legal

SURVEY REPORT: Half your clients are changing which lawyers they will give work to

An article by Neil Rose on Legal Futures website today (15.5.2023) has a statistics that should have every law firm business development expert shaking in their boots.

To quote:

45% of clients changing which practices they allocate work to in the past year
Nearly half of companies swapped external lawyers in last year

Taken from the latest ‘State of the UK Legal Market 2023‘ by Thomson Reuters, Rose’s report contains even more damning news for those marketers and business developers who thought law firms outranked lawyers in client choice selection:

Reputation has also dropped “dramatically” in importance for keeping a firm top-of-mind

On the positive front,

In the UK, more than in many other regions of the world, clients are focusing on the quality of the whole relationship with their advisers.

But, backing up the reputation comment above, the big takeaway for me has to be,

In a major shift over the past 10 years, the historical reputation of a law firm is no longer enough to keep it top-of-mind in the market. The message is clear: firms need to re-consider how they present and deliver value to clients…

I have deliberately bolded that part of the quote because if this is something that is likely to be concerning you, or if you feel this provides your law firm with a great opportunity, then feel free to reach out to me and let’s have a chat about how you can to work on this!

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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:

The most important thing to remember is to have an Engagement Letter with your client!
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.
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.
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).
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.

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Image credit goes to Scott Graham on Unslpash

Not every step is an equal step

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When it first became apparent that COVID-19 was a pandemic – and one that we truly needed to be concerned about here in suburban Sydney, my doctor gave me a call. The call went something like this:

Doctor: “We need to make you ‘COVID ready’ Richard”.

Me: “Okay Doc, what’s COVID and how do we go about making me ‘COVID ready’?”.

We all now know what COVID is, and for a number of reasons – asthma, lack of general fitness and age group – I fell relatively squarely into what my doctor termed: the ‘vulnerable‘ (it sounded a lot less sinister then than it does now – now it’s actually a worrying tag).

His plan for preparing me to be ‘COVID ready’ (or at least better prepared) included walking 10,000 steps a day (and if you are wondering how far that is, it’s roughly 9kms). To help me (actually more importantly my doctor) track my success at achieving this daily task, I downloaded an app onto my iPhone and off I went.

Being the grumpy old man I am however, it didn’t take me long to come to the realisation that not every [walking] step is equal – a step walking up a steep hill takes a lot more effort than a step walking on a flat tarmac road.

But to the app they are the same. The app doesn’t distinguish between the effort of a step, it merely counts the number of steps!

So if you are still reading this – and you’re roughly 200 words in – you’re probably thinking:

“Fine, but what does this have to do with the business of law?”

And so here is my point – without trying to belittle the situation we are in at the moment:

If you are a lawyer and record your time by the billable unit, and have some kind of software to help you track that time, it won’t recognise the time and effort of the task you are undertaking: it will merely record the unit of time.

So much like my walking app records each ‘step’ I take, your billable software will record each [typically] six minute unit of time. It won’t give you any additional credit for the ‘effort’ (read difficulty) you put into that unit.

In fact, quite the contrary.

My walking app – and by extension my doctor monitoring it – gives me more credit for walking 15,000 steps a day on a flat and even surface than it does for walking 8,000 steps a day up a very steep inline that takes me three to four times more effort and for which I will ultimately be penalised by my doctor because I’m still 2,000 steps short of my daily target – despite the fact that overall I’m getting fitter, which is actually the ultimate goal!

So which of the two options do you think I go with?

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Photo credit to Bruno Nascimento on Unsplash

Does your firm use data as a profitability management tool?

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I’ve just finished reading the latest Altman Weil ‘Law Firms in Transition 2020‘ report.

With all things COVID the Report (as it has done in any event for the past decade) makes for interesting reading.

But, the response(s) to one of the questions in this year’s Report I found particularly concerning.

When asked:

“Which of the following statements describes your firm’s use of profitability data as a management tool?”*

16.2% of respondents replied:

“We don’t want to use the data because it is potentially controversial or divisive.”

