law firms

Is putting profit before culture such a bad thing for law firms?

In 2004, while working at Linklaters, Tony Angel – the then recently appointed Managing Partner of the firm – introduced a new strategic direction that was to become known as ‘Clear Blue Water-– A Vision for Linklaters in 2007‘. Much as was being advocated in Renée Mauborgne and W. Chan Kim’s Blue Ocean Strategy, published around the same time, the intention of Angel’s Clear Blue Water strategy was to create a clear space (as opposed to red oceans) between the firm and it rivals.

For many of us who worked in the firm at the time, this represented a high-water mark. It was made very clear to all that Linklaters was now very much a business: profit trumped culture.

Sure culture was nice to have, but not if it had any material impact on profit.

But was this such a bad thing?

As someone who lived through the 2004-2007 era at Linklaters, I can honestly say “no”.

To be clear, there is little doubt in my mind the firm became more “professional”. Many of the business development, marketing and knowledge management work that had traditionally been done by lawyers was taken off them and given to dedicated teams. The firm introduced key account programs around their top clients. Blue Flag (Linklaters online client portal – that included early use of HotDocs) was a flagship program. Precedents and ClauseBank were core strategic projects.

But importantly, financial analysis was undertaken to determine the difference between revenue and profit and how both revenue and profit could be increased (which didn’t necessarily mean a reduction in costs – for example, the business case behind Blue Flag was the first example of an alternative revenue stream I saw in a law firm).

All of this was then extended to sectors when clients started to say they valued, and appreciated, sector specialists (Linklaters was the first place I worked at that had a virtual practice – The Indian Desk, back in 2005-ish which operated from London, New York, Singapore and Dubai).

Despite – or even because of – an overall strategy to significantly increase profit, large amounts of money were invested in putting in place strategic teams that could help implement and execute on this strategy. Professional KM, marketing and business development people came in to the firm from all walks of life and people who had never worked in professional services firms previously were now doing so.

Importantly, my personal experience was that their voices, counselling and advices were being taken onboard. Sure partners may disagree – and ultimately we all knew that the buck stopped with them, but it was also made clear that they appreciated and valued our input.

Another important aspect of Angel’s Clear Blue Water strategy though was transparency.

Everybody in the firm knew what we were trying to achieve. We knew what was required to get us there (including I might add an absolute understanding that this would involve an incredible amount of hard work). We knew how we were tracking and which parts of the business were struggling to achieve their goals. From my memory (and it was 10 years ago now), this wasn’t done with malice but so that we knew who needed help.

In short, the strategy bred a culture. A culture that many who were not in the firm may have considered elitist, but a culture nonetheless: to be at Linklaters at that time was to know you worked among the best (and if you doubt that, track the CVs of many of the leading BD/Pricing/KM people around the world and see who they worked for during that time).

So why, 10 years after I left, have I decided to bring this all up now?

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The answer to that lies in the decision this week by Herbert Smith Freehills (HSF) to open a second office in Sydney.

This second office will be at 66 Talavera Road, Macquarie Park, while the principal office will remain at 161 Castlereagh Street. It is currently being reported that between 200 and 300 support staff (that may not – for now – include BD people) will be moved to this Macquarie Park office.

To my mind, this move eradicates all pretence of a ‘one firm’ culture having anything to do with the running of this firm. Conversely, it cements the ‘us’ and ‘them’ culture. If you are in Castlereigh Street, you’re ‘in’. And if you are in Macquarie Park, well you’re not! Worse, if you get moved from Castlereigh Street to Macquarie Park, you could consider it a demotion (especially given there will be no train line servicing that office for 10 months in the next year or so!).

But again, as someone who has advocated for the outsourcing of support services in law firms (in much the same way as a number of firms in Asia did post the Asian Financial Crisis) for more than 10 years the question should be: is this such a bad thing?

And my answer to that is “no”.

But my answer comes with an important caveat from someone who has been through similar strategic processes, and that is this: everyone at the firm in now on notice – perform, or you’ll be in Macquarie Park – or even out altogether – before you know it!

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#BizDevTip: Develop Value Groups

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Over toast and coffee this morning I read a cracking post on the LexisNexis Business of Law Blog by Carla Del Bove titled “Understanding the Science Behind How Clients Think“. The post provides some good tips for law firm business developers and marketers, but includes an absolute gem of a tip: “Develop Value Groups” (number 2 in the list), which Carla Del Bove describes as being:

“A value group is simply a group of influential business professionals (e.g. CFOs of major corporations or office managers of the top five consulting firms across the country, etc.) who meet either quarterly, or three times a year and share a common interest.

The first step involves figuring out who the firm’s target group is and then finding a common theme that draws them in and keeps them engaged. Some examples of this include: inviting members of the group to a prestigious event or using a prominent key note speaker for meetings. Most important, they say, is there needs to be a clear purpose for getting together and participants need to get some value out of the meeting. Lastly, they agree, value groups are less about quantity as they are about quality.”

Really useful tip by Carla that I thought I would pass on to you. Make sure you read the rest of Carla’s post and if you would like to get updates on other business development and marketing related material I read each week, feel free to sign up to my free weekly Mail Chimp update (or email me if you want to be added to the subscriber list).

