A blog by Joel Barolsky of Barolsky Advisors

Time to ditch your ‘Batman’ clients

In Articles, Commentary on 12 December 2021 at 9:16 pm

The full text of my opinion piece first published in the Australian Financial Review on 12 December 2021.

“Hello Batman!”

That’s how a top three client of a particular firm insisted that his calls be answered on his dedicated phone line and handset. Unlike the mild-mannered caped crusader, his tone in the conversation that followed was usually aggressive and demeaning.

Little was done to address Batman’s behaviour for several years because he was a very important client. When a new managing partner was appointed, the firm finally plucked up the courage to stop doing his work.

While this is an extreme example, most law firms continue to serve clients who are “wrong” for them.

There has never been a better time to deal with the wrong clients in your firm.

The latest Australian Financial Review Law Partnership Survey points to a year ahead where demand will outstrip supply. The risks of not replacing any lost revenue are much lower than usual, and the opportunity costs of continuing to deal with these clients are much higher.

Wrong clients

There are four broad categories of wrong clients, or sometimes referred to as the four ‘uns’:

  1. Unfair pricing and commercial terms. In some instances, the accumulative impact of deep discounts, scope creep, special favours and free value-adds is such that the firm would be much better off walking away and giving their exhausted lawyers a rest and finding other clients willing to pay a fair price.
  2. Unreasonable service requests. While most clients will have the occasional emergency and request very fast turnarounds, some classify everything as super urgent and demand rapid responses day and night, weekdays and weekends. A subset of this group are clients are those that consistently provide briefs that are incomplete, inaccurate or misleading. 
  3. Unconscionable behaviour. The third category includes the Batman clients of the world who disrespect their service providers. In some instances, it’s not the individual buyers who behave poorly but rather a major misalignment in core values between the firm and the client organisation. For example, firms that are deeply committed to diversity and sustainability are finding it harder to service clients that just pay lip service to these things.
  4. Unprofitable. Some legal practices with a high-cost client acquisition and delivery model would be better off financially without a long tail of very small clients. As practice teams reach full capacity there’s folly in a relentless drive to grow revenue from any type of work from any type of client.  

The task of classifying clients into one or more of the four categories can be a difficult exercise within a law firm partnership. There is often a lot of defensiveness and protection when it comes to labelling a client as ‘wrong’.

In some cases, the source of this resistance is emotional – the classification risks disrupting personal friendships and/or the legacy of long-term relationships.

In other cases, partners see a major risk to their personal practice. Any intervention to make a wrong client right risks a drop in earnings, progression or status if things don’t go to plan.

Taking action

Assuming one can get over the resistance, the next step is to decide on the preferred outcome of the relationship reset for each client. These outcomes usually range from terminal at the one end of a continuum to tweak at the other. 

Tweaking outcomes may include negotiating new commercial terms or seeking a substantive shift in behaviour, or simply taking away Batphones.

In some instances, the firm may elect to take unilateral action like notifying a change in pricing levels or changing the service team or refining scope and terms. In the case of a terminal outcome, the firm may suggest alternative firms the client could consider with an offer to transfer old files and other records.

For more important strategic clients, a 360-degree relationship review might be a gentler way to address the issues. These reviews involve asking all the stakeholders to provide comments on the relationship as a whole, as well as their views on others’ performance and their own. Feedback can be sought on a range of factors like communication, value, trust and quality. This feedback is then shared between the parties and collective action agreed upon. 

The power shift from buyers to sellers in 2022 offers a unique opportunity to reset some poor relationships.

Notwithstanding any financial or other strategic benefits, the impact on staff morale from dealing with fewer Batman clients will be significant.

Are law firms ready for the Great Transition?

In Articles, Commentary on 5 November 2021 at 4:51 pm

The full text of my opinion piece first published in the Australian Financial Review on 4 November 2021.

Is the Great Resignation mostly hype or an issue of substance?

The evidence suggests that the period ahead will be much less about Australian lawyers seeking alternative careers, and much more about them responding to new opportunities in a tight labour market.

In other words, there is more validity to the idea of the Great Transition rather than the Great Resignation.

The Great Resignation was first coined in the United States just after a record 4 million Americans resigned from their jobs in April.

The theory goes that the COVID-19 experience, including role changes, greater workplace flexibility and more working from home, has led to people rethinking their careers, work-life balance and even their long-term goals.

The question is whether Australia will follow the US as it emerges from lockdowns and border restrictions? The fear is that hordes of workers will walk out the door for greener pastures, whatever they may be.

When it comes to Australian lawyers, the greener pastures won’t be in the Byron Bay hinterland, but for some it will be in other law firms or other legal roles – both here and overseas.

While there’s been more movement between firms in recent months, there are no underlying factors to indicate above-normal migration out of the profession. If anything, the prospects for better incomes and working conditions within legal organisations have never been better.

Golden era

The demand for commercial legal services will continue to be strong for the foreseeable future. Assuming capital remains cheap and abundant, ESG pressures persist and there’s no war with China, this golden era will continue.