16.2% of respondents believe sharing and using data in 2020 can be ‘potentially controversial or divisive.’

I find that rather sad.

And don’t even get me started on how it is possible that over 13% of respondents don’t even know how to use the data!

As always, the above just represent my own thoughts and always interested to hear the views of others.

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* see page 50 of the Report

[This post first appeared on my LinkedIn feed Thursday 2 July 2020]

My 5 x 5 Planning Tool

As we approach end of Financial Year here in Australia many will be looking at finalising, and implementing, their strategic plans for FY2021.

With this in mind I thought I would share my own base-level planning tool; my go-to starting point for any short, medium and long-term planning activity – I call it my ‘5 x 5 Planning Tool‘, it has served me well and works like this:

5 Minutes: Will the decision I make have an affect/effect 5 minutes from now?
5 Days: Will the decision I make have an affect/effect 5 days from now?
5 Weeks: Will the decision I make have an affect/effect 5 weeks from now?
5 Months: Will the decision I make have an affect/effect 5 months from now?
5 Years: Will the decision I make have an affect/effect 5 years from now?

It’s rare, but possible, that a decision you make will have an affect/effect on all five plains; but, in my experience, what the above does do is give you clarity. It allows you to compartmentalise thoughts into the short, medium and long-term and gives you the ability to then focus on what is then, in that moment, important to you and your business.

Give it a try.

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Survey: The 6 most important criteria in-house counsel consider when evaluating law firms

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In last week’s post I looked at the Top 5 Reasons Clients Switch Firms as recently reported by Wolters Kluner. Conveniently this same Survey also reports on the ‘6 most important criteria in-house consider when evaluating law firms‘ – so here’s a quick look at what they are:

The in-house view

1. Specialization

In recent years I have heard it said on a number of occasions that in-house counsel no longer differentiate lawyers/law firms they ask to do work for them on the issue of ‘specialisation’ – it is a given that you know your topic and this merely gives you a seat at the table.

The results of this Survey clearly show that impression to be wrong – specialisation (at 23%) remains top of mind to in-house.

Unfortunately the term used in the Survey is ‘specialisation’ as opposed to ‘niche’. While there may not appear to be much of a difference between these two terms, for many there is and I would be interested to see the results if this was an option.

2. Technology

The fact that a lawyer’s ability to use technology ranks equal top (23%) with specialisation shouldn’t be too much of a surprise in a survey conducted on technology adaptation in law firms.

That said, the use of technology in collaboration efforts should raise some eye-brows as it clearly shows, in my opinion, further evidence that in-house counsel want shared platforms and that knowledge sharing among law firms who continue to develop stand-alone technology platforms are likely wasting their money.

3. Ability to understand client needs

At first the fact that ‘ability to understand client needs‘ came third in the list at 19% surprised me.

But then I thought: not many clients truly know what their needs are – maybe this question would have been better phrased as: ‘Understanding our business/sector?’

4. Price – and 6. AFAs

Price gets 16% of the vote. AFAs gets 9%. If you combined them, they get 25%. And would top the table.

But they are not combined.

They are seperate.

Which make me wonder: Why?

Also: if your law firm is really offering value – price, whether it be hourly rates or AFAs, would be the last thing that matters.

5. Process innovation

I found the fact that process innovation only got 10% of the vote interesting, because if you read the rest of this survey a core message is that law firms need to get better at demonstrating efficiencies.

This result somewhat undermines that message.

The law firm view

I was pleasantly surprised how consistent the law firm view was to that of their in-house clients.

Of course there will always be one significant difference of opinions between law firms and their clients (in the law firm’s mind) as to why they were chosen: ‘Price’.

And what this Survey shows, as many before it have, is that law firms need (finally) to start moving away from that needle.

As always, these just represent my thoughts and always interested to hear your views.

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‘Imposter syndrome’, how it effects your pricing, and what you can do about it

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‘Imposter syndrome‘: “The persistent inability to believe that one’s success is deserved or has been legitimately achieved as a result of one’s own efforts or skills.”