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How long before we see a ‘Red Team’ service in #Auslaw?

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Of note overnight (OZ time) was news that Bernero & Press (Wendy Bernero and Aric Press) have launched a service called: ‘The Red Team’.  Described as being “A Lifeline for Marketing and Business Development Departments” the aim of The Red Team is to provide:

“…high-quality, experienced marketing, communications, and business development professionals to law firms on a project basis or to fill temporary needs.”

Sounds very similar to the sort of lawyer placement service we are seeing from the likes of Crowd & Co here in Australia, only in this case the target market is specifically support services.

I have to say that outsourcing back office services such as marketing and business development was something I saw becoming popular in Asia during the Asian Financial Crisis in late 1998 and I have often wondered when we would see such a move take hold in the West.

Today may just be that day.

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Will a ‘One Asia’ strategy work for BLP?

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I spent just over a decade in Asia between the 1990s and mid-2000s. In all the time I spent there I never considered the Region as ‘One Market’ – but rather as a multitude of diverse and different markets.

By way of example, almost everything we did in Asia was “ex-Japan“. This wasn’t because we didn’t see Japan as part of “Asia” – as it very much is – but rather because the international legal market there (NB, the Japanese local legal market is a very different issue) has far more in common with the US market than the Asian. As a result, we lumped Japan in with the US when discussing strategy (and you’re free to question that thinking/strategy).

Likewise, any strategy discussions we had that involved Singapore almost always included India, the Middle East and the Philippines. Similarly, strategy discussions that involved Hong Kong included not only mainland China but also Indonesia.

Finally, SE Asia (Thailand – where I was located, Myanmar, Laos, Cambodia and Vietnam) was its own regional discussion.

All up then, when discussing “Asian” strategy we had four or five discussions – not one.

That said, I worked with (but not for) firms (notably Herbert Smith as it was then) who operated on a fly-in fly-out basis. In my day we called this the “hub and spoke” approach, where the expertise went to the client need and, I have to assume, strategic discussions were done on a Regional basis.

While not criticising firms who took this approach – some did very well out of it – I didn’t think it worked for the firms I worked with as we held the view that, probably more so than any other market in the world, Asia operates on a relationship basis. Our experience was that relationships trumped expertise, and in the very family operated business world of Asia at that time, cost.

So why the history lesson?

Last week, in the Asian Lawyer, I read Bob Charlton – Asia Managing Partner of Berwin Leighton Paisner (BLP) – comment, following the firm’s Asian retreat, that:

“…in broad terms we agreed we must have a one Asia approach.”

Interesting, I wonder what BLP could mean by “a one Asia approach“?

Fortunately the article sets out exactly what that means:

“BLP’s “one Asia” strategy means the firm is doing away with the concept of geographic and practice area distinctions, focusing instead around sector groups. These groups include aviation, construction, oil and gas, private wealth and shipping.”

Now that really is interesting because, frankly, I’m not sure it is going to work.

A sector focus in Asia is a sensible move. A sector only approach to market in Asia is gutsy to say the least.

I say this for two reasons: (1) ‘relationships still trump in Asia’, and (2) Asia is not now, nor will it be for a very long time (if ever), one economic zone. That’s the case both for inbound and outbound work. And even if you don’t want to have people on the ground (which I would strongly recommend you do), you need to consider the geo-political economic implications separately.

And I’ve said all of this without mentioning the elephant in the room: “AdventBalance”. I wonder if they take a sector approach to their strategic thinking in Asia…

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

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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?

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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.

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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.

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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.

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Altman Weil Flash Survey: Has the era of data driven pricing arrived?

Last week saw the publication of Altman Weil’s 2016 Law Firms in Transition Survey. Now in its eighth year, this survey continues to be a good indicator of the market forces law firms are facing and in recent years it has been a good indicator of the fee pressure clients are putting on firms.

So, how have firms been tracking when it comes to pricing pressure issues?

At first blush – well. When asked: “Is your firm doing any of the following to support its pricing strategy?“, “Developing data on cost of service sold” and “Training lawyers to talk with clients about pricing” rank head and shoulders (in first and second spot) above everything else.

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Clearly moving in the right direction then, reinforced by the overwhelmingly positive response to: “Is your firm proactively initiating conversations about pricing / budgets to better understand what individual clients want?

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until we get to this shocker…

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So, almost half (44%) of law firms are now training lawyers to have the pricing conversation with their clients, a whopping 88% of firms are proactively initiating that conversation – and yet three-quarters (72.2%) of firms only make use of non-hourly based billing methods in response to a client request.

Am I the only one who finds that incredible?

But really, why does it even matter?

Well, here’s your answer:

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There’s a clear lesson here for anyone that’s willing to listen to it: if you want your firm to be more profitable, be on the front foot when it comes to opportunities to provide alternative fee arrangements.

If you haven’t already, I’d like to recommend you download and read the full survey, if for no other reason than it contains this gem…:

 

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Which, if you believe, suggests that around half of all law firm partners are not even aware of the challenges their firms face!

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