law firm management

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.

rws_01

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.

rws_01

Report: LPO market to swell to $30BN by 2027

The legal process outsourcing market, valued at $8 billion in 2020, is projected to grow at a compound annual rate of 22% from now until 2027, when it is expected to have swelled to $30 billion

According to a report highlighted in a recent (20 July 2022) article by Trudy Knockless on law.com (‘“High demand for precise legal assistance at affordable costs is likely to drive the industry growth,” according to a Global Market Insights study‘), the legal process outsourcing (LPO) market is back in vogue big time and India is – again – leading the way.

Knockless’s article is not, however – in my opinion – without some elements of controversy.

On the one hand,

Jason Winmill, managing partner of the legal consulting firm Argopoint, said the move to outsource legal work to India is motivated by the relentless ongoing pressure to reduce in-house legal spending.

Which, I have no doubt, is true.

On the other hand, however:

India is favored for its low labor costs and high availability of skilled lawyers who are proficient in English.

And, to be clear, when we’re talking about ‘low labour costs’ here, what we are talking about is:

…legal workers earn about $12,000 to $30,000 a year reviewing contracts, handling legal research, subpoena responses and document reviews and completing other tasks…

Which, when you consider

N.Y. law firms raise starting salaries to $215,000 as lawyer pay race continues

see here

Kind of doesn’t seem right.

But then, having said that “India is favored for its low labor costs and high availability of skilled lawyers who are proficient in English”, this is then qualified with:

Most of the work companies move to India involves record-keeping, compliance and document review—mainly nondisclosure and confidentiality agreements, low-level purchasing contracts and routine aspects of Intellectual property.

But hang on a second, isn’t that exactly what $215K a year first-year is doing?

Nope, looks like I might have got that totally wrong

The move reduces legal spending and frees up U.S.-lawyers for higher-value matters.

To be clear, I have no issue with new lawyers in the US/UK etc making as much money as they can – many have what must feel like life time debts. And I have no issue with businesses – whether that be in-house legal or private practice – making money out of outsourcing work to India.

But, are we doing right by those in the Indian middle?

As usual, comments are my own.

rws_01

Photo credit Debashis RC Biswas  on Unsplash

Some red flags that you likely work in a siloed law firm

Pre-empting this post by saying that I don’t know Akin Gump’s head of litigation Stephen Baldini. In fact, not sure I know anyone at Akin Gump.

In fairness I would also add that emails such as the one Baldini sent to his litigation team internally – that recently went viral – are probably written every single day in law firms across the world.

What does interest me with this story though is how it clearly identifies (in my opinion) that the litigation “team” at Akin Gump is clearly not “A” team but rather several different teams.

Why do I think this? 

Well, let’s take a look at at some of Baldini’s opening comments:

“We have recently had an extremely difficult job getting people engaged on matters”.

“Too many calls for help are either ignored or met with “I’m too busy.” These responses simply do not synch with our productivity, which for 2 months has been extremely low.”

Interestingly, Baldini’s email likely highlights a bigger problem in the Akin Gump partnership deed. That is this: it indicates to me that the Akin Gump partnership deed has a Supervising Partner/Instructing Partner component to it, whereby the Supervising Partner of lawyers in their team are assigned costs, but the Instructing Partner is assigned revenue without needing to necessarily share the costs of the resources they are using outside of their “busy” team (a version of ‘Eat what you kill’ that is played oh so well in many law firms).

To my mind, this accounting issue is a major barrier to internal collaboration in many (if not, most) law firms.

Now I could very well be wrong with that statement, but if you listen to the underlying plea in Baldini’s email:

We need engagement and intensity from everyone on the Lit team across the firm – we also need to act like a team. We need to help each other by easing the burden that is falling on colleagues, and we need to work together to meet our clients’ needs. So when you are asked to help out, please promptly respond, and if you have any capacity please say ‘yes’.

And, if you have capacity, proactively reach out and let others know. We are all professionals and we need to practice with a high degree of commitment to our clients and each other.

I think you might agree that there could well be a silo team mentality happening here.

As usual, comments are my own.

rws_01

Photo credit  Waldemar Brandt on Unsplash

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

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

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

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

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

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

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

rws_01

What’s hot and what’s not in #Auslaw

My article on ‘What’s hot and what’s not in #Auslaw’ was published in PM magazine this month.

My thanks to Matt Baldwin and the team at PM magazine for giving me this opportunity!

You can read the article here:

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

rws_01

Why you need a client Engagement Letter and, importantly, why you need to keep it updated: Two recent cases

First off, for those who don’t know differently: in the world of professional services firms an ‘Engagement Letter’ isn’t an expression of love to another. Indeed, for us an ‘Engagement Letter’ might better be phrased as a ‘Pre-nup agreement’!

