#BizDevTip

Mid-year review of the Australian Legal Market

Thomson Reuters recently (27 February 2023) published its 2 page Mid-year review of the Australian Legal Market.

As usual, the Report is a very interesting read; but by far the two standouts for me were:

Expense Growth

Notice that rise in Direct Expenses?

That’s down to the pay rises you just gave to your 2 to 6 year PQE lawyers who are now sitting around very under utilised!

Where will clients need help?

The other chart in the Report that caught my attention was where clients anticipate their spend over the next 6 months.

Given the hangover from COVID, Workplace doesn’t surprise me too much.

Dispute Resolution, in difficult economic times, will always be a winner.

But, why Regulatory? We have moved past most of our Royal Commissions…

…and unless I’m missing something there is no growth mentioned for either Privacy or Cyber.

Given the ongoing changes in privacy regulation in Australia just announced, and global concerns around cyber (with IPH Ltd going into a trading halt following a potential cyberattack on two of its member firms this week), this must be an oversight.

If this all sounds too close to home to be true, feel free to drop me a line to talk through how we can fix this up.

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Peak loading – Hourly billing with a twist

Not exactly sure where I came across this pricing menu by a translation service provider in Malaysia – Lexup – so apologies if I am not giving you the credit you deserve because this really grabbed my attention.

A translation service focussed on the legal profession that not only charges by the minute (let alone 6 minute units), but whose rates vary depending on how urgent your need is.

Alternatively, if you’re not happy with the hourly billing model, then let’s go old school (Charles Dickens era) and pay by the word. Again though, the quicker you want your work back, the more it will cost you!

Peak-load pricing. I have no idea why law firms have not adopted this years ago!

As usual comments are my own – but I’m sure there is someone out there who can tell me the optimum price to time!

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‘More with less’ not ‘More for less’

Back on deck this week after close to 6 weeks off work (not too uncommon for us here in Australia where January is like July in France!).

While catching up on my emails I came across this classic by Tom Fishburne. Yet again Tom hits a home run and I suspect many of us will be feeling this pressure over the next 11 to 12 months!

As usual comments are my own. And I hope everyone has a great 2023!

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My 2023 predictions – only they are not!

I have only tried to predict what might happen in the next 12 months in the world of AusLaw once. It was exactly 10 years ago – 2013 – and I got it so horribly wrong that many would argue I should never, ever, touch this subject again!

Of course, countering that I would argue that getting numbers #2 and #3 close to right, at that time, showed major insight – and surely you can gift me #6.

But there has to be a reason why I have not done a prediction post since and that reason is: Because I’m rubbish at it!

Instead, these days, I review the predictions of others and opine on whether – from my lofty hight of ‘know it all‘ – they can call it better than I can – which, they usually can!

And so that is why this year I would like to draw your attention to the 2023 Citibank-Hildebrant Consulting LLC ‘Client Advisory Report‘.

In its 15th Year, this Report has done a whole lot better at guessing what the future holds for law firms than I have ever done; and Part II: ‘Looking ahead to 2023 and beyond‘, Section B: ‘Key trends to watch in 2023‘, sets out 16(ish) trends to watch-out for in the next 12 months.

So let’s take a look at what these suggested trends are, and I will then add some comments I might have on them.

THE REPORT’S FORECASTED 2023 TRENDS

The evolution of the hybrid work model to a “more flexible” work model
The growth and reshaping of lawyer leverage
Equity partner growth at more firms
Greater focus on both revenues and expense-related operation efficiencies, including:
I. Rethinking space
II. Redesigning the professional staff leverage model
III. More outsourcing
IV. Increased use of project management
V. Thinking twice about business travel
VI. More investment in technology
VII. Improving realization

AFAs
Pre-negotiated discounts
Continued focus on improving the billing and collections process
VIII. Greater focus on cross-selling opportunities
IX. Financing growth

MY COMMENTS

And here I go with my 2c.