For some time, sparked through the conversations I’ve had on the topic with Katherine Mountford, I’ve been interested in the concept, theory, and roll that imposter syndrome plays within the legal profession.

My interest was given a nudge over the past week by a LegalSpeak podcast that included some great thoughts by both Albert Farr and Jay Harrington, who talked about their experiences with imposter syndrome in the early part of their legal profession [noting that Farr is actually just starting out his career in law] (Calming the Imposter Monster: You Don’t Know Everything, And That’s OK.) and a post by Susan Harper on the issue of ‘What is Imposter Syndrome and How May It Be Affecting Your Leadership?‘ which looks at the broader implications of imposter syndrome at a more advanced stage of your legal career.

Read together they give a pretty good balance on some of the major crisis of confidence issues that can plague lawyers.

What am I worth?

While I am in no way qualified – nor do I profess to be – to talk to the diagnosing and/or treating of any medical conditions associated around imposter syndrome, or mental health issues in the legal industry more broadly, with over 20 years’ experience in the industry, I have no doubt whatsoever that most lawyers wake up in the morning and ask themselves (if no one else) ‘What am I worth?‘ – ‘What is an hour of my labour worth?‘.

Adding to these frustrations, and doubts, is the fact that, in private practice, in most cases, a lawyer’s intrinsic value is not determined by them. Nor, importantly, is it determined by their clients in recognition of their craft.

No, more often than not, a lawyer’s worth is determined by the Accounts Department and/or a Senior Management committee who have worked out [this should probably read, “been told”] how much the capital [equity] partners want to be paid this year (including bonus). Having determined this we then work backwards and determine the number of hours that will need to be worked in order to achieve this, taking account of historic realisation rates, and minus any leave, and then looking at the relevant leverage and required multiplier needed to ensure that the required amount is met.

All of this is then wrapped around a completely meaningless ‘industry survey’ that costs a fortune and suggests your law firm’s hourly rates are 10-20% less than your competitors and you really should be doing a better job!

If this sounds convoluted and over complex, or if you have any doubts about my sincerities here, read ‘Associates Want a Break on Billable Hours as Pay Cuts Roil Law Firms‘ by Dylan Jackson.

Little doubt then, in my opinion, as to why lawyers would suffer from imposter syndrome (or mental health issues more broadly).

Taking back control – how to demonstrate value to your customers

Adding insult to injury, having not had much say in the hourly rate they charge, and with little or no training, lawyers are then asked to go to market and justify why they are worth the amount they charge.

So can lawyers take back some control?

The short answer is: ‘yes’; there are several ways that lawyers can take back that control – one predominately relates to internal processes and the other to external communication.

Change the internal process: Establish a Value Council

If you want to adopt greater transparency and conversation around the amount that your lawyers charge – relative to the value they are delivering to your customers – and at the same time get greater collective buy-in from your lawyers, then I would suggest you take the power away from your Accounts Department and establish a Value Council.

The mission statement of your Value Council should be to establish:

‘a collaborative platform to discuss and exchange views and information about value to ensure outcomes that are mutually beneficial to all.’

Progressive law firms will include customers of the firm in their Value Council and consider adopting a Pricing Charter.

To be effective, it is suggested that your Value Council consist of no less than six and no more than 10 participants who, crucially, are willing to invest time in the process.

Change the external communication

For years lawyers have liked to brag about the hourly rate they charge. It’s up there with the mount of billable hours they have worked this year as ‘badges of honour’. The reality that most lawyer’s Average Billing Rate – the amount clients are actually paying for that lawyer’s time – are nowhere in the region of that lawyer’s hourly rate is conveniently forgotten.

But there is an alternative. Rather than going to market bragging about how much you cost, why not change the conversation up and talk about how much value you bring to your customers. How you help your customers? How you change outcomes to their benefit.

Dare I say it, you move the conversation away from you and onto them. In doing so, it is hoped you will take a critical step down the path of the Value Conversation; because, as John Chisholm wrote back in 2018:

“Before we price, we need a scope of work; before we have a scope of work, we need to have a scope of value and you cannot have a scope of value without first having a value conversation.”

