As partners and lawyers in firms around the country reconsider their traditionally mapped out ideas of what a legal career should look like, and start looking for alternatives outside private practice, they are heading in-house. This is having enormous ramifications for firms in terms of retaining talent, of course, but also on the perspectives of their new stomping grounds.

Corporations that once saw private law firms as having a mystique about them are now getting a clear insight into how those firms work internally. Corporations now take in-house the very people who used to advise them externally. Almost every managing partner interviewed said that the increasing savviness of in-house counsel was a key driver to the changing nature of the practice of law in Australia.

Middletons managing partner Nick Nichola admits there used to be a lot of “mystique” around the profession that does not exist as it did. He suggested lawyers probably deliberately created that in the way they wrote their letters, the way they spoke to people and drafted their documents – “you needed another lawyer just to understand it”. But it has been 10 years since the profession moved away from this separatist way of working and “now it’s about plain English drafting, writing in a way that people can understand, straightforward and to the point. We don’t use Latin expressions any more, thank goodness”, Nichola says.

Working in-house becomes an increasingly attractive option for lawyers coming into the profession, and a change for those wanting something different, as corporations place more importance on that part of their business and add more value to it. Some firms suggest that this is a also a result of corporate governance and the increase in regulation, which has made corporations more aware of their responsibilities.

“The whole Enron, Sarbanes-Oxley scenario has made corporations more aware of their responsibilities, and a lot more aware that they need legal sign off and input in matters … It’s a combination of a shift in the landscape with respect to people in private practice looking for other challenges and seeking work/life balance. There has also been a change from corporations’ perspective where the in-house role is no longer seen as a hindrance or a back room role. In-house counsel is now very important to the corporation and they have elevated the role,” says Middletons’ Nichola.

“You have ex-partners from firms such as ours who know exactly how firms operate and are now consumers of legal services,” he says. As a result, clients are more aware of their purchasing power and are more discerning in the decisions they make about purchasing legal services, most managing partners agree, adding that this is creating an increasingly competitive market for law firms.

Deacons chief executive partner Don Boyd agrees that in-house counsel are much more “informed and sophisticated”. There has been a new generation of in-house counsel that are understanding of how private practice works because they have come from private practice, he says.

According to Raj Lawyers managing partner Niren Raj, in the past the work to law firms was provided by a CEO or managing director, who had a relationship with the person they were giving the work to. “Then it was the firm that was appointed rather than the individual. Now it’s an individual within a firm. And when the firm is multidisciplined, the firm leverages off that relationship.”

Raj regrets that some legal counsel are “wedded to large law firms”, adding, however, that counsel that do not want to deal with a firm the size of his are missing out. Others, he says, have come from large law firms and don’t want to deal with large firms any more. “[They] want to deal with someone who is nimble enough to deal with their specific requirements,” he says.

Joydeep Hor, newly appointed managing partner at Harmers Workplace Lawyers , said the “number one change” to the practice of law recently has been clients’ increasing sophistication in terms of their expectations “both as to the substance and method by which legal service is to be delivered”.

While the role of in-house counsel in this involvement was widely considered to be significant, some managing partners also saw the need for people in non legal roles to “dabble in legal matters” on a more regular basis to be influencing the ways private practice lawyers work with their clients.

As a firm that specialises in employment law, Harmers Workplace Lawyers finds HR departments, for example, undertaking their own legal work where possible in an effort to save costs, says Hor. “We see some very sophisticated HR managers who are doing a lot of the legal work, in terms of appearing in commissions and other things. There is a perception that they can do a lot of the work themselves.”

Hor rejected suggestions that this was stemming from a false confidence in their own skills, claiming instead that it comes from a desire to save money. “I think a lot of them prefer to wing it and accept the risks of doing that for a lot of issues, up to a particular point. It is only for the very major things that they will get their lawyers involved. That is not all clients, but it is an increasing trend.”

It is primarily larger clients, whose HR managers are doing masters degrees in labour law and relations and therefore have some skills to do the work, says Hor, adding that with this increased education, the expectations they have of their lawyers change.

