5 Major Trends Impacting Canadian Law Firms Today

1) The Norton Rose Phenomenon

One of today’s key trends affecting law firms of all sizes in Canada is the Norton Rose phenomenon. Norton Rose is a 2,900 lawyer global giant, organized as a Swiss Verein, which has just gobbled up Ogilvy Renault and Macleod Dixon in two quick bites. Within a matter of months, they have singlehandledly changed the face of the Canadian legal industry, creating the third largest legal firm in Canada and they’re just getting started. That’s incredible, and scary for some at the same time. This is the new order in Canada’s legal industry.

This is also a defining moment for the legal industry in Canada, and might drive more mergers and changes in national and regional firms as Norton Rose presses its influence. It could force Canadian national firms to get bigger or they’ll be swallowed up as well. Other global giants such as DLA Piper are waiting in the wings.  At 4,000 plus lawyers it’s the largest law firm in the world.  Discussions are happening amongst multiple potential Canadian merger partners, with other global firms no doubt interested in Canada’s lucrative resources legal work as well.

There are many similarities to what the large accounting firms such as KPMG and Deloitte went through in the ‘80s and ‘90s, as they used Swiss Verein structures to build their global presences as well.  The Swiss Verein structure provides limited liability, world-wide branding and consistent client service standards as some of its features.

Large Canadian law firms are being influenced by the large accounting firms in many ways. In the 90’s, large Canadian law firms went national to protect against the feared onslaught of accounting firms, which fizzled out when Enron happened, but the large national law firms remained. Now there is pressure  again being exerted from the outside, and large firms will have to restructure to fight against this new enemy.  Rumour has it that the large accounting firms are looking to get back into the legal industry again as well.

As an adjunct trend, the rise of the ABS regulations in the UK is putting an even more interesting spin on Norton Rose’s arrival in Canada. ABS allows public ownership of law firms, which is happening right now as UK firms are lining up to go public. If this trend catches on in the UK, even more resources will become available to UK-based firms like Norton Rose, and the US may have to consider the possibility of allowing public ownership for US firms to compete with publicly owned UK firms. This could lead to the ultimate showdown of publicly-owned global law firms, which may lead the legal industry to look something like the big 4 accounting firms when the dust settles, or…? Stay tuned on this one :).

2) Move to Corporate Model

Another trend happening simultaneously is the move to more corporate models of firm governance amongst large Canadian firms. McCarthy’s moved to a board of directors and a full corporate business model a few years ago, and other large and regional Canadian firms are now going the same way. Practice groups are consolidating nationally, similar to what the large accounting firms have done for decades.

3) Alternative Billing

Fee pressures from clients are being experienced by firms of all sizes in Canada. It ranges from the small firms that do commodity work such as residential conveyances for less than what notaries charge in British Columbia, to large firms that are being pressed by large clients to offer alternative billing arrangements such as fixed fees to provide more certainty and less risky billing options.

Alternative billing is not as advanced amongst large firms in Canada as it is in the US and Europe, however, it is coming and firms need to prepare. It is being felt in the banking and intellectual property areas already. It has been prevalent in commodity work in Canada for decades eg. personal services law, residential conveyancing, wills and estates, etc.

Project management is another trend that midsize and large firms are embracing, as a forerunner or as an adjunct to alternative billing. To get as efficient and effective as you can, then use this efficiency to compete in the fixed fee arena, and hopefully maintain or enhance profitability.

The whole concept of value is being embraced by clients, who are looking at the high chargeout rates that law firms have brought in over the last decade, and they now want retribution and rollbacks, or at the least a stop to the increase in their legal budgets. The rise of the ACC Value Challenge is just one indicator of their resolve here.

If the economy worsens in a possible double-dip recession, clients will exert even more pressure on law firms. Firms must prepare for this change and must demonstrate more value to satisfy clients.

There is also a movement to reduce the recovery of soft costs such as photocopies and fax charges, which irritates some clients, and law firms are pulling back on this somewhat.

4) National Firms Cleaning House

National firms are cleaning house and cutting partners with practices below minimum $ practice size and clients that don’t meet minimum $ billings levels. This is a great opportunity for small and regional firms, who are picking up these senior national partners who have been pushed out or who have left national firms for better work/life balance.

This can be a great boon for the smaller firm, as they acquire new talent and institutional clients, who will remain with the smaller firm after the partner finally retires. Many national partners have established long relationships with their clients, and can transition their clients to their new smaller firms and make them profitable with the lower overheads of a small firm.

5) The Rise of Innovative New Legal Business Models

The rise of innovative new business models such as Delegatus, Clearspire, Axiom, Cognition, etc. The concepts of outsourced in-house counsel, no partners, franchised firms and virtual firms are threats to national and regional firms and an opportunity for small firms.

Presented at the Seventh Annual CBA Law Firm Leadership Conference held October 24-25, 2011 in Vancouver, BC

Old School Marketing – Sales Is Not A Dirty Word

Originally Posted on Small Firm Innovation

Back in the old days, lawyers really had to hustle to get work.  Okay, that’s just like today.  But lawyers had to “sell” themselves to get clients to use them.  So what’s so different about that today?  Well, many law firms now use technology and social media to get their marketing done.  But it still requires a human touch to get the “sale” done.

Marketing is the set-up, and sales is where the real money is made.  When you’re trying to win legal work from high powered corporations with their own sales teams, you need to match them in sales skills.  The clients will push every law firm to distinguish themselves with their sales abilities to earn their work.

