in-house counsel

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.

rws_01

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

Photo credit to Jon Tyson

$180K for a First-Year Associate – so what!

One of the big news items this week has been the decision by Cravath, Swaine & Moore to raise its starting salaries for first year associates to $180,000. Cries of “Not worth it!” and “What value do first year associates provide clients?” (answer: probably none) can be heard from all four corners of the planet.

My view on this though is so what? I don’t really care what you pay your first year associates. In the same way I don’t really care what you pay your other associates or partners. Nor do I really care what your rent is costing you.

Unless, that is, I get to thinking that: I am the one paying for all this. In which case, I suddenly become very interested.

But here’s the thing: I’d only really start to think that I’m the one paying for all your luxuries – the boat you have moored at the marina, the sports car you drive, the house you live in, the first year associate you can call on day and night – if I didn’t value the service you provide me. In other words: If I didn’t think I was getting value for money.

So if you’re one of the many private practitioners questioning the move by Cravath, Swaine & Moore, my only comment/question is this:

If you are providing your clients with a value for money service offering – and you are able to communicate this, why should it bother you?

RWS_01

Report: Collected realization plummeted to 82.2% in Q1 2016

Thanks to an article by Dave Galbenski of Lumen Legal – ‘Overcapacity, Underutilization and Realization Rates Plummeting‘ – I have just been made aware of the publication last month (May ’16) of the Q1 2016 Executive Report (.pdf download) undertaken by Peer Monitor Index (Report).

While the Report gives glimmers of hope (demand slightly up for certain practice areas), the overall message is bleak. And none so more than this:

“After showing some recent signs of stabilizing, collected realization took a sudden and sharp drop in the first quarter. For most of the past two years, collection rates have hovered around the 83% mark. But in Q1, collected realization plummeted to 82.2%. Not only is this a new historical low, it was the largest quarterly drop in more than three years.”

OK, two things here:

a collected realization rate of 83% is not a benchmark we want to be heading to, but away from.
if you keep putting your hourly rates up (recently BTI Consulting’s The Mad Clientist asked: ‘Is $5,000 an Hour Next?‘) but your collected realization rate is “plummeting”, then you’re most likely losing money (as well as the respect of your clients I might add).

My only other thoughts are:

why do we insist on the hourly rate model as our primary means of charging if our collected realization amounts to 82 cents in the dollar? Seems absolute madness to me; and
how many law firms out there can continue to operate on such an “historic” low collected realization rate? I know a number of accountants and bankruptcy lawyers who’ll happily tell you: “not many”.

RWS_01

AFAs accounted for less than 10% of all matters in the US last year

This month saw publication of the End-of-Year 2015 edition of the Enterprise Legal Management Trends Report by LexisNexis and CounselLink.

Based on data derived from outside counsel invoices – accounting for US$21 billion in legal spend in the USA – processed through the CounselLink platform, to my mind what makes this Report different to others is this: it provides insights others might miss because while talk can be cheap, the numbers rarely lie.

[click on image to enlarge]

From an Australian perspective, a couple of surprising statistics come out of this year’s Report.

the use of AFAs, to govern the service payment of matters, only accounted for 9.4% of matters processed through the CounselLink platform. Given all the chatter and whining you hear from law firms, I would have expected this rate to be much, much higher.
Employment and Labor (at 17.3%) is a fairly significant practice area leader in the number of matters (but not revenue – see below) using AFAs, but Real Estate accounting for something less than 2% of its practice area matters using AFAs seems out of whack.
Nearly 10% of Regulatory and Compliance matters are done under AFA arrangements. At first this seemed a little strange (given the grey hair nature of the advice being sought), but then I thought a large number of compliance programs could be sold using retainers, fixed fees and other AFAs.

[click on image to enlarge]

Moving on to percentage of “billings” executed under AFAs and things start to get really interesting.

at 12.4%, by far the biggest practice area using AFAs by billings is Corporate, General and Tax (excluding Mergers and Acquisitions, which is a separate line entry). Not sure I would have guessed that.
Finance, Loans and Investments ranked third highest practice area using AFAs by billings last year. Again, don’t think I would have picked that.
by billings, only 7% of Employment and Labor practice area matters are executed under AFAs. So, 17.3% of Employment and Labor matters were conducted under AFAs, but only 7% of billings. Might just be me, but that seems strange and I’d want to dig deeper into why that might be the case if my practice was showing these numbers. Then again, may just be the Pareto Theory in practice!
At roughly 2% of practice area billings, who says Real Estate has become a commoditized practice area? Because these numbers aren’t showing it.