24 HOUR CLIENT SERVICE – ENTER THE SAVVY CLIENT

Recent years have brought with them the savvy buyers of corporations – in-house counsel. With their better insight into the structure of private law firms and the way they operate comes in-house’s ability to make greater demands of their lawyers.

Lawyers used to tell their clients what they could expect, what they paid, and when things would get done, law firms agree. But now they are just like any other service providers. More than one managing partner compared his firm’s service to that of plumbers and electricians, saying it’s all about meeting needs at a price that the client is happy with.

Small and mid-tier firms say this has been a positive move for them, as many clients question the need for top-tier service, with their top-tier costs. The “savvy buyer” asks “do I really need a mega firm?” says Herbert Geer & Rundle managing partner Bill Fazio.

“In the great growth towards national firms … through the 1980s and 1990s, there was a trend for [in-house counsel] to say ‘well if I go to the mega firm no-one can criticise me’. But people are a bit more savvy than that now, and the finance director or the MD might say ‘well did we really need to use that firm’, and ‘why are we paying quite so much’, and ‘are we getting enough value out of this?’,” says Fazio.

In-house counsel increasingly says that while it may need the “mega firm for the mega job, it may not need the mega firm on the mid-sized job”, says Fazio.

But when clients choose a provider, they expect the best service no matter what the size of the firm, managing partners say. Increasing pressure on lawyers and firms means that they need to do much more than just provide legal advice with a smile.

“Lawyers everywhere have to accept now that just getting the job done to the end is not value,” says Fazio. “Clients no longer see that just doing something so that the document gets signed, just getting them across the line, then saying ‘here’s the bill’, is no longer enough.”

As clients expect more bang for their buck, lawyers have had to come up with new and often creative ways to add value to the service. “Clients are now saying, ‘I can get that view from any other lawyer in the marketplace. I am not interested in just an academic view, I would like to know the legal position from an academic perspective, but if you are my adviser as opposed to just my lawyer, I expect you to know my business, my challenges, my obligations and the pressures in my business, and then give me a considered view as to what you think I should do’ … Many clients used to be happy to just receive the legal advice and wouldn’t ask the next question, ‘what should I do?’. That become scary from a lot of lawyers because we are not used to that, we have not necessarily grown up that way,” says Middletons’ Nichola.

Partners and lawyers have reacted to the changing nature of their roles in differing ways. Nichola says a lot of partners have reacted positively, seeing it as a challenge and as something different to what they have done for years. But others struggle with the concept and have the view that “I am a lawyer, you come to me and ask me for a legal view, I will give you that legal view and of necessity that will be qualified, but I will not make a call, I will not say that this is what I think you should do. I have given you various legal options, but the decision of which you choose is really a commercial decision and it’s for you to make because you are the person who has to live with that decision,” says Nichola.

Now lawyers are just like any other service industry. They need to provide clients with 24 hours access, efficient turn around times, technology with respect to email and mobiles, palm pilots, Blackberrys, and time to lunch. Clients now see lawyers as business advisers who should understand the business they are in. They are not just legal advisers but commercial advisers, offering much more than black letter legal advice.

CLIENTS GET INSIDE

Demanding as you know they are, more is not quite enough for many clients. Now clients ask for proof that their law firms are not only following the stringent rules of corporate social responsibility, but that they are also taking care of their staff.

Middletons’ Nichola says clients want their law firms to reflect their ideologies and core values. They expect their lawyers to be similar to themselves in that they will have some corporate social responsibility, asking what firms’ specific programs are, and what they are giving back to the community.

As well, they want to know about their firms’ staff welfare, which Nichola admits is a “bit of a surprise”. “They want to know how we deal with some of the issue that they face in their organisations – work/life balance, Generation Y, setting realistic goals for people. I think they ask not just because they are looking for help with their own businesses, but they like to know they are dealing with a firm that looks after their staff well.

“They are more demanding about knowing more about how we run our business, rather than ‘you are lawyers and we are coming to you because you are our lawyers’. It is competitive out there and clients have a choice – they may as well make it as perfect as they can in their own minds,” says Nichola.

