“Legal profitability is changing; the inevitable future of law. Legal work is profitable in itself, but that’s changing. More and more clients are pushing for alternative billing and driving down price for legal work. The “Eat what you kill” compensation system is no longer a future proof business model. It’s a short term business model and Law firms need to change their focus to what’s best for the firm for future sustainability. Lawyers need help with leads and prospects because they are not getting it now.” Colin Cameron says.
An impressive 40 years of experience in Law and accounting. Staring off his career in 1978 at KPMG and Law at Clark Wilson serving as Chief Operating Officer in 1983. He not only witnessed the merger and acquisition wave in accounting he has seen it all. What lawyers can learn from this merger wave in accounting in the 1980’s.
1. Similarities between Law and accounting
”I see a lot of similarities between the mergers that are occurring in the US and Canada in Law business today and the accounting firms in the 1980’s. Like law firm partners nowadays, the accounting partners at that time were the head of little empires in pyramidal structured organizations. Lawyers are generally more independent and don’t like the accounting firms’ approach to management: “calculate everything down to the penny”.
It’s not the similarities that are most interesting for law firms to learn from. The biggest difference between accounting and law firms at the time was the Quality Control system. Unlike Law firms, accounting firms always conducted a partner review over a certain dollar amount. Not only keeping quality level up but having an eye on the business at all times. Law firms are focused on the top line but don’t understand where the money was made. Accounting firms focused on identifying and growing their most profitable practice areas and clients and they still do.”
2. Don’t be fooled by the Survivor Bias
Accounting firms started hiring lawyers about 25 years ago. It always puzzled accountants how these – in their eyes – poorly managed law firms could still have high profitability. Some reports say that law firms are more profitable than accounting firms. However, that is just part of the bigger picture. Global law firms such as Norton Rose and DLA Piper are the “acquirers” or “survivors” of the recent merger wave. The acquired firms are often in financial difficulty. So the unprofitable firms are taken over and the newly merged law firms shed excess partners and costs from acquired firms and emerge more profitable than the forerunner firms. The profit in the law business is distributed over a smaller number of firms, leaving the impression that the law business is still as profitable as it was before. That’s what creating the current “survivor bias” in the legal industry.
3. The big 4 on the re-bound
Now the big 4 have as many lawyers working for them as the top global law firms, Colin states. That is perhaps a less remarkable fact when we realize this is the result of a 25-year process. This time they are more likely to succeed than two decades ago. For example The Swiss Verein, or affiliated firm strategy, is a way for law firms to broaden their markets on a world-wide basis in a quick and cost-efficient way. But ‘just being present’ in a country has not proven to be sufficient for lawyers to penetrate markets profitably and sustainably. This again is a strategy accounting firms understood early and took advantage of by creating multidisciplinary firms that are ten times the size of the biggest global law firms today.
Legal departments are focused on cutting costs. Companies just don’t have the budget to get all the specific legal knowledge they need in house. That is where accounting firms can step in now. They have the same legal knowledge and can do the job for a lower price. It’s just a matter of time until clients see that opportunity and they will take it. It’s easy for US firms to merge with European firms, and The Netherlands for that matter. Once the mergers start there is no stopping it. I expect a snowball-effect just as happened in the accounting business in the 1980’s, says Colin.
5. Rainmakers are becoming more important to Law firms’ business
Law firms must understand the importance of rainmakers and future senior sales lawyers with the skills to find new prospects and clients and have the abilities and skills to create loyal relationships with the current clients. But a few rainmakers alone is not enough. A law firm must become business aware. Not just the partners but every person in a law firm needs sales understanding, training and focus.
6. Law firms need a goal bigger than profit to be successful
Only when law firms create a goal bigger than the partners’ profit and reward future and current rainmakers will they be able to face the challenges in a profitable manner. Everybody has to market in a law firm. The entire staff must be motivated and there needs to be open communication and a sense of partnership throughout the whole organization. “Everybody should act as an owner of the company and its goals. The partner-profit-focus will not be future proof as it is a short term focus and leaves no room for re-investing profit in the company. Accounting firms have a long history of re-investing their money in the development of their organization, innovations and process improvement. That long term focus and investment might gives accounting firms the advantage in this era of technology, the fourth industrial revolution. Big data, technical systems, online tools all ask for sufficient amount of money available. This is something accounting firms have available and most law firms have not nearly as much.
7. Dedicated sales departement
Accounting firms have had dedicated sales departments for decades, another differentiator in favor for future profitability. Law firms need to understand the concept: “We are bigger than our firms”. Everybody in the firm understands, believes and participates in sales to build strong and loyal client relationships necessary for sustainable financial growth and business development. Firms therefore need to know the business development and sales talent and potential present in their firms. As well as they need to focus on a strategic plan. Be aware of business opportunities and make room for rainmakers and motivate the entire staff to achieve the firm’s goals. Lawyers need more that a money goal to stay motivated for the long run. These highly performing professionals are prosper by having a clear firm strategy. They pefer purpose over mere profit. Sustainable human and professional relationships with colleagues and clients are important part of their motivation. Helping clients and being valued for the work we do is a universal motivator that keeps us motivated to do our work over a longer period.”
8. Successful sales in Law and motivated lawyers can be two sides of the same coin.
A classic win-win situation for long term success.
The above will lead to clients opening up and issues coming to the surface. A well trained listener can detect other services (cross selling) your client is interested in, more business (up-selling), possible introduction in clients network or vice versa (network). This kind of informal conversation can generate new ideas for products and services from the (business development from clients perspective).
In sales terminology: not only the law firm will profit but the client as well. It adds up to a classic win-win-win triangle. Lawyer, law firm and client. All win.
In addition to business development and re-investing, a third positive aspect can be denominated in the future of law business. Litigation is likely to stay a ‘lawyer-only’ domain. Litigation is not easy to automate. Accounting firms are focussing on all sorts of law practices related to ‘their’ kind of business. Practice areas such as M&A, buying, selling and other law processes are more easy to automate. Litigation is (still) not on the priority list of the big 4 accounting firms.
The facts in this article are confined to global law firms that will most likely ‘eat’ the midsize and bigger local firms. That does leave room for smaller firms. As a result, we will see more boutique and specialized, smaller firms (5-10 lawyers) in the future, very flexible and/or focused on litigation. Both these smaller as the bigger law firms will need rainmakers and potential rainmakers and dedicated sales teams to stay future proof. Colin predicts.
Colin Cameron, story by Jacky Wetzels Salesmoves.
The article is a reflection of Colin’s personal views and a number of article underline facts presented in this article. Articles on recent Law firm mergers. In 2016 91 mergers so far and smaller firms are getting more vulnerable.
Article on changes in law and accounting.
Article on Kodak as example of related linkedIn story telling about Kodak’s too late response to digital photography.