Interesting numbers showing through this Report. Lots of chatter around the rise in M&A activity/revenue and the fact that “New Law” isn’t being hired to do big ticket work, but the use of AFAs and rationalization of legal panels (which I may well blog on later this week) were my two big takeouts.

RWS_01

Medibank Idea Exchange

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

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

What did I find?

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

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

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

RWS_01

Are international law firm offices worth the trouble?

I’ve read four news items in the last 24 hours that, frankly, would make any law firm managing partner ponder on whether there was any value in opening an international office or two.

1. PWC’s 2015 Annual law firms’ survey

The first item I read was PWC’s 2015 Annual law firms’ survey – specifically the ‘Global operating and financial performance‘ section, which included the following doom & gloom news:

The UK continues to subsidise international offices and exchange rates have further accentuated the imbalance this year. UK profit per all partners is ahead of international by 74.4% (2014: 65.8%) in the Top 10 and 88.5% (2014: 66.8%) in Top 11-50 firms. Fewer chargeable hours and consequently higher fee earner staff cost ratio in international offices is the key differentiator.
International chargeable hours for the 1-5 years pqe grade are significantly behind UK offices (between 3% and 33% across the bandings) with the exception of Top 10 firms in the USA (no difference) and Top 11-25 firms in the Middle East (1% in excess of UK performance).
Top 11-50 firms continue to expand internationally, with mixed results as the range in performance widens. Average global net profit margins now range from 23.0% to 44.0%.

There’s more, but I think you get the picture:- international law firm partners are effectively being subsidized by their UK partners.

2. Merged Firms Contend With Weak Aussie Dollar

The second item was by The Asian Lawyer over on the americanlawyer.com who published an article yesterday on an issue that I’ve blogged on no less than four times since 2013 – ‘Merged Firms Contend With Weak Aussie Dollar‘.

The article mentions the entry into the Australian legal market of Herbert Smith (Freehills), Ashurst (Blake Dawson), K&L Gates (Middletons) and King & Wood (Mallesons) and contends that each largely saw the weakening of the Australian Dollar prior to merging and were still happy to proceed with the merger.

It’s definitely an interesting read, if not a little flawed. For a start, K&L Gates are on record as saying that the fall in the Australian currency has hurt them.

If you add to that the HSF tie-up was probably more a “Freehills” driven deal than “Herbert Smith”, and add that currency fluctuations would probably have been the last thing discussed in the Swiss Verein tie-up of KWM, then you’re only left with Ashurst – and rumblings in the UK industry press would seem to suggest that they are not overly happy with the results from their Australian operations at the moment.

All in all then, despite the upbeat message in the article, not a particularly good advertisement for international operations in my opinion.

3. China set to invest £105 billion in UK over next 10 years

The third article I read was in the China Daily no less, which stated that ‘China set to invest £105 billion in UK over next 10 years‘.

This item, based on research done by think tank the Centre for Economic and Business Research and international law firm Pinsent Masons, is on the back of a trip to the UK by President Xi Jinping.

It nevertheless provides some insight into why Pinsent Masons felt the need to open an office in Australia, even after its merger talks with Australia firm Maddocks fell through. It also makes one think that there’s a world of opportunity out there if you have the right international strategy.

4. Cross-border M&A surges

The last was an item I read this morning over on the Australasian Lawyer website – ‘Cross-border M&A surges‘.

This article highlights the findings of a new study by international law firm Baker & McKenzie and again touches on a topic that I’ve blogged about in the past, namely that:

“Australia is a significant destination for inbound cross-border M&A and that’s a trend that has continued in recent years and in the past 12 months, there has been a number of significant cross border M&A transactions into Australia,” Baker & McKenzie Sydney partner David Holland told Australasian Lawyer.

While the last two items undoubtedly give you cause for why a law firm would have international operations, I’m nonetheless cautioned by another my recent posts: “A bridge too far” : When international law firm mergers turn sour, which also featured a certain K&L Gates.

BTI’s The Mad Clientist: New Business for the Taking: Corporate Counsel Shift Work Back to Law Firms

In private practice and looking for a good news story to read this weekend? Then BTI Consulting Group’s The Mad Clientist may well just have it.

