legal services

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

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:

1263_pm_magazine_jun22_p.6-71 Download

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

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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.

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(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

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.
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.
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.
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.
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.
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.
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.
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!
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.
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.

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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?

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Report: Top growth strategies for law firms for the next three years

Last week saw the publication of the 14th edition of CommBank’s Legal Market Pulse report for 2021. What I recall starting out as a quarterly, then half-yearly, report, now looks to be permanently set as an annual publication (feel free to do a search of my previous posts on the CommBank report to see some of the history behind this).

Anyhow, the overriding message of this year’s Report is that the pandemic had little affect on overall profit growth at most Australian law firms (probably as a result of dramatically reduced costs). And with year-on-year median 12.1% growth in profit, on first look it appears that the profession is going great guns. Which, as someone who advises to the profession, is great news!

But where do law firms think growth will come from over the next 3 years?

How Australian law firms are looking to grow over the next 3 years?

Looking at page 11 of the Report, Australian law firms will primarily look at the following 11 ways to grow their firm’s revenue over the next 3 years:

Marketing and business development activities
Lateral hires from competitor firms
Adopting new technologies
Building/expanding referral networks
Cross- and up-selling strategies
Increasing fees
New models of service delivery
M&A activity
Graduate intake
Boutique/niche practices
Diversified or non-traditional legal services

(more…)

From 996 to 1075 and a cap on billable hours – what’s going on?

If you missed it, last week TikTok owner Byte-dance announced that it was moving its employees away from their 996 work week to a new 1075 work week.

For the uninformed, which included me until last week, 9-9-6 required Byte-dance employees to work from 9am to 9pm 6 days a week. A time schedule that would make most lawyers blush. Fortunately for Byte-dance employees, their new – light-on – work schedule is 10-7-5, or from 10am to 7pm 5 days a week.

Clearly a step in the right direction when it comes to employee well-being and mental health.

Anyhow, I comment on this for three reasons:

First, Legal Cheek recently published a post that revealed the average working hours of junior lawyers in the UK. Of the 2,500 junior lawyers surveyed, junior lawyers at Kirkland & Ellis racked up the longest average working day, clocking on at a tardy 9:14am and off at 11:28pm. The survey is silent on whether this is a 5, 6 or 7 day week. I recommend you take a look at the full list, makes for rather sad reading (if junior lawyer mental health really is an issue of concern for the industry)
Second, last week the New York State Bar Association Task Force on Attorney Well-being suggested that there be a cap on billable hours at 1,800 hours per year.

The announcement had no less than Roy Strom comment on Bloomberg Law that:

Firms are too scared to impose a cap because it would be hard to hire the number of additional lawyers the cap would require. It would also put a huge dent in profits.

And

The billable hour serves as something of a measuring cup ambitious people pour themselves into. The unfortunate truth about Big Law is that it doesn’t have many alternative definitions of success.

If Roy’s comment is right, and it is an unfortunate truth that Big law has little alternative but to measure success by the amount of hours billed then, in my view, that is a really sad reflection of our industry. Because surely other metrics, such as the quality of the work provided and client satisfaction should have equal weighting. Not to mention churn and retention rates.

My third and last reason for commenting on all this is a personal one. I have long said that asking lawyers to work 2,000+ billable hours a year wasn’t a good thing – and there must be a reason why that is my most read post, so there is some comfort in seeing such an esteemed group as the New York Bar Association finally agree with me.

Have a great week all.

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Photo credit to Nathan Dumlao on Unsplash