So once you’ve identified and qualified the buyers, you approach them for the sale and “ask for the order.”  What’s that you say?  Yes, this is “old school” marketing.  It’s been done by salespeople in every industry for decades. Don’t want to have a sleazy “car salesman” image?  You don’t have to.  Some of the greatest salespeople are actually very highly skilled lawyers who use their own special sales techniques all the time while networking with blue chip contacts.  Their clients are also great salespeople, and smart lawyers connect them with other great salespeople they know and generate great referrals.

Your clients respect the art of sales as that’s how they conduct business all the time.  Lawyers who master sales techniques are respected by their clients, make no mistake.  It’s all in the delivery.  If you have a great product, you are proud to sell it and its benefits.  Don’t focus on features, focus on benefits, and distinguish yourself from the competition.  Find out the customer’s needs, then provide them with the customized product and service they require.  Listen a lot, and cater to their desires.  Really care about your clients, and provide added value over and above what they are expecting.  These are all tried-and-true sales techniques, of course.

It’s time that lawyers really understood the language of sales and applied the concepts.  In today’s competitive legal environment, you can’t afford to be “outsold” by your competition.

Some large law firms now even have sales departments.  They’ve got the message, and they train their lawyers in sales techniques using standard sales training courses.  Solos and small firms have the same opportunity.  You can get the necessary sales training from many sources out there.

Immerse yourself in the sales culture and start regularly “asking for the order.”  Some of the most successful lawyers I know are experts at it.  Some may call them rainmakers, but the smart ones know that deep down they are really just good salespeople.   After all, the highest paid person on a car lot is the sales manager.  Now that’s a goal to aspire for!

Trends In Restructuring Law Firm Business Functions To Increase Profitability

I’ve often wondered why so many law firms insist on keeping business functions run inhouse by lawyers, when they’d be much better off delegating or outsourcing (levering) these functions to someone who knows more about business management than they do.  This behavior can range from the Managing Partner who insists on doing the financial statements himself to the numerous lawyer-run Committees you see operating in many firms.   Many firms would get much better and faster results by having an experienced Executive Director or Administrator perform these functions for them.

Some will say that lawyers won’t listen to someone who isn’t a lawyer regarding management issues.  However, many lawyers are now realizing that they need to streamline their operations further as clients push them on the rates side and squeeze their profit margins further.  I would suggest that more lawyers need to become aware of the option to outsource these functions as well,  given the increasing demands from clients to keep costs down and provide better and faster service.  It also recognizes the need for law firms to focus on their core competency of providing legal services.

One of the main reasons to consider levering business functions is to increase profitability.  This requires that you focus on how leverage of business functions can operate in your firm to release your fee earners from administrative tasks.  Your opportunity costs can be great if you have several partners involved in management and administration functions, when they could instead be doing more productive things with their time.  Things such as getting new, highly profitable work, working on high-end files or performing high level R & D to add value to the firm’s knowledge banks and improve firm profitability.  At $400 to $1,000 per hour opportunity cost, you’d be far better off levering those admin tasks to an experienced COO or Executive Director who could do the job more effectively and efficiently.  Your “real” bottom line will grow substantially after allowing for these recovered opportunity costs .

In a recent survey I conducted with COO’s and Executive Directors of midsize and large US and Canadian law firms, I found that more firms are also looking seriously at outsourcing facilities management, document production,  systems, human resources and marketing functions.  Whole administrative departments are not only being outsourced, but are also being shared with other midsize firms.  This tactic allows midsize firms to compete for much larger files than they’d normally have  a chance at and both firms can benefit from the arrangement.  It’s just another way for firms to extend their reach to be competitive without having to merge or add extra offices, and avoid all the costs and potential heartaches that an ill-thought out merger can entail.

Orrick is an example of a firm that successfully “outsourced” all of their administrative support functions such as HR, marketing, systems, facilities management and document production to a single support center office in West Virginia.  Their global network of offices can access the admin services they need from this Global Operations Center on a 24/7/365 basis.  Through this change, Orrick has reduced administrative costs while improving the quality of these support services.

CMS Cameron McKenna in the UK is the first major law firm to outsource its entire business support function to an outside party, including IT, HR, finance, business development, communications, knowledge management, facilities management and administration services.  This is a major development/experiment and is being watched with great interest by many other firms.

Another administrative service to consider for outsourcing is the search function, such as due diligence, title search, etc.  Why firms have their paralegals do these functions is curious to me.  Paralegals should be focused on higher end legal file functions, and searches should ideally be delegated to clerical staff or outsourced to a dedicated search firm.

Another option for small and midsize firms is to outsource all of their administrative functions to companies like MCG Management Counsel Group in Toronto or Cameron Management Services Group in Calgary (no relation).  These companies can handle all of your administrative and business functions so you can focus on practising law.  I’ve heard this option works very well for some small and midsize firms.

The latest option for outsourcing administrative functions is Face2Face Solicitors in the UK, which provides franchisee solicitor firms with centralized back-office systems – including accounts, IT and regulatory compliance – and central marketing and business development, to enable lawyers to focus on the legal work.  See here for more info.

Outsourcing can done at many levels in law firms and is being experimented with in different ways by forward-thinking firms.  You can theoretically outsource any business function.  One partner I knew once jokingly suggested that he’d like to see his firm’s entire Management Committee outsourced.  Okay, that’s pushing the outsourcing concept a bit, but considering the minutiae that many Management Committees get involved with, perhaps it’s not such a farfetched idea!