According to his latest blog post,

“After 4 years of feverishly bringing work in-house [following the GFC] corporate counsel are reversing course.”

Is that cries of joy I hear ring out?!? If so, the news only gets better. Because not only are in-house counsel shifting work back to law firms, but the type of work they are sending out is the sweet spot big ticket matters. Indeed, according to BTI’s study of 322 corporate counsel, “Chief Legal Officers expect a tripling of bet-the-company litigation, increases in class actions, and substantially more securities litigation.”

But before you go clambering over your other partners to get on the phone to your in-house counsel contacts, keep in mind that (1) the study was done in the USA, and (2) BTI is of the opinion that:

“The big winners will present themselves to clients as strategists and discuss risks and exposures before the matters ever start. The bigger winners will discuss prevention, potential settlement postures and learn about the business risks posed by the new matters.”

Putting that aside for a second though, we can but hope that the tide is turning here and that the pendulum has once again swung back in favour of private practice. But in order to be best placed to take advantage of this development, you need to be working through your client plans (including engagement and communication actions) now so that you can be ready to take full advantage of whatever 2016 throws at you!

Until then, “have a great weekend!”

A ‘Failure To Deselect’?

Read a fantastic rant by Barrie Seppings – Director of Creative Strategy at wordsearch, the world’s leading marketing network for architecture, property and real estate – on the Firebrand Ideas Ignition Blog yesterday titled “Copywriters: What the %$@#* are you saying?“.

Barrie’s post get my approval merely for quoting Don Watson, Paul Keating’s former speechwriter, brilliant book Death Sentence – and if you have ever written a tender and not read Don’s book, please do!

Anyhow in his post Barrie makes mention to something I had not heard of before and which he terms a ‘Failure to deselect‘, being:

“… a fear that unless we say every single thing we can possibly say about a brand or product, we therefore fail to communicate the full range of the brand’s attributes. And we therefore fail as marketers. So, to avoid failure, we use all of our words to try and say all of the things.”

Now, swap out ‘brand or product‘ and ‘marketer‘ and replace it with ‘law or regulation‘ and ‘lawyer‘ and does this sound familiar to you?

It certainly did to me. And in this time of ‘doing more for less‘ in law, it got me to thinking: are we actually suffering from a ‘failure to deselect’?

Is an iTunes store for professional services the next big thing?

Today the Australian Financial Review has published a very interesting article (‘iTunes store for professional services‘) that states:

“Global professional services giants will invest hundreds of millions of dollars over the next 18 months to build iTunes-style repositories of software-supported services that can be distributed to clients through a digital shopfront anywhere in the world.”

going on to state that: “[KPMG] is throwing $US200 million to $US300 million ($425 million) at populating this repository with “disruptive technology assets”“.

All sounds a bit far fetched doesn’t it?

Or does it?

We already know that a number of leading law firms in Australia have developed client facing apps since Gilbert + Tobin’s Telco Navigator app was awarded ‘Services to the industry’ in the professional services category at the 2014 Communications Alliance and CommsDay (ACOMMS) Awards.

Most recently this has included the very informative K&L Gates Hub platform, which is described as being:

“a digital destination for timely insight on critical issues at the intersection of business and law.”

So while law firms may not be throwing $US200 million to $US300 million at this development, there’s little doubt that iTunes (as well as Google Chrome App) may well play a significant role in the way law firms distribute their thought leadership in the future.

And while there is absolutely nothing wrong with this, it made me recall another quote I read this morning to the effect that in the future it may well be the case that your firm’s differentiating factor could be as simple as having the human touch.

Which would you prefer: to be well known, or well paid?

This week saw the publication of Acritas’ report of the ‘Best Known Firms the World Over, 2015‘.

For regular readers of this blog, my views of reports of this kind should be pretty well known by now (hint: I don’t hold them in much stock).

However, this year’s Acritas report goes a step further:- not for who is in the report, but for who isn’t.

And who might they be?

Well, in Slaughter & May and Quinn Emmanuel, only two of the most profitable law firms in the world.

Which rather goes to show that either:

(a) “detailed telephone interviews of 1,059 heads of legal departments, their deputies or chief operating officers at 1,048 companies at randomly selected companies with gross revenues of at least $1 billion” means that neither of these firms is that well known, and/or
(b) there’s very little correlation between being well known and being well paid.

Given the choice though of coming top of a league of well known law firms or top of a table of most profitable law firms (profits per equity partner), I know which I’d choose.