MID-TIER FIRMS ON SURVIVAL

If mid-tier firms are going to survive, most agree, they have to find something that makes them stand out from the crowd.

Be it niche markets or $400 shoes for all members of staff, law firms that fit into neither the top-tier or the boutique range agree that it is difficult to be all things to all types of clients.

Herbert Geer & Rundle’s Fazio says the savvy buyers of in-house counsel have pushed the legal services market towards a growth of the niche market firm, where he, for one, is happy. “The role of the mid-sized firm has moved from just an ordinary firm to realising that you actually have to be good at what you do. Maybe you don’t do everything everywhere, but you would expect that you would do it equally as well – at the same time hoping that your infrastructure and cost structure would mean you can do it at a little bit more competitive rates.”

And as the mid-tier firms, with their various focuses, swoop in and take a lot of work in the mid range, larger firms leave them to it, says Fazio. “The mega-firms do seem to be saying, ‘we can’t service the smaller transactions commercially and therefore we should target only the big transactions where our infrastructure provides value’. And ‘if that giant infrastructure doesn’t provide value, maybe we shouldn’t be in that area’,” he says.

Sparke Helmore managing partner John Davis agrees that there is an emerging strong and very competitive mid tier that is a genuine alternative to the top tier.

Deacons’ chief executive partner Boyd says there is an increasing need to have a clever position in this “look-alike market”, referring to the top end of town. Being involved in the big-end market, it is essential to stand out with more specialisation and niche practice areas.

Boyd says that as in-house teams gain prominence in their organisations, firms have less access to “what you might call the routine commercial work”.

The Australian market is extremely competitive, managing partners of most firms agree, with law firms of all sizes trying to innovate and do things differently. “It is a pretty conservative look-alike profession,” says Boyd. As a result, Deacons is introducing ‘innovation’ as a core competency within the firm.

“In terms of occupying a particular market share we have used the intelligent alternative positioning, where we focus on the attributes that make us a strong relationship firm … It’s not rocket science, you just have to keep trying to do things better all the time. And you just need to keep improving quality at every level,” says Boyd.

Raj Lawyers’ Raj says the challenge, of course, is to maintain a point of difference. He argues that clients are looking for less generic firms, for lawyers with specific expertise in more niche areas. Practices that cover all areas are becoming “passé”, he says, and will have little relevance outside the suburbs. “But even there people will come to people with specific expertise.”

“The bigger you get, the more difficult it becomes to provide immediacy,” says Raj. “Some firms are fantastic at what they do in certain divisions. We don’t want to be a large firm, where not everyone can answer the phone in two rings, provide clients with support on an immediate basis. We want everyone in our business to deliver that [service],” he says.

MORE FOR YOU IS LESS FOR US

Part of delivering better value is delivering more competitive costs, law firms across the country agree. But the trick is finding a balance so that clients are happy, and partners can still get paid.

According to Clayton Utz managing partner David Fagan, there is an “appetite” with clients to see greater use of value-based billing. He says the firm line is that costing rules, which apply differently in each jurisdiction, “should accommodate that”.

Allens Arthur Robinson managing partner Tom Poulton questions the “inability of lawyers generally to get a comparable value from our clients for the value that we add, as perhaps the investment bankers and others have been able to do”.

Poulton notes the pressure on fees that law firms face because of the high calibre of in-house counsel, which he says has been increasing in recent years. Arguing that lawyers give “outstanding value”, he says that transactions at Allens Arthur Robinson and other large law firms reveal that their lawyers give “huge value” to their clients. “But lawyers are not very good at making the clients understand that value has been delivered,” he says.

Poulton notes that pricing is a considerable challenge for law firms, particularly as in-house counsel request that their lawyers move away from the hourly rate. His firm has attempted to address this issue, he says. “I would say that we would be very happy to move off the hourly rate, but every time we try to get off the hourly rate, it is met with resistance because in the end the clients think they can control the number of hours we spend on something when they mightn’t be able to control some other pricing structure. Everyone says very rationally it would be good not to have hourly rates, but I am not sure anyone has a clear idea of what is a sensible pricing structure for legal services.”

