms are structured under the Swiss Verein business model.

Before we jump into why this might be an issue though: What the Hell is a Swiss Verein?

The Swiss Verein business model

Wikipedia – which anyone who knows me well will be able to tell you I do not see as being the font of all knowledge, does a good job in this case of defining a ‘Swiss Verein‘:

“The association can also be used as a legal form for a business organization consisting of a number of independent offices, each of which has limited liability vis-à-vis the others. The form is often used by multinational professional firms so they can operate globally under one brand whilst maintaining separate profit pools (and ring-fencing liability) in each country in which they operate.

Pretty cool, but how can a problem arise now 20 years after Baker & McKenzie became the first major law firm to use the Swiss Verein structure in 2004?

Well, let’s take a look at the issues in this matter…

At the heart of this matter..

Core to this whole dispute was that:

RevoLaze argued that Dentons shouldn’t have taken on the company’s patent case in 2015 because one of the firm’s Swiss verein affiliates in Canada had represented Gap Inc., which RevoLaze sued for patent infringement.

…so what?

Well:

The verein structure lets law operations affiliate to market services under one brand while avoiding a full-on merger. Affiliates limit liability between offices and keep separate on matters such as profits, pay and taxes.

Okay, so now I’m starting to see why this might be an issue.

But who really cares?

As the Bloomberg article states:

The RevoLaze case tests whether firms using the Swiss verein model must do conflicts checks with all affiliates in their networks before deciding to take on a client.

Can you imagine that – over a 24 hour global time line! What would an “urgent” conflict check look like?

Or, maybe, get an integrated conflict check system – but that goes against the Swiss Verein model, so how about we take on board this (in the Bloomberg article):

Verein firms risk losing business if they’re required to disclose conflicts related to affiliates’ work. Existing clients may balk at other representations, and potential clients could decide to go elsewhere.

So what does the future hold for the Swiss Verein?

The answer – I have no idea. It’s one court decision – pretty influential though.

On the other hand, how long is it going to take to unwind any Swiss Verein structured law firm – in my view a project that will likely take 10 years!

As usual, comments are my own.

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Image credit to Ronnie Schmutz on Unsplash.com

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

Page 14

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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2021 Annual Profile Of Solicitors In NSW – the Good, the Bad, and the Ugly

In conjunction with Urbis, the New South Wales law Society recently published its 2021 Annual Profile of Solicitors in NSW Report. This latest snapshot of the legal profession in NSW has some interesting take-outs, so I thought I would highlight them in the first blog I have done in several months…

A Snapshot of the Industry

Overall the industry is healthy. There are close to 40,000 solicitors in NSW with current practising certificates (I would be interested to see what that number would be if the cost of maintaining a practising certificate wasn’t so high!).

Lady Justice would be happy to see that for the 5th year in a row there were more female solicitors with practising certificates than males, BUT there is still a LONG WAY to go for female parity here.

So where do we all work?

7 out of 10 solicitors in NSW work in private practice

And most of those private practitioners don’t work in the CBD…

The surprising figure for me there was only 3% have overseas addresses – which, given how popular Australian lawyers are overseas, indicates a data/price issue.

But how hard are we working?

Bloody hard….

Okay, so how much are we earning?

Well, not a lot really – more than half earn less than $150,000 per year (think ‘student debt’, think 50 to 60 hours a week)…

But men and women get paid the same – right?

Not exactly. While you might start out the same – the longer you work, the more likely men will get better paid than women in private practice in NSW…

But I thought Lady Justice had our backs…

Yeah, not exactly. Headline stats can read well, but scratch the surface and you might find a problem…

and if that is not a graph of gender in-balance, I don’t know what is…

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: Top growth strategies for law firms for the next three years

Last week saw the publication of the 14th edition of CommBank’s Legal Market Pulse report for 2021. What I recall starting out as a quarterly, then half-yearly, report, now looks to be permanently set as an annual publication (feel free to do a search of my previous posts on the CommBank report to see some of the history behind this).

Anyhow, the overriding message of this year’s Report is that the pandemic had little affect on overall profit growth at most Australian law firms (probably as a result of dramatically reduced costs). And with year-on-year median 12.1% growth in profit, on first look it appears that the profession is going great guns. Which, as someone who advises to the profession, is great news!

But where do law firms think growth will come from over the next 3 years?

How Australian law firms are looking to grow over the next 3 years?

