One of the most important partner compensation trends I’ve observed is the move to more emphasis on subjective criteria in the compensation process. This topic is covered in the July 4, 2016 issue of Canadian Lawyer article “It’s not all about money” by Michael McKiernan. Michael interviewed me for the article and I provided my comments on this trend in partner compensation:
“According to Colin Cameron, a Vancouver-based law firm management consultant, intangibles are also in vogue in the upper echelons of law firms, despite the enduring popularity of simplistic profit allocation methods such as eat-what-you-kill. EWYK remained the most popular partner compensation method in our survey, used by 35 per cent of responding law firms, but that was down from 40 per cent in 2015.
Cameron predicts the proportion will fall further as partners continue to search out new ways to measure and reward subjective leadership accomplishments that don’t show up in spreadsheets of billable hours and direct revenue generation. “It’s certainly simpler, and in some ways more transparent, to focus on those factors that you can easily put a number to. It’s more difficult to evaluate how good someone’s training is, whether they’re supervising associates properly, and how their project management skills are,” says Cameron. “But I think more and more the trend is for firms to realize they need to recognize these contributions if they’re going to increase their long-term profitability.”
However, the transition often proves tricky, as one respondent at a mid-sized Western law firm complained: “Migrating to a revised compensation model while senior partners oversee the compensation process” has led to problems in “succession planning and rewarding business development efforts” at the firm, they wrote.
“Often there will be different interests between partners, who are perhaps closer to retirement and thinking about cashing out in the short term, versus younger partners just starting out, who are more likely to be thinking longer term,” Cameron says.”
In my experience, an over-emphasis on formulaic or “eat-what-you-kill” compensation systems results in dysfunctional behavior as partners focus on building their own numbers without regard to the firm’s best interests. This often leads to conflict and resentment between partners which can destabilize the firm and erode firm profitability.
Dentons surprised many this past week with the introduction of a free global referral network for law firms. I was interviewed for this article on Dentons’ latest move in the May 16, 2016 issue of Law Times. Here are some of my comments quoted in the article:
“You have freelancers on the net and now you have law firms available very quickly on the net through this type of network,” Cameron says. “It could speed up and make more available choices for clients. It could certainly disrupt the industry, giving access to more firms.”
Cameron says the new network could be particularly beneficial for smaller mid-level firms that could not afford to pay membership fees for a similar network. These smaller firms could potentially have access to a large global network, which will give them work they were not able to obtain before, Cameron says. It may also give the smaller firms a better chance to retain their own clients, as they would be able to refer them to a firm with higher levels of expertise in another country or specialty, he says.
“There are certainly more potential benefits for small mid-sized firms that may not have been involved in a network before because of the cost,” Cameron says.
While Cameron says the network has the potential to be a “game changer,” he has concerns about how Dentons will be able to vet what is expected to be a vast network of members for quality.
“You start to wonder how they can enforce the standards,” Cameron says. “Do you really know who you’re dealing with and how are they going to control that?”
Cameron also questions where the bar will be set to vet quality standards for such an extensive and vast network.”
Notwithstanding my concerns above, I think Dentons has made a very forward-thinking move here and I expect they will do well in this new venture. It will certainly disrupt the way that law firm referrals are handled in the future.
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.