Allens Arthur Robinson is continuing to look for alternatives, says Poulton, and the firm has spent a lot of intellectual capital trying to come up with a viable alternative. At the moment, he says, time-based billing is a “fall back”.

“There is billing done otherwise, but there is always the suspicion when you propose billing on a non-hourly rate that we are suggesting it because there is something better in it for us. We have to convince them that it is not necessarily so, but that we are offering a situation that is better for both of us. We are trying to get this right,” says Poulton.

Dibbs Abbott Stillman managing partner Scott Sloan says there is increasing pressure on hourly rate-based billing across the board. “Lawyers across the country would be seeing that developing change and a pressure to find other ways of valuing the services that we deliver.”

The pressure is coming from clients that are looking for lawyers to articulate and therefore charge their value in ways that are more aligned to their businesses, and that make more sense in how they measure their profitability and their expenses, says Sloan.

“That pressure comes from clients because it’s how they want to do business. One can always try and argue with the clients, but that’s not a very good course of action in my experience. I don’t see that as a bad change, I think it’s one of the big challenges, demonstrating the value that we do add to clients. I think that will affect the kinds of work that lawyers do and the worth that we put around that is the ability to demonstrate that,” says Sloan.

Clients have been placing some pressure on Middletons, as well, to find alternatives for time-based billing – to avoid surprises when they open up their bill, says Nichola. “There is increasing pressure on this whole alternative billing method to the stock hourly charge out rate. We are having to turn our minds to a whole range of different ways to price our services. And, to be frank, we are still struggling with this,” he says.

“We are grappling with this and are looking to alternatives ... I do understand that from a client’s perspective they want certainty. I don’t employ a builder to do renovations on an hourly rate, generally speaking. You get a quote, or two or three depending on the renovation, and then you would accept one of the quotes and you would have a fair degree of certainty,” Nichola says.

It is not just larger firms that have been receiving this pressure from clients, and smaller firms have acknowledged a downward pressure on the costs being charged. Raj Lawyers’ Raj says lawyers are fully accountable when the value and outcomes donot correspond. “If there is a charge that doesn’t respond to a value outcome, then that is something that legal counsel now negotiate with. We are serving on panels where the appointment is based purely on the delivery of immediate service, the capping of legal fees.”

Herbert Geer & Rundle’s Fazio says firms are having to manage an “inevitable tension” between cost and service, “which requires you to give more effort and more time to a client, and the fees, and quality”.

Firms differ on this issue, says Fazio. And while some will work 24/7 for their clients, offering them an enormous bill at the end, others can offer a fixed price on a matter. He says he thinks this tension will worsen, but that as more is expected of the profession in terms of service and quality, they will be forced to have stronger systems and better quality control.

But, he warns, firms should be aware of the impact on staff when their work is measured by cost. “You don’t want professional staff thinking there is a constant dollar sign hovering over their work. Then you lose the benefit of a good collegiate atmosphere and everything else. [You should be able] to get all the lawyers and partners to get their heads in the right place, where they invest enough in policy, practices, precedents, common sense to get quality up and keep it as good value.”

He says keeping that balance is what the job of managing partner is all about. “You can screw down on costs but ultimately it shows up in quality. And you can spend like mad but ultimately it shows up in profitability, and you have the problem of whether partners will continue to stay or whether you can afford to pay the right salaries anymore. Getting that balance right – that’s when you have happy partners, happy clients and happy staff – and that’s the hard thing, to just keep that all the time,” says Fazio.

LAWYERS WITH TECHNOLOGY

Freehills managing partner Gavin Bell says technology has been one of the major drivers for change in the way lawyers work. It changes how law firms operate and deliver advice. It changes how they go about carrying out a transaction.

The firm is able to run substantial transactions offshore, and allows Bell to check in to the office via his Blackberry while he is dropping his kids at the pool on the weekend. Drafts of documents are emailed to everyone involved in a matter, he says, while lawyers can leave work early and have access to their email from home.