Looking at page 11 of the Report, Australian law firms will primarily look at the following 11 ways to grow their firm’s revenue over the next 3 years:

  1. Marketing and business development activities
  2. Lateral hires from competitor firms
  3. Adopting new technologies
  4. Building/expanding referral networks
  5. Cross- and up-selling strategies
  6. Increasing fees
  7. New models of service delivery
  8. M&A activity
  9. Graduate intake
  10. Boutique/niche practices
  11. Diversified or non-traditional legal services
(more…)

Why asking someone to work 2,000 billable hours a year will kill their spirit

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According to a post by Casey Sullivan of Bloomberg, earlier this week US law firm Crowell & Moring announced that it would increase its billable hour requirement for associates, from 1,900 hours per year to 2,000 per year. This new target will take effect 1 September 2016, but on the plus side 50 pro bono hours will count as billable.

15 Years ago I would have cried out “all kudos to you”. Back then my yearly billable target for an English ‘Magic Circle’ firm was 1,400 hours and I flogged my guts out to achieve that. So if you can effectively put 50% of billables on top of what I was doing (and trust me when I say I wasn’t going home at least one day a week), then you’re a better person than I (or so I would have said then).

But if you really need validation of what asking someone to work 2,000 billable hours a year means, then I would like to recommend you read “The Truth about the Billable Hour” by no less an institution than Yale University. In that publication, Yale caution aspiring lawyers that if you are being asked to “bill” 2201 hour, you need to be “at work” (includes travel time and lunch, etc.) 3058.

Taking that further, from an Australian law perspective, if you are being asked to bill 2,000 hours a year then you need to bill 8.3 hours a day (assuming a 48 week year and you never get sick; which, if you are being asked to do this, you most likely will be). That means you are very likely going to need to be “in the office” around 12 hours a day – and that assumes no write-off by your partner or leakage.

But here’s the question: “What difference does this make?

I ask this because I wholly agree with the following comment my friend Kirsten Hodgson made when I posted a link to this article on LinkedIn:

“why would you reward the number of hours someone spends working? Surely it would be better to focus on how to deliver value smarter and more quickly. This doesn’t incentivize innovation or any type of process improvement.”

Exactly right, you’re measuring all the wrong things!

Leaving aside the Balance Scorecard argument, asking someone to do 2,000 billable hours a year doesn’t take into account:

  • client satisfaction
  • realisation (it’s a utilisation metric)
  • working smarter
  • innovation

or many other metrics.

And for those who may point out the benefits of this including 50 hours pro bono I say this: the Australian Pro Bono Centre National Pro Bono ‘Aspirational Target’ (ie, where we would like to get to), is 35 hours per lawyer per year.

But probably more importantly than all of this is this:

–  if you ask someone to do this, then you really leave them very little time to do anything else.

This really should be a concern, on the business front because you leave almost no time whatsoever to train them in the business of law – ie, you kill any entrepreneurial spirit they may have. And, crucially, the only metric that really counts to them is that all important 2,000 billable hours (keep in mind that like I was, they’re very young). Which for a profession that has the mental health issues we do, is not good.

For all of these reasons, I’m hoping no other law firm follows this. But sadly I think they will.

Oh, and if you are a law firm client reading this post you might just want to look up whether your local jurisdiction has a “Lemon Law” rule that applies to provision of a service.

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Survey: The role pricing specialists play [or don’t] in RFP responses

Last week the USA’s J Johnson Executive Search, Inc and the UK’s Totum published their combined ‘RFP Survey Responses: U.S. and U.K. Data 2016‘.

A fairly evenly distributed demographic of large (defined as being 600+ lawyers), mid-sized (defined as being 100-600 lawyers) and small (up to 100 lawyers, for the U.S. only) law firm respondents, insights from the survey include time spent responding to RFPs, persons within firms charged with project managing responses, as well as tools and expertise made available to responding teams, in both the U.S. and the U.K.

As with most surveys of this nature however, it is the role that pricing plays that typically grabs my attention and given this survey’s combined U.S. and U.K. perspective even more so in this case.

Given ongoing market pressures, it should surprise no one that responses of “strong” from the U.S. (58%) and the U.K. (64%) to the question of what current “price pressure” for proposal & RFPs were fairly similar.

