A blog by Joel Barolsky of Barolsky Advisors

Posts Tagged ‘legal industry’

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Seven fresh insights from the 2022 AFR Partnership Survey

In Articles, Commentary, Legal Technology on 21 July 2022 at 6:33 am

The full (slightly edited) text of my opinion piece first published in the Australian Financial Review on 14 July 2022.

The list of top 20 firms in the latest Australian Financial Review Law Partnership Survey shows is strikingly similar to that of 2012. The quantum of new partner and senior associate promotions and graduate hires reflects a mood of confidence rather than existential threat.

The predictions of the demise of BigLaw at the hands of NewLaw or technology are either premature or plainly wrong.

There are seven other takeaways from the survey worth noting.

Slow growth at the top

The table-topping HWL Ebsworth added 112 new partners from July 2013 to July 2019. Since July 2019, the firm has added just 11.

HWLE may just be taking breath, or perhaps its need for growth has diminished given its IPO is off the table. Another explanation is there are fewer opportunities to hire lateral partners in a booming market.

Winning the talent war

Hamilton Locke must be doing something right to expand its partner cohort by 79.2 per cent over the past year. The next highest is just 17.1 per cent.

The firm’s public statements reveal two interesting insights – every employee holds equity and the firm plans to list on the ASX at some stage. It makes the employee value propositions at other firms seem a little mundane.

Gender rebalancing

The survey shows most firms are making huge strides in promoting females to senior ranks. No firm reported less than 45 per cent of their senior associates – the traditional stepping stone to partner – as female, but a number of firms risk overshooting in their gender-rebalancing efforts.

Ten firms have 75 per cent or more female senior associates. One firm reported 91.4 per cent.

Given the current velocity of partner promotions, it won’t be long before these firms have a big diversity problem, but of a different nature to the past.

It’s also worth noting that a growing number of people don’t identify as either male or female, which will hopefully be evident in future surveys.

Small big four

In February, PwC announced it had acquired the specialist tax practice Greenwoods & Herbert Smith Freehills.

The current PwC Legal website lists these 15 new Greenwoods partners as well as another 17 existing partners. These numbers imply the size of the non-tax PwC Legal team has reduced substantially in recent years. KPMG Legal and EY Law partner numbers have stayed in the mid-20s for the past few years, and Deloitte Legal does not make the top 50.

Even if the big four legal teams combined into one firm, this entity would only be 14th in the survey.

Legal companies

The Law Partnership Survey does not include law companies that operate with a different model. Brands such as LegalVision, Lawpath and Sprintlaw don’t have traditional partner roles, but they are important players in the Australian legal landscape.

These companies are mostly expanding the legal market by servicing start-ups and SMEs that previously would not have paid for professional legal advice. Lawpath, for example, reported last month that it had acquired its 300,000th small business client.

Not so rosy

The January 2019 Law Partnership Survey listed Norton Rose Fulbright as the sixth-largest firm in the country with 145 partners.

The current survey has it ranked 11th with 125 partners. This effectively means its partnership has reduced by 14 per cent in less than four years. This might be part of a deliberate realignment of strategy, but in the context of a growing market it represents a major loss of market share.

Bigger not always better

There are some excellent firms that sit outside the top 15, such as Gilbert + Tobin and Arnold Bloch Leibler, that are powerhouses in their chosen markets.

Many global firms with small local offices, such as Clyde & Co, Jones Day, White & Case, Squire Patton Boggs and Allen & Overy, seem to compete successfully despite higher rates and global overheads.

In conclusion

Strategy textbooks suggest that mature fragmented markets will experience consolidation and the evaporation of those supposedly stuck in the middle.

Given the range of firms and relative stability of the legal market, this conventional theory might require a rethink.

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Where was Minters’ chairman during the Kimmitt crisis?

In Articles, Commentary on 26 March 2021 at 7:28 pm

The full text of my opinion piece first published in the Australian Financial Review on 26 March 2021

“The Minter’s chairman went missing in action. One of the most important jobs of a chair is to resolve major disputes within the partnership without it spilling out to the rest of the firm, and even worse, into client land.”

This quote reflects a sentiment expressed by many law firm leaders I spoke to about the recent saga at MinterEllison.

While I’m not privy to the internal machinations at Minters to say whether this is a fair judgement or not about the firm’s chairman, David O’Brien, it does raise the question as to what should be expected of a chair?

 In my view, the answer lies in the confluence of governance, guidance, and glue.

Governance

The chair of partners usually has an active leadership role in firm governance. As such, his or her job is to ensure that management’s direction is broadly aligned with the interests of equity partners and other stakeholders.

Unlike company structures, partnership governance roles and responsibilities are not stipulated in any statute and are largely ambiguous. All partners are assumed take on all responsibilities concurrently. In this context, the chair and managing partner are expected to carve out a tailored governance framework that balances stewardship, operational efficiency, risk-taking, control, transparency, partner autonomy and accountability.

The chair of partners would usually be expected to facilitate the effective functioning of board and partner meetings, ensure accurate timely and relevant information flow, oversee risk and compliance, manage board composition, and lead the process of reviewing the managing partner’s performance and succession.