Of course it affects work/life balance, says Bell, but not necessarily in a bad way. While lawyers are accessible all the time, technology also gives them more access to life outside the office. “I can deal with what I need to on the weekends without going back home and logging on. You can see what is happening and deal with it immediately if you need to. We have some women partners and solicitors who can have a day off and work from home. I think it is a good thing, while I can also see the flip side that it can appear to be an imposition.”

The trick is trying to make lawyers’ lives easier, says Deacons’ Boyd. “Things like remote access, Blackberrys, and managing our knowledge base through the use of technology is something that has changed quite a bit,” he says.

He questions, though, whether lawyers are using technology to its full capabilities. “Frankly a lot more is possible for us to achieve using technology than we actually have achieved, in my view. Technology is ahead of our usage, in many respects.”

While he acknowledged that there have been some very significant changes to the practice of law as a result of technology in the time that he has been managing Deacons, Boyd says firms “have a fair way to use it appropriately, both in giving clients a better result and also in making our lawyers’ lives easier”.

As soon as it was available, technology has always been part of his work life, though, because he felt it made him a better lawyer. He had “the biggest, old fashioned, mobile you could find because I believed in being able to be contacted instantaneously and I still do”.

“It has meant you can work in taxis, work in airport lounges, you work everywhere. Being able to check your email in the morning sort of takes the pressure off. But I have never thought that you could be a lawyer eight hours a day or 12 hours a day – you have to be available if you want to be good at something, 24/7.”

Harmers Workplace Lawyers’ Hor says that more advice and dealings are done electronically now, while “the traditional detailed memos of advice and the ethics that people would regularly provide to their clients are just things of the past”. Advice has to be practical and accessible and provided in the most efficient way, he says.

“On the client side of things it is hard at times to monitor how effectively you’re doing it,” says Hor. He notes that it is one of those things that is monitored more “when it’s ineffective or when there’s a stuff-up”. Clients have an expectation of a certain thing being done in a particular way, he says, adding that “I think the reality is you’re just expected to deliver”.

A NATIONAL PROFESSION

As many law firms move towards national models and legal eagles have flirted with the idea of a national profession, some have questioned the necessity of state-based representative bodies.

According to Clayton Utz managing partner David Fagan, from a major firm perspective, there should be a question mark over the relevance of state-based law societies. “My view, and I know this is a view shared by the other nine major law firms, is that there should be a single voice for the legal profession,” he says.

“The Australian legal profession is exactly that – an Australian profession, not a collection of state-based professions. Our practice, similar to many of the other large firms, operates so far as possible as a seamless provision of legal service across jurisdictional boundaries. Our clients require those services to be delivered at the same high standards and the same way wherever the need arises. And we want to be in a position to meet our clients’ demands.”

He says that while there has been progress in this regard, for example the move to a model law for the profession, at a representation level there should be a single body. “I certainly don’t share the view that the Law Council [of Australia] as it is presently constituted is the optimum voice. The representation for the national body should be on the basis of individual lawyers as opposed to constituent bodies …The Law Council as currently constituted has different constituent bodies with the right to nominate participants on the Law Council, and I think that should be on the basis of individual lawyers nominating so that you had a truly national body representing the profession,” says Fagan.

A GLOBAL MARKET

As staff look to the horizons to broaden their experience, so do clients, which are looking for new markets on which they can make their mark. The world is getting smaller, and firms are finding it easier to spread to other shores in this current and ongoing globalisation of the legal profession.

Sparke Helmore managing partner Davis says the globalisation of the profession takes place as both lawyers and clients become more mobile. “We’ve seen the arrival of UK and US interest in Australasia and I think that’s probably going to increase,” he says.

Allens Arthur Robinson’s Poulton says the firm expects Asia to be a big challenge in the future. He sees it as the challenge of globalisation. “This was something that looked like being a real problem and then went away for a little while and is now resurrecting itself – that is, the presence of the international firms, the development of credible transatlantic firms, which are starting to show not necessarily at the top end, but are credible at a level just below that,” he says.