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A little more surprising to me was the difference in responses between the U.S. (40%) and the U.K. (60%) to the question “when developing proposals and RFPs, I have easy access to” the answer was “pricing guides/professionals“.

 

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Now don’t get me wrong, even these days I think it is particularly progressive and somewhat comforting to know that 60% of my colleagues in the U.K. have access to some sort of “pricing guide/professional”.

Until, that is, you get to see who actually gets to sign-off (i.e., the “decision maker”) on the all important issue of pricing in RFPs in the U.K.. Here, and I kid you not, the response in the U.K. of “pricing specialist” (that same person who 60% claim to have some form of access to – either via guides or in person) was 5%.

I think that is worth repeating – 5%.

Put into context, that means in the U.K. pricing in your RFP is more likely to be signed off by Marketing & BD (9%) or Finance (14%). Indeed, in the U.K., “It varies” is likely to have more of a say on final pricing in the RFP response than the so-called pricing specialist.

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I’m not so sure why the results of this particular survey so surprise me. After all, time and time again survey results show that we typically say one thing about pricing, but do quite another.

What I will say though is this: if you have access to a pricing specialist, and pricing by your pricing specialist is being determined in 5% or less of your RFP responses, my guess is going to be one of two things: (a) you have no idea if you are making money from your RFP “wins”, or (b) more likely, you are leaving money on the table big time!

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* images should be enlargeable, apologies if they appear a little blurred.

How long before we see a ‘Red Team’ service in #Auslaw?

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Of note overnight (OZ time) was news that Bernero & Press (Wendy Bernero and Aric Press) have launched a service called: ‘The Red Team’.  Described as being “A Lifeline for Marketing and Business Development Departments” the aim of The Red Team is to provide:

“…high-quality, experienced marketing, communications, and business development professionals to law firms on a project basis or to fill temporary needs.”

Sounds very similar to the sort of lawyer placement service we are seeing from the likes of Crowd & Co here in Australia, only in this case the target market is specifically support services.

I have to say that outsourcing back office services such as marketing and business development was something I saw becoming popular in Asia during the Asian Financial Crisis in late 1998 and I have often wondered when we would see such a move take hold in the West.

Today may just be that day.

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Independence Day & The Billable Hour

Two things got my attention on Friday. The first was the decision by the UK to exit the EU (so-called “independence Day” by some of the more fanciful politicians and “Brexit” to most of the rest of us). On a much smaller scale, the second was an article in The Australia Financial Review that “Ditching the billable hours case a struggle“. (print edition – NB: online the article title is “Billable hours to always hold a place in law firms“).

With the first of these two items, I have very little to no control over and am left at the mercy of others.

The second on the other hand is absolute rubbish!

To be clear, mention of the billable hour in the opening four (4) paragraphs of this article are all to internal metrics; specifically how many hours fee earners need to bill each day to make budget (and a side note here, anyone else note how this changed from an annual figure of 1,400 hours to a daily figure of between 6 and 7.5 hours depending on which firm you work for? Is this because a daily figure is much easier to live with than an annual figure that daunts you by its task? If so, kind of simplistic thinking towards people who are supposed to be in the top 1%).

Anyhow I digress as this has nothing to do whatsoever with how clients are charged, much less how they want to be charged, and whether or not the billable hour needs to remain the “go to” fee arrangement of choice by firms and paragraph five (5) of the article tackles this issue head on when it says:

“However, the majority of firms said they worked with clients and offered alternative fee arrangements if suitable.”

You’re kidding right?

For those of you who have not seen it lately, here is the Thomson Reuters Peer Monitor ‘Chart of Billed and Collected Realization Against Standard‘ for the period 2005 to 2015:

realise

That squiggly little line in free-fall tells you realization rates have fallen from roughly 93 cents in the dollar in 2005 to just over 83 cents in the dollar in late 2015. It also tells me that you are not doing a very good job if you are working with your clients vis-a-vis how you charge them for the work you do and it puts to rest any attempt to suggest that billable hours are the preferred method of clients to be billed (unless, that is, you’re suggesting that clients know they can get discounts, or just not pay, bills that accrue on an hourly basis).

So over the weekend I got to think: like the article says, pretty much all of the reasons why the billable hour continues to be a struggle to ditch are down to internal measurement metrics. So, maybe, just maybe, like the UK did on Friday, it’s time for Australian law firms to opt out of the known and disruptive itself – and maybe the rest of the world with it!

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