What is an Engagement Letter and why are they so important?
In the world of professional services firms, an ‘Engagement Letter‘ can generally defined as being:

“A document that sets out the business relationship between a client and their law firm. This letter serves as an agreement between the parties on the terms of their engagement. This includes details on the services being offered, client responsibilities, deadlines and compensation.”

Engagement Letters can include more, but in short they set out:

  • Exactly what the Scope of Services being provided are
  • Who is assigned to do what, and
  • How much the law firm will be paid by the client for doing said Scope of Services.

They are important for two main reasons: (1) on the part of the law firm they set out what the client’s expectations are – thus limiting the potential professional indemnity risk on the part of the firm; and (2) on the part of the client they set out the service standards, the expectations – they hold the law firm to account.

So, for both parties: a properly agreed to Engagement Letter sets out the expectations and assigns the risk – “win/win” as they say.

Two recent case studies
So let’s take a look at two recent cases that evidence just how important Engagement Letters are.

In the first case (a US-based medical case), a [medical] patient was billed US$230K for surgery having previously been advised – in their Engagement Letter – that the cost of the said surgery was estimated at US$1,300.

The Supreme Court in that case held that the estimate was protected by contract law, as no formal extension of scope letter had been issued and so the patient was only required to pay the US$1,300 original estimate.

Lesson Learnt: Send your out of scope (or extension of scope or variation of scope) letter out as soon as you are asked to do something that is not in your Engagement Letter.

In the second case (UK-based legal matter), a properly executed retainer agreement allowed a law firm to keep its agreed £300K fee, even though the bond issue that it related to was aborted.

Interestingly, the judge in the second case, His Honour Judge Paul Matthews, previously (as in a week earlier) made a comment – in reducing costs sought by a receiving party because all of the work was handled by a solicitor claiming grade A rates, that:

“it was not for the paying party to identify which work could have been delegated.”

See here

Lesson Learnt: Engagement Letters need to be properly drafted; but, importantly – get yourself a Project Manager to manage the case so that they can constantly review the work and ensure that any Out of Scope work is immediately communicated.

My 5 hints on how to manage Engagement Letters
If you follow these 5 hints, I think you’ll find you have far fewer issues with getting your fees paid:

  1. The most important thing to remember is to have an Engagement Letter with your client!
  2. Once you have the Engagement Letter, remember that it is not a ‘set and forget’ document. Don’t sign it, then put it in the file and forget it. Keep a copy close to hand and review it daily.
  3. If, at any time, you see Scope Creep happening, send an immediate notification to your client that you are being asked to do tasks outside of the originally agreed Scope of Works.
  4. And by ‘client’ here, I don’t mean the person asking you to do the work, but the person who will be paying the bill (accepting they may be the same).
  5. Finally, if your project is big enough, put a Project Manager in charge of reviewing and managing all of this.

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

Have a great week all.

rws_01

Image credit goes to Scott Graham on Unslpash

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.

rws_01

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

Photo credit to Jon Tyson

10 things I learnt during lockdown in 2021; and 1 prediction for 2022

  1. We are more empathetic: right off the bat, I genuinely believe one of the biggest benefits of COVID has been that we’ve become more empathetic – toward both our internal and external clients, as well as our fellow team members.
  2. We communicate better: turns out that individual silos can be a good thing – it’s when you have team silos that problems start to occur.
  3. Personal space is actually a good thing: we are more respectful of others, more understanding – we get that people are human and have competing priorities – such a pick-up time.
  4. We are better listeners: “I forgot to unmute myself” was the standout term of 2020, but the reality is we have become better listeners through this lockdown process.
  5. We are better at giving constructive feedback: I have had way more constructive feedback (both good and bad) during COVID that I ever did in the 25 years prior to it. And not only has the quality of the feedback improved, but also the frequency in which it is given has improved dramatically too.
  6. We use technology better: actually it might not be that use technology better, but more that we are using the right tech tools for the problem at hand better.
  7. More team fun: not sure about you, but I don’t think I have been to as many team virtual quizzes or Friday afternoon drinks as I have during COVID. A relentless approach to real team building has been a big win during the past two years.
  8. Open door policy: we have become much better at having an open door policy with our team members. No question is too silly to ask these days!
  9. Better project managers: juggling all of the complexities of living and working from home has made us much better project managers. We have also become much better at prioritising what is truly important in the moment.
  10. Last but not least, we are far more trusting that our team members are doing what they say they are doing. Monitoring other people at work now tells them that you don’t trust them; leave them alone to get their shit done on the other hand, and you may very well be surprised with the results!

As for my prediction:

A tight labour market is going to continue into 2022 and hiring ‘talent’ will be difficult. This doesn’t just apply to lawyers, but to anyone who works in the legal industry.

Have a great Christmas, New Year and Holiday Season all – and thanks for continuing to read and support this blog.

rws_01

Image courtesy of Sincerely Media

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?

rws_01