The jury is out with this one – on the part of both the employee and the employer. I read a report the other day that stated employees wanted back in the office with rising cost of living expenses (read gas and electricity, but also inflation more generally). If that is true. get a couple of 30+ degree days in a row running the aircon all day, employees may well want to be working back in the office pronto (anyone else remember going to there cinema to cool-down?). On the other hand, employers are looking to reduce their footprint – after all, rent is up there with salaries winning the Biggest Overhead cost award. Some compromise is inevitable but it would not surprise me if we see a hybrid of a model introduced into Auslaw about a decade ago by Herbert Smith Freehills where you see most lawyers in the office 3 or 4 days a week, but back-office support staff (or Allied Professionals) working mostly from home.
There’s a recession on the way. It has already arrived in many parts of the world. And with a recession comes something called ‘stickiness’ – where lawyers, especially at Special Counsel level, keeping work they could otherwise be passing down to more junior lawyers makes sure they (a) make bonus, and (b) keep their jobs [after all, Special Counsel is the biggest loss leading level in most law firms]!
Unlikely – 5 generations in the workforce and a recession. I’d think you need to be very special to be looking at equity partner entry level at the moment. Now if we are talking salary partner, I would agree. And keep in mind that roles like ‘Managing Associate’ and ‘Special Counsel’ were born out of the 2008 GFC, so we may see more of these job descriptions appearing in job adverts in the near-ish future.
Absolutely, but let’s look at this a little closer:
I.’Rethinking space’ – yes, see my response in 1 above
II. ‘Redesigning the professional staff leverage model’ – no, see my answer in 2 above
III. ‘More outsourcing’ – I wish, see number 8 from my 2013 prediction list!
IV. ‘Increased use of project management’ – we have been talking about this for over a decade and if we still haven’t got this right then we don’t deserve to keep putting this on our ‘wish list’
V. ‘Thinking twice about business travel’ – absolute no brainer! Partners’ use of their airmails for upgrades will be a growing trend in the next 12 months!
VI. ‘More investment in technology’ – yes and no. Yes if it is for cyber-security (especially client-driven cyber-security requirements), and yes if it is for time-based billing. But no if it is for anything else.
VII. Improving realization
– AFAs
– Pre-negotiated discounts
– Continued focus on improving the billing and collections process
So much to say here, but all I will say is – rubbish. And what on earth is a ‘pre-negotiated discount’, is that a contractually agreed volume discount? If so, it is not an AFA!
VIII. Greater focus on cross-selling opportunities – as I’m currently reading Heidi Gardner and Ivan A. Matviak’s ‘Smarter Collaboration: A New Approach to Breaking Down Barriers and Transforming Work‘ (didn’t realise they were married before I read this) I would hope so. But experience has shown me that partnership deeds drive cross-selling opportunities and not altruistic behaviour a lot better than HBR top-selling books!
IX. Financing growth – ahh, maybe we wait and see how the other predictions go! And keep in mind that financial growth does not necessarily mean ‘profit growth’, which should be the main game for any law firm!

Anyhow, as usual comments are my own. And I hope everyone has a great 2023!

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Image credit today is Moritz Knöringer

FX fluctuations: Has BigLaw finally got the message?

As I have written on this blog on numerous occasions since March 2013, big international law firms need to consider – and account for – foreign exchange (FX) currency fluctuations – especially if their P&L is based in one currency – whether that be GB Pounds or US Dollars.

So it was with some amusement that I saw the following article headline in The American Lawyer today:

‘As Currencies Fluctuate, Law Firms Adjust Lawyer Pay and Billing Across the Globe’
source

But, before we all get ahead of ourselves and start to think law firms have finally figured out that as they approach $2BN+ in global revenue with business operations – in many cases – in over 20 countries, they might want to think about currency fluctuation issues, the real reason this has all of a sudden now become an issue comes out in the article:

‘Firms are taking steps to minimize the impact exchange rates could have on partner compensation, associate salaries and other expenses’

Which itself raises another issue I have mentioned so many times previously on this blog, if currency exchanges do fluctuate over the course of a financial year, what does that do to your multiplier?

Do you go from a 3x multiplier to a 5x? Do you go from a 5x multiplier to a 7x?

And what happens if the FX fluctuation is as a result of a stronger local currency, do you go from a 5x multiplier to a 3x?

Cannot say they were not warned!

As usual, comments are my own.

