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.
“Non-law firm” legal service providers such as Thomson Reuters are also looking at getting into the business of providing legal services through their outsourcing arm Pangea3. The ABS regulations offer the potential of “Tesco law”, which opens up possibilities for many more non-legal entities to provide legal services as well. These are threats to traditional law firms of all sizes.
Presented at the Seventh Annual CBA Law Firm Leadership Conference held October 24-25, 2011 in Vancouver, BC