That seems like a good place to put a line in the sand to this week’s post. I will add though that if you are one of those lawyers who questions their value, who may question if they deserve to be where they are or who suffers some form of imposter syndrome, keep in mind that around 90% of the profession is right there with you (and listen to Episode #182 of the Soul of Enterprise) .

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What will the business of law look like in a post COVID-19 world?

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‘uncertainty’:

The state of not being definitely known or perfectly clear; doubtfulness or vagueness.

Oxford English Dictionary

As we start to talk about the path/way out of COVID-19 lockdown, a number of pre-eminent thinkers in legal consulting have begun discussing what shape and form this might look like for our industry.

Notable among these have included:

Richard Susskind + Mark Cohen debating the future of the legal industry as excellently reported by Ron Friedmann on his Prism Legal blog
Patrick Lamb discussing ‘The Next Normal: Is There a Roadmap That Gets Us There?’
The team on the LawVision Insights Blog giving their views on ‘The Legal Profession in a “Post-COVID” World’, and
the excellent and very comprehensive series of blogs by Jordan Furlong under the themed title of ‘Pandemic’.

Then again, as Patrick Dransfield said in Asia Law Portal (‘Who knows what the future will hold?’) – nobody really knows what the future holds.

But isn’t that why we, as business developers, are hired? To try and give some insights to our partners on how the industry might look?

With that in in mind, for what it is worth , here are my two cents on some of things we may look forward to over the next 18 months:

The industry will remain fundamentally the same – as it was pre COVID-19 pandemic days unless there are structural changes to the business model. And, as I understand it, the trust partnership business model that is currently used in most common law jurisdictions makes the talk of change easier than the reality of change (in that nobody today would likely start a new law firm under a partnership trust structure).
Technology and working from home will play role – it goes without saying that both technology and working from home will play a part in the future, but how big that role will be in an industry built on presentism still remains to be seen.
Uncertainty will feature heavily – we are flying blind here and most of us have no experience to drawn on. Even those of us who have been through this several times have now come to accept this time is different.
Consolidation will likely feature prominently – with The Law Society Gazette (England and Wales) reporting in the past week that ‘71% of high street firms face collapse‘ I would foresee a similar scenario playing out here in Australia. Only I doubt it will apply to high street firms, who should do well out of the expected growth in wills & estates and family law matters, as much as it will likely apply to the middle market where there still remain far too many firms representing far too few clients.
There will be an increase in lateral hiring – for the reasons above.
Cashflow/credit facilities will help – Warren Buffet is reported to have said that “Only when the tide goes out do you discover who’s been swimming naked.” Well, the tide has never been lower and we will see in the coming days who still has the ear of their banker. Arguably those with big trust accounts and/or on the panel of one or more Big4 bank panels will benefit.
How much office space do law firms really need? – it will be interesting to see if rent footprint decreases. Rental space – and whether to remove parts of the business to less expensive rental footprints (see Herbert Smith Freehills to Macquarie Park and McCabe Curwoods to Chatswood for example) – has been an issue for some time and one of the big take outs from this may well be a lot more Hot-desking!
The Big4 see opportunity – as EY reported this week, the Big4 are not going away. If anything, as this chart shows, they’ll be upscaling their charge

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A need to be even more client and sector focusses – with the team at Adam Smith, Esq looking at the following areas of need:
- Insolvency, restructuring and distressed assets
- Private equity (I’m not 100% sold on PE in Oz)
- Regulatory investigations and dispute resolution a/k/a litigation
- M&A
- Tech and all the ancillary practices it spawns, including IP

From an Australian law perspective I would add Insurance law (going to be more claims made) and all forms of Government (Government will be spending big on Infrastructure, Health, Education and others).

But all of the above are my views and so to finish this post I’m going to turn to one of the great take-outs of this week for me – a post by Trish Carroll who interviewed 12 final year law students to find out how they were feeling in the middle of Covid – ‘Is Covid-19 the mother of all disruptors for the legal profession?‘ – and this is about as close as we will get to how the future of law will look.

