law firm partners

How well are we doing at exporting #Auslaw?

Finally, some years after the Australian Government first announced and then consigned to the dustbin its ‘Australia in the Asian Century‘ whitepaper, a fair amount is being written around the issue of exporting Australian professional – read, ‘legal‘ – services, including:

The Australian – ‘Service exports to Asia a $163bn opportunity‘ (subscription required),
The Australian – ‘Free trade opportunity knocks for services providers‘ (subscription required),
The College of Law website – ‘#AusLaw: Australian Legal Exports are Trending Globally‘ – from which the title of this blog post is derived, and
The Conversation – ‘Australia’s five pillar economy: services‘.

While it is undoubtable that the export of Australian legal and professional services is a trending issue on an upward trajectory, it is still probably a little early to say (as the College of Law post does) that “Australia is now trending on a global scale” (vis-à-vis the export of our professional services) – although, to be fair, the export of Australian lawyers (to which the College of Law would have a particular interest), particularly to the UK and New York, has been ongoing since the early 1980s and continues to this day.

Moreover, given that the Australian International Disputes Centre (AIDC) was established way back in 2010 (with the assistance of the Australian Government and the Government of the State of New South Wales) and still lags behind both the Singapore International Arbitration Centre and the Hong Kong International Arbitration Centre, the export of #Auslaw has undoubtedly been a slow burn.

So while I for one applaud the latest chatter around an impetus to export #Auslaw, I hope that this time we are serious and take the time to have a robust conversation about whether or not we wish to seriously promote (and lobby) the export of #Auslaw overseas. And, assuming we decide we do wish to progress with the export of #Auslaw overseas, we put in place concrete national plans to move this initiative forward rather than taking the lacklustre state-based approach we have to date.

National survey finds that there are 66,211 practising solicitors in Australia

The ‘2014 Law Society National Profile of Solicitors in Australia’ report was released this morning on the NSW Law Society website.

The first time this report has been updated since 2011, key findings include:

there are now 66,211 Practising Solicitors in Australia – a 12% increase since 2011.
of all practising solicitors in Australia:
- 34,10 (51.5%) were male, and
- 32,110 (48.5%) were female.

This represents a significant increase in the proportion of female solicitors since 2011 – when the percentage number ratios were 54.6% male to 43.4% female.

while the mean age of Australian solicitors has remained roughly the same at 41.9 years – compared to 42.0 years in 2011, interestingly the largest proportional growth age bracket is occurring in the over 65 years age group (with a 38% increase in this group since 2011).
as at October 2014, the majority of practising solicitors in Australia were private practitioners – 70.2%; with the percentage numbers in other major sectors of the profession in Australia remaining fairly static since 2011 – 15.8% were corporate solicitors and 9.6% worked in the government sector.

Most interestingly, while overall the Australian legal market remains represented by small practices – 2,155 firms (17.3% of the total) had 2 to 4 partner and 514 firms (4.1% of the total) had 5 to 10 partners:

there are now 77 law firms across Australia where the number of partners exceed 40 – representing a 300% increase from 2011, and
there are now 74 law firms across Australia where the number of partners range from 21 to 39 – representing a 111% increase from 2011.

In addition to potentially showing significant consolidation in the Australian legal market over the past three years (the overall percentage representative number of sole practitioners is actually down roughly 3% in 2014 from 2011), these numbers would appear to indicate that the slow death of large law firms, and the professional more generally, is being greatly over exaggerated in the Australian legal press.

Indeed, one could argue that now more than ever the market in Australia is highly competitive and that it is becoming increasingly important that you and your firm be able to communicate what differentiates you from the crowd.

If you haven’t already, I’d like to recommend that you take a look at the report – it contains some very interesting statistics; including, for the first time, statistics on the representation of Aboriginal and Torres Strait Islanders.

A quick test to help determine if you’re providing value to your client

In today’s legal world you often here people talking about “doing more for less” and/or that they are providing “value” to their clients, without much of an explanation as to what constitutes “value” – with the best shot usually being:

“value, like beauty, is in the eye of the beholder“.

Indeed many thousands, if not millions, of words have been written about making sure you “add value” – not to be confused with “added value”, which is a whole different subject – but very few of those written words have made any real attempt [from what I can see] to try and nail down a definition of “value” from a client’s point of view.

And while there is little doubt that every single person’s definition of value will be different – and in many cases, each individual person’s definition of value will alter depending on the circumstances they face at the time they are asked to define “value” to them – the following two-part questionnaire suggested by Nathaniel Slavin (of Wicker Park Group) in his recent post on the Bloomberg Big Law Business website, ‘The Perception of Value Differs Among Clients‘, probably goes closer than anything I’ve seen so far to answering this conundrum:

Does my lawyer understand how I define success and all the myriad components that impact that success?; and
Do they accomplish that goal in a manner, financially and otherwise, that helps us further our business goals?

