A blog by Joel Barolsky of Barolsky Advisors

Five lessons from successful lawyers

In Articles, Commentary on 8 July 2019 at 9:14 pm

The full text of my opinion piece first published in the Australian Financial Review on 5 July 2019.

There are five stories worth retelling in comparing the 2019 AFR Partnership Survey to the one reported 10 years ago in July 2009.

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Original AFR article

#1 Resilience

Over the past decade, numerous commentators have predicted the end of BigLaw. Headlines such as, ‘Large law firms are about to have their Kodak moment’, ‘BigLaw is dead. Long live NewLaw’, and ‘Law is ripe for consolidation and disruption’ has attracted readers’ attention, but it is safe to say that these predictions have simply not yet come true.

Analysis of 2009 vs the 2019 Top 30 lists shows:

  • Average firm size is quite similar and there has been very little consolidation. In fact, the largest firm in the land by partner numbers was 297 in 2009 (Minters) compared to 266 in 2019 (HWL Ebsworth).
  • The business models of the Top 30 firms are by and large very similar to those from 10 years prior. They still operate within traditional professional partnerships, they make money through leverage of people, and they price directly or indirectly based on time.
  • While there are a number of global brands in the 2019 list, the Australian-based partnerships of these firms are still broadly the same set of people, putting aside obvious partner promotions and retirements. The vast majority of Australian legal work is still done by Australians in Australia.
  • For all the hype about the Big 4, PwC Legal does not make even it to the Top 30 list in 2019, and the other three are way behind.

#2 The shadow

In July 2009, DLA Phillips Fox had 164 partners and 434 fee-earners. It was the 7th largest firm in the land, the first trans-Tasman integrated partnership (excluding Perth) and a market leader in insurance, government and transport.

Ten years later the AFR Survey shows that DLA Australia has only 70 partners.

UK-based DLP Piper may be very happy with the slimmed-down version that their Australian branch office has become, but it seems amazing to me that nearly 100 of those original Phillips Fox partners who put up their hands to vote ‘yes’ for the DLA tie-up, left the firm they owned within a relatively short time period. Why did so many get it so wrong?

#3 Spot-changers

Much is said about law firms’ and lawyers’ resistance to change but it is worth highlighting the success that two firms are having in changing their gender profile. The 2009 AFR survey revealed that 16.3% of Allens’ partners were female. Ten years later this percentage is 33.1%. Over the same time period, Maddocks has shifted its female partners from 16.9% to 36.6%. Interestingly, the pioneer in this area, Gilbert + Tobin, has seen its proportion stay roughly the same: 36.2% in 2009 versus 35.7% in 2019.

The numbers do not reveal the specific strategies to become more inclusive, but they do show that a real commitment to a goal can make some leopards become less leopard’ish.

#4 The trainers

The firms listed in 2019 AFR survey hired 1,222 graduates over the past financial year. Most of these firms will spend the next three or four years of training these graduates to become independent legal advisers. Back-of-the-envelope calculations indicate that this is around 1.5 million hours of training at a rough cost of $90 million.

Assuming one-third leave the profession, the market cost of this attrition is $30 million. Assuming 20% go into in-house roles, the law firms are providing an $18 million training cross-subsidy to their clients (now how’s that for a value-add!). Assuming firms are expanding their training programs to include digital literacy and related topics, these costs are only going to escalate.

All this data points to the cost of not getting significantly better at talent management.

#5 New and old friends

The 2009 AFR listing included IP specialist firms Davies Collison Cave and Griffith Hack. Both of those firms are now part of ASX-listed entities and playing a very different game.

The 2019 AFR survey includes points to two emerging strategic groups:

  • The multi-disciplinaries or MDPs – firms that include significant consulting and adjacent (to legal) offerings. The standout members are the Big 4 legal arms plus Minter Ellison. Others that have a foot or toe in this pond include Corrs, Clayton Utz, Herbert Smith Freehills and McCullough Robertson.
  • The global boutiques – firms that are focused on just one or two service line or sectors in Australia and tied to a mothership back in UK or USA. Obvious examples include Seyfarth Shaw, Clifford Chance, Allen & Overy, Clyde & Co, Squire Patton Boggs, Jones Day, White & Case and Quinn Emmanuel.

In conclusion

There are lots of other interesting case studies behind the AFR surveys. They provide a rich history of our legal market and we should be very grateful to the participating firms and the AFR that the data is there to be shared and stories to be told.

When Google Comes to Legal

In Articles, Commentary on 10 June 2019 at 10:02 am

Full text of op-ed that first appeared in The Australian Financial Review on Friday 7 July 2019.

The ‘legal supply chain’ can tell us a lot about the future for lawyers – and how much technology will disrupt the industry.

Will they become middlemen for technology providers?

Will the race to provide operations software yield a winner with extraordinary leverage over the legal sector?

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Original AFR article

Traditional law firms have been at the core of the supply chain for well over 150 years. In-house legal has a phenomenon of the past 30 years. Law companies – those providing legal process specialists, managed services and contract lawyering – have become a force over the past five to seven years.

Legal technology providers are the newest kids on the block, but the growth has been remarkable. Stanford Law School’s TechIndex points to 1,051 legal tech startups across the globe since 2016, all wanting to be part of the supply chain.

There are six broad entities that are involved in the delivery of commercial legal services in the modern era; the law and legal system; legal technology, algorithm and data providers; law firms and law companies; in-house legal; client organisations; and end-consumers.

Not all legal services involve all six entities, many don’t follow the chain sequentially and some services start and end at different stages. However, its still a useful conceptual framework for those who don’t’ have a crystal ball.

