law firm management

What does success look like in 2023?

Happy New Year to everyone!

At this time of the year you will likely receive a whole bunch of emails in your inbox coaching you on what success should look like for the year ahead, and how you can make sure you achieve your goals. The reality is though that by week 2 of the new calendar year most of us have moved on from any big picture goal setting ambitions we stupidly set on New Year’s Eve and are, by now, heavily invested in the minuter of day-to-day life of making sure we meet our billable targets!

So, with this background in mind, I wanted to say whenever I think about what success might look like, I go back and read one of the best articles ever written on this topic – a post by Mark A Cohen in Bloomberg Law way back in August 2015!

Straight off the bat, it’s notable that the title of Mark’s post is ‘What are the Right Metrics for Law Firm Success?‘ and not ‘What are the Right Financial Metrics for Law Firm Success?’ – and therein lies one of the primary reasons why I love Mark’s post so much.

Anyhow, in his post Mark sets out the following 14 metrics under the sub-title ‘How should a law firm be measured?‘:

  • Excellence in areas that relate to client business
  • Client retention
  • Lawyer retention
  • Innovation
  • Effective use of technology
  • Alignment of financial interest with clients
  • Flexible billing model
  • Collaboration with clients and others in legal supply chain
  • Efficiency
  • Mentorship and training
  • Diversity
  • Performance metrics — client surveys and internal
  • Job satisfaction
  • Pro BonoProgram and Community Involvement

If you take “getting paid for what you do” and “being profitable” as a given, then I think Mark’s list is about as close to perfect as you can get.

So, if you are still on the “What will success look like in 2023?” or even, “What will success look like in FY24?” (heaven forbid you are that forward thinking!), bandwagon; then take a look Mark’s Bloomberg post – it’s a cracker even 7+ years after it was published!

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 LLCClient 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

  1. The evolution of the hybrid work model to a “more flexible” work model
  2. The growth and reshaping of lawyer leverage
  3. Equity partner growth at more firms
  4. 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.

  1. 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.
  2. 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]!
  3. 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.
  4. 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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Happy 10th Birthday Clyde & Co Australia!

According to a post in Lawyers Weekly today, Clyde & Co is celebrating its 10th birthday here in Australia – “Happy Birthday!” .

How time flies; and there is no doubt that Clydes has done well here in Australia. As the LW article points out, the firm has enjoyed:

“a growth rate of 115 per cent in the country since 2018.”

Which, to be fair, is not a one-off year as the financial figures show:

“The firm has maintained yearly growth rates of over 20 per cent for the past five years.”

As sustainable growth, which over 5 years you have to assume it is, and an underlying culture that must be driving this growth, everyone would say have to say – “wow, can we have some of that!”.

As impressive as these accolades are – and I’m a huge fan* of how this one time shipping insurance firm has been able to pivot into one of the world’s leading cyber/privacy/technology firms which has resulted in Australia currently ranking its global operations as:

“Clyde & Co’s third-largest country by fees generated”

I have a concern.

And that is this:

“Clyde & Co exceeds $100m in annual revenue in Australia”

Followed by this:

As I first pointed out way back in 2013 and several times since, Australian-based law firms primarily earning/reporting revenue in Australian Dollars, but with accounting systems and tax years based on British Pounds (or US$s), face the dragon known as ‘exchange rates’.

So what does that mean?

The answer is in that chart, it is also in the Lawyers Weekly headline, but I suspect – most importantly – it is in the individual Australian partners’ direct contribution, because that chart tells me there is every chance they could be the third biggest revenue earning geographic zone for the firm globally, and a hell of a long way down the pecking order when it comes to partner distribution.

Anyhow, “Happy Birthday Clydes!”

As usual, comments are my own (*although in this case I will add that while I don’t, now ever have, worked at Clydes I do know a lot of people who do and I greatly admire the work they do).

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Photo credit: Morgan Lane on Unsplash

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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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.

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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.

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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!

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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.

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