In some firms, the chair is actively involved in deciding profit allocation and progression. In other firms, their role is more of an independent arbiter in profit allocation appeals. 

Guidance

While most medium and large firms have adopted a more ‘corporate’ governance model, partners as owner-operators still often want a say when it comes to critical decisions around firm purpose, values, capital allocation and broad strategic direction.

The chair plays a critical role in helping the firm’s executives navigate this decision-making minefield.

Their guidance is critical in deciding which fights to pick, what options are on or off the table, what’s the best approach and forum to raise issues, and where power really lies in and around the partnership.

Chairs often act as cultural barometers – forecasting the mood, energy, and tone of the partnership. Their predictions of an imminent storm, or conversely, a period of calm and confidence can be hugely beneficial.

At a more micro level, firm chairs often act as a sounding board or mentor for the managing partner. In this role, they help talk through tricky issues, provide honest feedback, and offer comfort when exasperation overwhelms.

This mentoring role is particularly important for the induction of new managing partners or an external appointment. In the latter case, the chair needs to lend some of their social capital until the new leader’s position is firmly established. 

Glue

The third role of the chair is to foster partnership cohesion and stability. This doesn’t mean leading the firm cheer squad, but rather putting out spot fires and addressing corrosive politicking.

Spot fires may include a major fallout between two senior partners or where an individual partner has displayed behaviour incongruent with the firm’s values or there is a case of systemic underperformance.

It is quite common for the chair to join the managing partner in having a fireside chat with these problem partners. The chair helps create a sense of deep collective concern. This threat is hoped to be the catalyst necessary to change aberrant behaviour.

Pie-splitting is often a source of ‘corrosive politicking’. For example, in meritocracies choosing a side when there’s a commercial or legal conflict could result in a major differential in individual earnings. In these instances, the chair may get involved in dialling-down the emotions and ensuring that trust in the model is maintained.

Coming back to the MinterEllison situation, I don’t have any first-hand information as to assess whether the firm’s chair did an effective job in governing, guiding, and gluing? As with so many tricky issues in law firm partnerships, that’s ultimately for Mr O’Brien’s partners to decide.

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Will law firms be more productive but less human?

In Articles, Commentary on 7 October 2020 at 9:00 pm

Full text of my Australian Financial Review opinion piece first published on 11 September 2020.

In April, I made three predictions about a post-Covid19 legal world – there would be deeper relationships between staff and clients, less paper and more flexible work arrangements. Five months on, it’s worth revisiting these predictions and to ask what else might change?

The argument for deeper relationships was based on the notion that people going through acute stress together come out at the other end with greater trust, understanding and connection. Given that we’re still living through the pandemic, it’s probably too soon to tell for sure whether this prediction will come true or not.

It appears the sense of a life-threatening emergency is being replaced by a collective consciousness of fatigue and despair. In Victoria, tempers seem to be a bit shorter and patience a little thinner. This trend doesn’t augur well for a future of more kindness and mutual support.

The predictions around less paper and more flexible work arrangements are looking rock solid. Many firms have eased into hybrid operating models and have hardly skipped a beat. Some have already publicly stated that this model is permanent.

But there are some emerging trends that justify three new predictions.

#1 Fewer legal secretaries and assistants

Over the past few months, some firms have reported increases in overall production but lower productivity amongst legal secretaries and assistants. Lawyer self-sufficiency and the move to working from home have been the primary reasons cited for this shift.

It’s not too much of a leap to suggest many firms will look to reduce secretarial support ratios by a combination of redundancies and retraining of some assistants as paralegals.

One of the possible consequences of reducing secretarial numbers is a more fragmented work culture. Secretaries often provide a bridge between people and practices by sharing news and gossip, fostering relationships and retelling stories.

They offer a valuable pastoral care role, especially when the senior legal practitioners are EQ-deprived. Without this cultural glue, firms run the risk of being more productive but less human.

#2 Renewed respect for HR

In many firms, the HR team has kept the ship sailing. This is no mean feat given the speed, scale and scope of change required, and the fact they operate with little formal authority within a partnership structure.

There is always extreme sensitivity around changes in people’s pay, promotions, leave entitlements, workloads and future job prospects. HR practitioners have advised on these issues as well as resource strategy, communication, mental health, resilience and fostering a strong team vibe.

Pre-Covid19, it was not uncommon for firms to suffer from the “HR standoff’. In one corner, the HR team members would complain about the firm’s partners being disrespectful and disempowering. In the opposite corner, the firm’s partners would regard HR as being process, not outcome-driven and uncommercial.

I think this standoff will be mostly a thing of the past, especially in firms where HR has risen to the challenge.

#3 Reset in decision-making

To deal with the government-imposed lockdown in March 2020, firms needed to make big decisions quickly. Managing partners were given the authority by the broader partnership to address the crisis. It appears many of these senior leaders accepted this mandate and blossomed with their increased power and autonomy.

Five months on and many firms have not shifted significantly away from the March model. With relentless partner workloads and no in-person partner meetings, the firm’s executives have largely kept their decision rights.

I expect that post-corona the pendulum will swing back slightly, but this recent experience reveals that the firm can still prosper without every partner having a say on everything.

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