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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:

Higher Revenue
Lower Costs
Higher Barriers to Entry
More Paths to Grow[th]
Stronger Talent Pool (within your firm as lawyers want to do this type of work for this type of client), and
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:

Marketing and business development activities
Lateral hires from competitor firms
Adopting new technologies
Building/expanding referral networks
Cross- and up-selling strategies
Increasing fees
New models of service delivery
M&A activity
Graduate intake
Boutique/niche practices
Diversified or non-traditional legal services

(more…)

‘5 Tips to deliver exceptional client services’

The Legal Marketing Association (LMA)’s Strategies + Voices blog has some great insights into what clients’ value in a recent post (16 September 2021) – ‘5 tips to deliver exceptional client service’ by Natasha Tucker.

The post starts out by stating that:

the tips shared are based on internal client feedback interviews and discussions conducted by the author with companies in the oil and gas, chemicals, banking and telecommunications industries in North America.

And the 5 ‘tips’ are:-

Care and Connection
Trust and Honesty
Price and Value
Experience and Expertise
Team and Resourcing

I’l go on record as saying I thought Tucker’s post was excellent. It turned my mind, however, to whether we in Australia would consider the same criteria as being critical to the delivery of exceptional client service?

So here are my thoughts:

Care and Connection – absolutely spot on. Here in Australia this would come under the banner of ‘responsiveness’, but many of the points Tucker makes are echoed in Australia.
Trust and Honesty – I would say this is a given here in Australia and not really talked about too much. Which is to say, in my experience, clients here don’t see trust and honesty as playing a big part in the perception of excellent client service delivery – because without it, you ain’t my law firm!
Price and Value – I struggled with this one because clearly price is important. And many would argue it is critical to the perception that the client has received good value. But here’s the thing, in Australia ‘price’ is an after-fact – the lawyer’s invoice comes after the deal is completed. So while price certainly plays a retrospective role in whether the client received exceptional client service, it is not a real time barometer – the client could believe they were getting excellent service until they receive the invoice and see how much they paid for that service! So I’m going to disagree with this one.
Experience and Expertise – again, I think this is increasingly a ‘given’ here in Australia. Sure it will have some effect on the delivery of client service, but the cases where it does will largely be the 1 to 2% of ‘top-end’ matters.
Team and resourcing – absolutely critical.

Noting that it is easy to be critical without being helpful, here are a couple of issues that I see as being of increasing importance in the delivery of exceptional client service here in Australia:-

Technology – increasingly clients want your technology to talk to their technology. If they want a Teams meeting and you say your internal systems only allow you to do Zoom meetings, they get frustrated. They are not getting exception client service. Likewise, while ‘client portals’ were all the rage 10 years ago, clients today want this information delivered in their tech echo-system and do not want to have to log-on to your platform to access this.
Process – linked somewhat to technology, clients today look for clear processes from their firms. For example, large institutional clients want one bill per month – not 20 different bills for each of the various internal service lines in your firm that may have acted on their matters. Process however extends to other areas, such as Legal Project Managers, Client Account Managers – so-called ‘non-lawyers’ who can keep the lawyers honest and on track.
Values – increasingly clients want to work with law firms who share their values, and they see this as part of the client service delivery. For example, if the client is passionate about the environment and your law firm doesn’t have a stance on this issue, then you’re likely going to have some issues. In short, in my view, the days of firms saying what they stand for has nothing to do with the service they provide are over – what you stand for is very much a part of the service you deliver in 2021!
Mentorship – clients have always enjoyed working with law firms that are able to mentor the in-house team. What’s changed is that these days this is a formal – out in the open – discussion; and it includes the tough discussion about how law firms manage their own internal mentorship, staff wellbeing and overall happiness.
Retained knowledge – this is a critical one to me. Most law firms have worked with clients for longer periods than the in-house legal team has. Their time with the client either pre-dates the creation of an in-house team or else General Counsel at the in-house team has moved on and that information has been lost. I cannot over emphasis therefore how important private practice law firms can be as the font of knowledge (for legal matters) for their client. But here’s the thing, at this level you are commercial confidants and so relying on legal conflicts as the rationale as to why you can act against a client will sure as Hell kill and perception of ‘exceptional client service’!

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

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This week’s photo credit is to Rohan Makhecha on Unsplash

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

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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