And if, as a private practising lawyer, you can answer “yes” to both those questions – while you cannot be certain you are delivering “value” – you can be pretty sure you are delivering overall client satisfaction levels that are going to get you as close as you can possibly get to a modern day definition of “delivering value to your client“.

Some reasons why every lawyer should be encouraged to do fee estimates

Fascinating blog post over on the pmhut.com website recently (30 April 2015) by Terry Bunio, Principal Consultant at Protegra, on “Why I Like Estimates” that should be add to the “must read” list of every lawyer and law firm business developer who hasn’t already read it and adopted its principles.

Some of the things that Terry sets out that really resonated with me in this post included:

Estimates make me think through a solution

“When I estimate I am forced to examine project details and technology and think through the deliverables at a detail level and how we would build them. This helps to identify issues early and give the team and client lead time to decide on a resolution. When you discover issues late in the game, your options are limited and client anger usually follows.”

Precisely the same reason why lawyers should be doing cost estimates before agreeing to undertake a matter. It makes you think through what the issue(s) is/are, how you are going to deliver the desired result to the client and what sort of resourcing you’ll need. You should also be able to determine at this time what you cannot deliver to the client.

Estimates create a shared understanding

“…the discussions that occur while estimating are invaluable. These discussions create a shared understanding throughout the entire team.”

Terry is absolutely spot on here. It should also allow you to assign what work the firm will do, and what work will be outsourced (to an LPO) or insourced (to the in-house team). It sets out a task management process from the offset and reduces the risk of scope creep or out of service work being done. QED, if you follow this process at the end of the day you are much less likely to have an upset client.

Estimates allow Clients to allocate post Minimum Viable Product budget to other initiatives

“Clients are not going to reserve large budgets just in case an Information Technology project needs it. Clients have a very limited budget and there are always more initiatives than budget. Allowing clients just to stop projects at any point does not recognize the lost opportunity cost by not starting additional initiatives that could have placed them ahead of their competitors.

Again Terry is right. While lawyers rarely want to get their hands dirty talking money upfront on a matter, it should be kept in mind that money is a limited resource to your client (as it is to your firm) and every dollar your client spends with you is an opportunity cost to the client’s business – vis-a-vis that dollar being spent elsewhere. It should therefore be incumbent upon you not only to ensure that your client understands how much they will likely be required to pay for the matter but also for you to reduce any likelihood of your firm either having to write down time or simply not be paid for out of scope work done by your team.

In short, as Terry writes: “Estimates matter” and going through a robust matter cost estimate process with your client before any instruction to act on a matter should be recommended and adopted as best practice by all lawyers.

‘Stupid is as stupid does’

In the 1994 movie of the same name, Forrest Gump is asked:

“are you stupid or something?”

to which Forest replies:

“stupid is as stupid does”.

Some 20 years later (yes, it really has been that long!), in general parlance this phrase has come to mean that:

‘an intelligent person who does stupid things is still stupid’ – (Urban dictionary)

and I have to say that this thought went through my mind earlier this week when I read that a third of [UK] commercial firms are likely to raise their rates in a bid to boost their profits (Solicitors Journal 6 May 2015 – “Number of law firms planning to raise charge out rates increases“).

Leaving aside the issue of whether a direct raise in your rates will equate to increased profits (for example, the psychological impact of rising rates/budgets on fee earners with no increased salary (cost)) – what in the world would make 26 (1/3rd) of so-called intelligent finance directors of the UK’s Top 100 law firms say “it is likely their firms will increase their charge out rates in order to improve profitability in the year ahead“?

As I have blogged countless times before (the most popular being: ‘Is it time for law firms to break with the RULES when looking at profitability?‘), hourly rates are but one of the metrics in calculating profitability. And it’s probably not even the biggest metric driving your firm’s partner profit levels, which almost certainly would be better achieved via an increase in your realised rate.

Putting this mathematically (admittedly not my strongest area), say my hourly rate is $100 and my realization rate is 90%, then I’m being paid $90-. Taking this forward I’ve decided to increase my hourly charge-out rate to $110-, but find that my realization rate has now fallen to 80%. If my maths is correct, I’m now being paid $88-.

In other words, in real terms, I’m losing money!

Don’t think this could happen? Then take a look at Charts 4 & 5 from the ‘2015 Report on the State of the Legal Market‘ published by The Center for the Study of the Legal Profession at the Georgetown University Law Center and Thomson Reuters Peer Monitor (at page 5)

Those charts don’t make for pretty reading.