Many lawyers will become value-added resellers

Fast forward five years and legal technology will have matured to the point that it will become integral to legal advice and delivery. Many commercial lawyers will become value-added resellers of sophisticated technology developed by third party vendors.

To illustrate, Contract Probe software allows users to do a comprehensive review of draft NDA, service, supply, consultancy, IP license or employment contracts within 60 seconds for a fixed fee of $100 or less. Created by former Allens TMT partner, Michael Pattison, Contract Probe generates an overall quality score out of 10, highlights key omissions and errors, and makes suggestions for improvement. Contract Probe uses a machine learning approach which means it gets better each time it is used.

In this world, there will be fewer junior lawyers doing the grunt process work but a greater demand for the ‘human’ elements in the client-lawyer exchange, i.e. empathy, problem-solving, creativity and judgement. Competing as a reseller will require lawyers to have a profound understanding of how the technology works, and how it doesn’t. They will also need to get a lot better at pricing their service to capture value beyond charging for their time. Resellers will live or die based on the depth of their client relationships and their ability to be true trusted advisors.

Powerful platform providers will emerge

PwC and KPMG both recently announced collaborations with Australian providers of legal operations software for in-house legal teams. This SaaS technology provides a single scalable low-cost solution for in-house lawyers to transact with external counsel, manage internal workflows, prepare and store documents, service internal clients, communicate value to the C-suite and stay in control of their budget. While this software has been around for a while, attaching it to the world’s most powerful B2B brands with deep change management expertise is a gamechanger.

Fast-forward ten years and one of the Big 4, or another provider like Elevate or Xakia, will have won the battle to be the dominant platform for in-house legal teams. They will have unrivalled data around law firm performance, pricing, client satisfaction, in-house productivity and a myriad of other benchmarks. They will own the screen of every in-house lawyer giving them extraordinary influence and leverage along the entire legal supply chain.

In this future scenario, the Big 4 winner will become the intermediary that premium law firms, law companies and technology vendors have to deal with. They won’t compete as clones of traditional firms but rather as Google of the legal world.

A single platform will most likely lower transaction costs and improve choice, quality and responsiveness for client organisations. It won’t displace or disrupt incumbent law firms, but it will most likely reduce their relative bargaining power.

It is worth noting that data security and legal conflict concerns are major obstacles in the way of a single legal operations platform developing. Notwithstanding these issues, the momentum for change in the ‘more for less’ era is significant.

Stop trying so hard to be different

In Articles, Commentary on 6 May 2019 at 4:33 pm

Full text of op-ed that first appeared in The Australian Financial Review on 3 May 2019.

99% of Australia’s full-service law firms have a strategy based on seeking clear market differentiation. In my view, they’re largely wasting their time and money.

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AFR Legal Affairs op-ed

Conventional strategy thinking suggests there are two sources of sustainable competitive advantage: [1] having the lowest cost, or [2] differentiating from competitors on things that matter most to customers. The former strategy allows firms to win by having greater price-setting discretion. The latter strategy allows firms to extract a price premium for added benefits.

When it comes to the legal market, this theory starts to get a bit wobbly.

Research shows that while most law firm clients can distinguish firms between groups of firms, such as Tier 1 versus Tier 2 or domestic versus global, they really struggle to clearly discriminate between specific full-service firms within a group. To clients, many of these firms look and feel the same.

One of the reasons for this is market fragmentation. Unlike most industries with three or four dominant players (think airlines, grocery retail or banking), the Australian commercial legal market has nearly 30 firms claiming in some way to be leaders in legal expertise and client focus. Australia’s largest law firm by partner number, HWL Ebsworth, has less than 5% share of the total market. Carving out and keeping a unique and relevant market position in such a crowded market is next to impossible.

Another reason for a lack differentiation is a self-inflicted one. Most full-service firms present themselves as being all things to most people. Within the partnership model it’s political suicide not to give every partner a guernsey in describing what the firm is really good at.

So, what’s the solution?

The first part of the answer is to worry less about being known for being different and focus more on just being known. Strong brand awareness still counts in opening doors and staying top-of-mind.

The second part is to encourage more differentiation at the practice, partner and/or product level. With a more micro approach, differentiation usually come from legal specialisation combined with a focus on a particular market segment or industry. So, for example, a general commercial litigation team can distinguish themselves by positioning as class action defence specialists for ASX200 companies.

The third element is to concentrate firm strategy on how the firm competes. ‘The how’ refers to the resources, skills, standards and systems used to win. These are collectively called capabilities, or as Pier D’Angelo, Allens’ Chief Strategy Officer, calls them, the organisation’s “muscles”.

Most full-service law firms need work on these five muscle groups and the inter-play between them:

1.   Firm and team leadership – setting and aligning everyone around a clear direction; inspiring others to meet/exceed expectations; and providing support with accountability.

2.   Talent management – recruiting, developing, engaging and retaining the right workforce for the firm to flourish, both now and in the future.

3.   Winning work and capturing value – developing trusting relationships with clients and referrers; converting more of the right opportunities; and pricing profitably.

4.   Collaboration – shifting the mindset from ‘my’ to ‘our’ client and combining expertise from inside and outside the firm to solve clients’ wicked problems.

5.   Operating with discipline – having an efficient and effective operating platform; ensuring adherence to agreed policies; executing plans consistently; and optimising leverage and utilisation.

Spending more time at the law firm gym will, over time, create a form of cultural and operational distinctiveness. Paradoxically, this will most likely be reflected externally and create a firm that both top clients and top people will want to work with and for. They will be authentic points of difference not created by spin doctors but radiating from a firm truly fit for the future.

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