Category Archives: Merger

Panel Discussion – Profitable Practice Management

I was honored to be asked to speak at Dye & Durham’s October 6, 2016 “Here and Now of Legal Innovation” event in Vancouver. I participated in the panel discussion on “Profitable Practice Management for Partners and Business Managers”. Here is the text of my presentation at the event:

“I’ll be talking about some of the major trends that impact Canadian law firms today. My focus is on changes in the business model and how law firms must respond to the current challenges to maintain their profitability.

So, what’s changed in the last 10 years?

The first big change is the dramatic arrival of the global law firms in Canada, marked specifically by Norton Rose’s blockbuster move in 2011 when it acquired Macleod Dixon and Ogilvy Renault in one fell swoop and has now completed its sweep across Canada with its recent acquisition of Bull Housser here in BC. The arrival of global law firms like Norton Rose and Dentons has changed the Canadian legal landscape in a big way. This trend is leading to more consolidation of law firms in size and fewer firms, as regional and midsized firms are being gobbled up and shrinking quickly in numbers.

The second big change is the re-awakening of the Big 4 accounting firms in the legal market, with examples such as Ernst & Young moving into commercial law work and Deloitte’s recent acquisition of Conduit Law. The Big 4 accounting firms are ten times the size of the biggest law firms and will be a major force in redefining the legal industry in the coming years.

The third big change is the movement towards forming NewLaw firms such as Cognition and Conduit law. These firms focus on being outsourced general counsel and have reduced their overheads dramatically by working in client offices or virtually as required. They are aggressively using fixed fee billing to cut legal fees and are taking work away from large and small firms. Of course, Conduit is now affiliated with Deloitte, so this partnership will have even more disruptive impact now, and law firms of all sizes should be concerned.

The fourth big change is the rise of alternative fee arrangements (AFAs) and fixed fee billing. This trend has been picking up steam in the US and Europe since the 2008 financial crisis, but not so much in Canada until recently. With the continued proliferation of global law firms and Newlaw firms, fixed fee billing should continue to build in Canada and we’ll catch up fairly quickly.

The trend toward more fixed fee billing also puts much more emphasis on efficiency and has driven the trend towards more legal project management in large and small firms.

How can your firm lead in the next 10 years?

To respond to the above changes, Canadian law firms of all sizes must do the following:

  1. Centralize your management structure and give more power to your Managing Partner to drive strategic planning and execute the firm plan. Firms must recognize and compensate for firm and practice group management in a much bigger way. Firms must focus their practices to meet specific client needs, be more client-centric and be much more selective in the clients they take on to maintain their profitability.
  2. Restructure your business model in response to the new competition from global, accounting and NewLaw firms. You need to carefully examine how to reduce your costs and change your staffing mix to optimize use of the technology. The days of levering work down to junior associates at high billing rates and getting clients to train law firms’ junior lawyers are over. Processes must be re-engineered in conjunction with the technology.
  3. Hire business savvy lawyers, not just brilliant academics. Clients want lawyers who can help them solve their business problems, not just their legal problems.
  4. Offer value based and fixed fee billing to your commercial and litigation clients. Firms that hesitate will be quickly overtaken by the new competition and will lose their best clients.
  5. Revamp your compensation system to recognize partners’ firm building tasks such as training, project management and building the systems required to increase efficiency and effectiveness using all this new technology.

And finally, firms must consider client goals and KPI’s and focus on helping clients achieve their business goals, not just the law firm’s profitability goals. Your focus should be on attaining a long term strategic partnership with your clients, which means offering better value and innovative ways of delivering legal services.”

 


Accounting firms make big moves in Canadian legal market

Big news this week as both EY and Deloitte upped their presence in the Canadian legal market. EY added business law services and Deloitte affiliated with Conduit Law, a rising NewLaw star. I had the pleasure of being interviewed by Michael McKiernan of Law Times last week for this article and provided by comments on these groundbreaking developments.

A couple of quotes from the article:  “That’s a big move, because none of the other big accountancy firms are doing business law in Canada. They have all spent the last 15 to 20 years out on the periphery doing tax and immigration law, and maybe a bit of trade law. Now EY is moving to the centre, which sets the stage for a big change in this country,” Cameron says. “Law firms should be afraid, very afraid. We’ve all been waiting for it, and now it seems like the accountants finally actually are making their move.”…“Canada and the U.S. are lagging for various reasons, but legal work is very lucrative, and the accountancy firms are always looking for ways to add to the billions in revenue they already have globally,” Cameron says. “I expect if this works for EY, then it’s going to work for all the big accountancy firms in Canada.”

I did my interview the week before Deloitte announced its acquisition of Conduit Law, so my prediction above came true within just a few days of the interview. I expect that other large accounting firms in Canada will be following suit shortly, and this will put further pressure on Canadian business law firms of all sizes. Initially, I expect the impact will be strongest on small and midsize law firms, as the accounting firms build their business law services infrastructure, but eventually large Canadian law firms will be impacted as well as the accounting firms battle for large M & A and corporate work.

The Big 4 accounting firms are actually global multidisciplinary entities that are much larger than the largest global law firms. They have the resources to dominate the legal services industry if they want to. Legal firms of all sizes must now prepare a powerful response to protect their market share or join the accountants through mergers or affiliations. In fact, I expect we will see a new wave of mergers and affiliations occurring between law and accounting firms in response to these developments.

 


DLA Piper merges with Davis LLP in Canada. Who’s next?

This merger was big news in Canada this week. Another Tier 2 firm merging with a global giant. Which begs the question, which large Canadian law firm will be merging next? Momentum is building for global matchups, since Tier 2 firms are now able to compete with Tier 1 “Seven Sisters” firms such as McCarthy’s, Blakes, etc. with a simple flick of the “Verein switch”. Which of the “Seven Sisters” will finally succumb to the lure of a global merger in response?

Stay tuned for more merger action in the next couple of years, as competition heats up for Canada’s lucrative resources and financial industry legal work.