So when, as the article reports:

“…firms realise this is not going to be an easy sell to clients who are likely to negotiate hard to keep fees down, so their approach to increasing charge out rates is likely to be softly softly, rather than gung-ho”

my response would be: “why bother?”.

Instead,

try keeping your charge-out rate the same over the next 12 months;
try not to give discounts;
try to increase your realisation rate (by 3 to 5 cents in the dollar);
try to reduce your lock-up days;

and see where you end up.

You may just find that has a better impact on your partner profitability numbers than the likely impact that is going to come your way when you go annoying and off-siding your clients with the almost obligatory 1 July 10% rate increase letter.

But I could be wrong…

Your law firm’s brand recognition: How much does it really matter?

Earlier today Dr George Beaton (@grbeaton_law), Partner in Beaton Capital and an associate professor at the University of Melbourne, posted the following question to Twitter:

“Which firm is the ‘world’s strongest’? Skadden or Baker & McKenzie or Jones Day. Confusing”

With a twitter pic link to an article on the Global Legal Post website that contains links to the following “Related stories”:

Leaving aside the issue of financial strength, as George’s tweet clearly infers brand strength, the question I always ask when I see news items and survey responses of this nature is this:

Does it really matter?

And the answer to that really depends on what my firm’s overall strategy is.

Taking a step back, whenever I’m asked in my role as a business development consultant by law firm partners of the importance of such survey findings I will often respond by asking them the following question in return:

Imagine we are on a long distance flight on an important business route – say Sydney to London or Tokyo to New York. Now, say I give out a questionnaire to all 300 plus passengers on that plane asking them the simple question of whether or not they have heard of your firm. Would you prefer:

A. a greater percentage of passengers in first class to have heard of you?

B. a greater percentage of passengers in business class to have heard of you? 0r

C. a greater percentage of passengers in economy class to have heard of you?

Now if your firm’s business plan is to be doing “premium work for premium clients”, then my guess is you’d want a greater percentage of first class passengers to have heard of you. Similarly, if your business plan is to be working with the top ASX 200 companies, then I would hazard a guess you would want to be known by both first class and business class passengers, with the edge being on the greater brand recognition among the business class passengers. Finally, if your firm’s business plan is to be a leading B2C law firm, that I’m guessing you wouldn’t mind if your brand is widely recognised by the economy class passengers.

A very simplistic way of looking at this issue? Very much so.

But, at the end of the day, despite headlines that read ‘Top legal brands grow 45pc faster than others over last four years‘, I’m very much of the view that surveys of this nature fail to ask a more critical question, namely:

Do you regularly, or have you ever, instructed one or more of these firms you have heard of in the last three years?

Because, does it really matter if you have heard of me but never given me any work (ie, fed me)?

And all of this is before we get into the even more interesting discussion of whether or not you instruct individual lawyers (lawyer name [brand] recognition) – either at my firm or elsewhere – regardless of which firm they work for (lateral hire movements)?

After all, we have a long flight ahead of us…

Beware of wolves in sheep’s clothing

“Beware of the false prophets, who come to you in sheep’s clothing, but inwardly are ravenous wolves.” – Matthew 7:15

It might seem a little melodramatic to start a business development related post off with a biblical reference, but when the global leader of EY Law, Cornelius Grossman, says “I don’t think any firm should feel threatened“, vis-à-vis the march of accounting firms into the legal space, and particularly why law firms have nothing to fear from accountants practising law, it seems entirely appropriate.

On further reading, the firms Grossman says he is refusing to target – and thus by extension don’t need to feel threatened by the continued march of accountants into this space – are those doing “the highest level – “bet the company” – work and premier corporate clients” and who “have established their brands over hundreds of years…”

In other words, so-called Magic Circle firms, their work and client base are safe from the invasion.

But, as Grossman then goes on to say in this legalweek.com article:

“he believes EY Law will succeed with multi-disciplinary teams doing mid-market transactional work”.

adding further that:

“We [EY Law] want to be known for compliance jobs that span over tens of jurisdictions and for large international reorgansiations.”

In other words, the work that just about 80 per cent of us have been trying very hard to secure for a couple of decades now (and in many case incurring significant losses while we try and secure this work)!

So, while Grossman may believe that:

“The threat of accounting firms to the legal market is overstated.”

and that:

“There’s so much work out there that we all compete for – I don’t think any firm in particular should feel threatened by that.”

unless you work for an elite law firm, I would like to suggest that you be a tad weary of wolves in sheep’s clothing telling you that there really is nothing to be overly concerned about and that there really is enough food out there for all of us to feed on.

From the client’s perspective

Overnight (Australian time) Bruce MacEwen, President of Adam Smith, Esq and a leading commentator on professional services, wrote an outstanding blog post – ‘The Client Seat‘.