What’s special about this cycle is that most sectors and almost all practice areas are predicted to grow.

Within this context, the key career transitions over the next 12 to 18 months will be away from firms/teams that are poorly led, don’t match the market in terms of remuneration and benefits, simply revert to the pre-pandemic operating model, and give lip service to workplace wellbeing and connection.

The transitions will be towards firms that help build their CVs, offer more interesting work, provide better and clearer career opportunities and are known to be happier places to work. Some will also be attracted to the brighter lights of New York and London.

Euphoria

The Great Transition will probably last for a year or so before returning to a more regular cycle. The euphoria of surviving COVID-19 will boost confidence.

This energy – together with the publicity around firms offering 10 per cent pay rises, news of major vacancies and the social proof of others making successful moves – will create momentum of its own.

There may be some regrettable departures that are clearly beyond a firm’s control.

If a high-flying associate wants to leave for a $US250,000 ($330,000) role in a White Shoe firm in New York, there’s probably not a lot that can be done other than staying in touch and welcoming them back (with an offer of three months’ sleep).

Leadership

Going through the list of what is in a firm’s control, the quality of team leadership is probably the most important element to consider.

A strong team leader can provide a sense of direction and connection, monitor workload and wellbeing, progress careers and development, and facilitate a positive work environment.

To make it through the Great Transition, firms need to ensure every team leader is up to the task. Stroking the ego of a powerful senior partner by making them a team leader may not work anymore. Team leaders need to have the time, skills, support and resources to do their job properly.

Putting a different label on the Great Resignation may reduce the concerns about overall labour supply across the market. However, there will be no let-up in the pressure on individual firms to retain their top talent over the next 12 to 18 months.

The empire strikes back

In Articles, Commentary, Legal Technology on 8 October 2021 at 11:20 am

The full text of my opinion piece first published in the Australian Financial Review on 7 October 2021.

The biggest structural change in the Australian legal market over the past 30 years has been the growth of in-house legal teams.

But while the vast majority of current in-house solicitors received their initial training in private law firms and then moved across to the client side, I predict that the next decade will see a reversal of this trend, particularly at more senior levels.

In comparing the employee value proposition of in-house versus private practice, there are five areas where law firms are fighting back.

Flexibility

In a post-COVID-19 world, very few law firms will return to a work schedule of 9 to 5, five days a week, in the office. They will be far more accommodating of lawyers seeking to work from home for part of the week, or those wanting to work across different time slots in the day or to limit the number of workdays.

Any perceived advantage that in-house roles were more flexible has been eliminated by law firms learning to operate effectively in an anywhere anytime model.

Workload

For many years, the lure of in-house has been roles with more work-life balance, less stress, and no timesheets. 

While no timesheets are still a point of difference, most in-house lawyers are now reportedly working extremely long hours and are stretched thin. The pressure for them to do more with less is incessant, and the demands on their time are likely to grow rather than diminish. 

On the other side of the fence, many law firms are rejigging the workload of graduates and early career lawyers to be far more sustainable. They have also stepped up their programs focused on employee mental health and wellbeing.

Technology

Association of Corporate Counsel research suggests General Counsel are constrained in adopting technology by restrictions on capital expenditure and a lack of time to implement new systems.

Many law firms, in contrast, are ramping up their technology investment and experimentation. The recent Thomson Reuters State of the Legal Market found that law firms spent over $22,000 per lawyer on legal technology in FY21. The same paper revealed that 30 out of the 50 largest law firms in Australia now have an innovation function.

Over time, the technology gap between in-house and private will grow. A career move in-house may become to be seen as a step back in time – a move to a job using old and blunt tools of the trade.

Income

Data from legal recruiters Mahlab suggests in-house teams pay more for 3 to 7-year PQE lawyers, but after that, the differential starts to swing the other way. Equity partners in premium law firms are now earning incomes that far exceed their peers in in-house roles, save for a few GCs of major listed companies that enjoy exceptional incentive arrangements.

Private practice salaries and benefits are estimated to increase by 8 to 10% in the coming years. It will be very hard for in-house to price match given budget constraints and the need for consistency across organisation-wide pay scales. To the chagrin of many CFOs, in-house lawyers are already the most expensive people on their payroll outside the C-suite.

Culture

“It’s a boys’ club”, has been a common refrain of female lawyers leaving private practice. With an industry average of just under one-third of female law firm partners, their complaint may have had just cause, till now.

Most of the top 30 law firms across Australia have fully committed to a 40:40:20 or an equivalent diversity goal at partner level. Significant efforts are being made to address unconscious bias and to eliminate sexist language and behaviour. More senior leadership roles are filled by women. Comprehensive diversity and inclusion programs are now the norm.

The progress is slow, but the prevailing culture across many law firms is shifting on gender issues.

If trends in the five areas described above persist, the employee value proposition of in-house will become less compelling. With increasing demand, in-house teams will have to build their own capacity by hiring more graduates and invest in early-career legal and commercial training.

This is good news for law firms; after years of training young talent only to lose them to in-house roles, the shoe will comfortably fit on the other foot.

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