As always though, interested in your thoughts/views/feedback.

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“This is not just a stop-gap solution…”

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…or is it?

For the past couple of weeks, one of the most common themes I’ve been seeing about COVID-19, insofar as it relates to the legal profession, is how it has changed, and continues to change, the industry/profession. COVID-19, I’m being led to believe, is a “game changer”.

To this end, I have seen (and read) articles that I would not thought possible three to four months ago written about:

the changing nature of remote working in the profession, and
the importance of Zoom/Skype and Microsoft’s Teams,

to name but a few.

But I want us to stop here, take a step back, and ask: “Is this really likely to be the long-term outcome?”

When I ask this, keep in mind that this is a profession that has fought tooth and nail to keep to the same business operating model for over 30 years (if not 100) despite having already recently lived through one of the worst global economic downturns of all time (the GFC).

So I ask: “What can we really say is different this time?”

For sure we can say we have given our business continuity plans (BCPs) a tough workout. And, to be fair, I’d bet that even the most conservative of BCPs didn’t factor in a COVID-19 event.

And while we now know that most of our workforce can work remotely and, ironically enough, with the use of timesheets, we can also claim that they remain ‘productive’ whilst working from home – whatever that term may actually mean to a knowledge worker, does this truly foreshadow a change in the manner in which the industry is going to be managed?

My take is this:- while all of the above is true, it is taking place in circumstances that most of us had not predicted and many of us feel uncomfortable even being in (I’d bet there are very few people out there who are happy being locked up at home for four weeks – family or no family).

But this is a far cry from saying we will see the dawn of a ‘new normal’ whenever normality (whatever that may look like without a vaccine, which I am told is no sure thing) returns.

Because, while it’s critical that understanding our purpose is now more important than ever, and while we cannot hope to survive if we do not look to find the solutions our clients seek and need – which (as I mentioned last week) will be changing – in a post-COVID-19 world these will not necessarily bring about a change to the structure of how a law firm operates and is managed.

As any reader of this blog would know, it has been my long and strongly held view that to see real change to the business model of law, we need to start with the way in which we incentives and reward our partners and employees.

And to start this process we need to start to truly align our firm’s internal incentives/rewards to those of our customers so that we start to help create value for our customers. In short, our incentives/rewards must be aligned with our customers’ needs and incentives.

And yet nothing I have read in the thousands – possibly even tens of thousands – of words on how COVID-19 will change the legal profession has this even come close to being suggested or even discussed.

So my take from all of this is this:

If we want what we are currently going through to be truly more than a mere ‘stop-gap’ solution, if what we want from a post-COVID-19 world is true structural and ongoing change in the profession, then we need to start to have a conversation around the fact that the way in which we incentives and reward our staff is broken and worry a little less about where our staff are doing their job from.

And right now is the time to be having this conversation.

Failing which, all we really have is a stop-gap solution.

These are just my views, as always interested in your thoughts/views/feedback.

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Survey: Is the perception of value geographic?

Page 7 of April’s Briefing Magazine has a couple of interesting charts on how:

2019 was a mixed bag of business for US firms operating in the UK, with headcount growth hitting utilisation and billing rates requiring attention

As someone who is fascinated in the ‘pricing’ (not costing) of professional services, it was the “billing rates requiring attention” part that caught my attention.

billing realisation rates

The chart above, as titled, is billing realisation rates for US law firms in both the US and the UK.

So: why do two different offices of the same firm have such different realisation rates just because of the Atlantic Ocean?

After all, you would assume the clients are largely the same. You’d also assume the work types are largely the same. You’d probably be okay thinking the leveraging is largely the same. You may even reasonable expect the person reviewing the bill in Finance is the same. And, you may reasonably expect the hourly rate in London to be lower than that in New York for all said lawyers.

So why is it that realisation rates are roughly 5% higher in the US than in the UK? Especially when you’d think it would be the other way round.

And what does this mean more globally? Where would Asia, Africa, and South America fit on this scale?

More importantly, does this say that the perception of value is geographic?

I have my thoughts/views, but as always interested in yours.

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