The post outlines some of the personal experiences Bruce has recently encountered as part of his role as Chair of the Finance Committee of his local church, St. Michael’s Episcopal Church at West 99th Street and Amsterdam Avenue, who own a vacant corner lot abutting the rear of the sanctuary and are looking for ways to realize some value from the asset; and, specifically, as it relates to the process of interviews the church is going through to select and engage a law firm to assist them in this process.

I anticipate there being a lot of commentary written about Bruce’s post – if there isn’t already. It raises a number of thought provoking issues of what it feels like to be sitting in the client’s seat as part of this process and some of the gems that lawyers and law firms come out with to try and impress a prospective client into appointing them to do the work – even where they may not be qualified to do the task at hand.

But what really grabbed my attention in the post was the following observation Bruce makes:

The other asymmetry is one of disclosure and, to be pointed about it, candor: The client needs to tell the firm as much as honestly possible about the engagement and what the client knows, while the lawyers’ instinct and practice is to guard information, hedge predictions, and avoid definitive statements. This is true even when the firm is posed direct questions about simple business arrangements and not ultimate outcomes, such as “Who will be working on my matter?”

This is such an on the money observation of the profession, but think about it for a second:

In an age where open candour and transparency around both your personal and your firm’s credentials will most likely win you and the firm the trust of clients and prospective clients, and thus a lot more work in the long run, why do lawyers still feel the need to be guarded and reluctant to give straight answers to straight questions?

How often do you let your clients know the value you provide to them?

Based on interviews with 188 independent lawyers and more than 500 clients, the LexisNexis Bellwether Report 2015: the Age of the Client (published earlier this week) found that:

“80% of lawyers think they’re delivering above average service…

… but only …

…40% of clients say they’re receiving it.”

What does this mean?

Well, either:

You’re not as good as you think you are; or
You’re not communicating well enough to your clients the value you bring to the transaction/relationship.

I’ll leave it for you to decide which you think applies to you.

CommBank Legal Market Pulse report – Q3 2014/15

The third quarter (Q3) FY2015 edition of the CommBank Australian Legal Market Pulse Report (Report), with research conducted by Beaton Research + Consulting, has just been published.

As usual, the Report provides useful insights into the latest thinking of Australian law firm managing partners/leadership, as well as the trends and developments impacting on the Australian private practice legal industry sector.

Interesting outtakes from the latest edition of the Report include:

although short-term (next 12 months) economic confidence is fairly dire, the long-term (24 months+) outlook is very positive.
surprisingly, given the lack of confidence in short-term economic conditions, every single top-tier surveyed firm is forecasting higher revenue in the next six months. As Marc Totaro’s introduction covers, top-tier firms expect this [next six months] revenue growth to come from Europe, Asia and Sydney; but this paints a little too rosy a picture to me.
both top-tier (67%) and mid-tier (47%) firms anticipate seeing revenue growth coming from their employment teams.
insurance (60%) related work gets the nod as the expected highest revenue growth area for mid-tier firms. While the Report doesn’t elaborate on whether this is claims related or commercial work, the recent re-jig in the market – with insurance teams moving from the top end of town firms to mid-tier firms – must certainly account for some of this positivity. This is probably also reflected in the fact that top-tier firms surveyed forecast a fall in their insurance practice revenue over the next six months.
excepted revenue growth within taxation (50%) ranked higher than I would have guessed among top-tier firms; but maybe this is more reflective of the time of year (Q3).
one possible hidden indicator in the Report: mid-tier firms seem more optimistic about getting their hands on “construction, engineering and major infrastructure” (50%) work than top-tier firms – who don’t rank this area in their top 3 revenue growth practices. On the flip-side, clearly the recent M&A work in “IT, telecoms and media” (think 9 Network and iiNet) has been going to the top-end of town with 67% of top-tier firms expecting this practice area to be one of their highest growth areas.
top-tier firms forecast revenue growth in UK/Europe, Asia, Brisbane, Canberra, Melbourne and Sydney, but revenue in both Adelaide and Perth are predicted to contract.

The Report also provides forecasts on expected realisation rates (and if you thought these couldn’t possibly get any worse, think again), expenses* and outsourcing.

But, saving the best to last, probably the biggest shock the Report contains is the forecasted change in staffing; and, in particular, the bloodbath that is anticipated to take place within the partnership ranks of top-tier firms. And to be clear, a 33% and 67% forecasted decline in net proportion of equity and salaried partners respectively can only be described as a “bloodbath”!

As usual, I suggest you download and read the Report – it’ll make for an interesting weekend read.

* on a personal note, I see there is a forecasted 17% reduction in “Marketing and Business Development” expense by top-tier firms in the next six months. I can only hope that doesn’t come about.