“In Asia, which we see [as] a large part of our future, there are a large number of international players who would love to have a share of what we have there. So that is a big challenge for Allens Arthur Robinson if not for the rest of the Australian profession,” says Poulton.

The firm has a best friends relationship with Slaughter & May, and what Poulton calls a “good relationship” with a number of other firms around the world. “We have a solid core of partners who are operating in Asia and we have a real commitment to the Asian time zone and our place in it.”

There is a gradual change taking place in the nature of major law firms’ client base, says Freehills’ managing partner Bell. “There is increasing dominance of the financial services sector, banks, investment banks, insurance companies and so forth. They are becoming a large slice of large law firms’ clients base,” he says.

Bell notes that this new type of client base is a driver for the internationalisation of Australia’s top-tier firms. “There is not as much scope to invest large sums of money in Australia so they are going offshore and are taking their law firms with them. The Australian law firms are as sophisticated as any of the UK and US firms. We can tailor service because we know the Australian client and we have a huge cost advantage. So that has been a good thing for law firms here.”

PEOPLE, HUMANS AND STAFF

Keeping Raj Lawyers’ managing partner up at night is how to keep the firm’s lawyers from leaving permanently for those attractive overseas opportunities or in-house roles, while also bringing in the very best talent from other firms. Gadens Lawyers’ managing partner Michael Bradley can buy $400 shoes for every member of staff, says Raj, but he wonders what else can be done to make staff and lawyers know how much they are appreciated.

“What can we do better that values every person in our practice? One thing we see at our practice is individuals who come in as a law clerk, but we see their potential, and rather than keep them in a clerk position, we train them and give them practical legal training, and they assist lawyers with files instead of just photocopying. Saying to people, ‘if you have ambition we will assist you in achieving that ambition’ – but I ask what we can do that not everyone else is doing,” he says.

Freehills’ Bell says incoming lawyers often have different career expectations to what they did in the past. “They have a different expectation of what their careers will involve. We need to change the way we approach the management of their careers, the way we keep them involved in exciting and challenging work. When I started it was a case of aspire to be a partner, make partner, and then retire when you finish working. This is still an aspiration for some, but others want other things.” Providing that within the firm is essential, says Bell.

One way to keep the interest of lawyers within the firm is to offer secondments to clients, suggests Bell. He says this gives the firm a greater insight into how the clients do business, how they want to receive it and how they operate. This also gives clients a better exposure to their lawyers, he says, adding that his firm does a lot of it. “We have more than 100 secondments during the year; it’s a big issue for us and quite a benefit to us. It strengthens the relationships and makes a much more commercial lawyer.”

Harmers Workplace Lawyers’ Hor says that how firms compete for talent, particularly at the junior level, is a real challenge. “The expectations of younger practitioners who are coming into firms these days are very different to what it was even five years ago. The willingness to progress to partnership and to do the hours necessary are real issues,” he says.

Dibbs Abbott Stillman’s Sloan also raises the changing career goals of lawyers as a big issue for managing partners. It is a generation difference, perhaps, that not all lawyers now aspire to be a partner in the firm, he says. “That was an assumed career path, an aspiration, some 15 or 20 years ago but it is certainly not true today.”

Firms have to make sure they build opportunities that meet the differing career objectives of all lawyers if they want to stop the talent drain overseas and in-house, “To make sure that as an organisation we have given them scope to grow and enjoy what it is that they are doing.”

Clayton Utz has developed a range of human capital strategies to deal with this issue, says Fagan. The firm is always trying to improve communication and levels of teamwork and collaboration between its lawyers, he says, which deals with this issue.

“One of the key strategies that we’ve been employing is improving team work and collaboration … When I talk about teamwork, we’re looking to instil it not only against partners – we have high levels of teamwork already, but it’s an area that I believe can be a real differentiating factor,” he says.

Fagan adds that implementing flexible work practices in the firm is key to retaining talent. “One of the biggest challenges in a generic sense is human capital management and strategies – [for example,] people obviously remain critical, the role of women within law firms.

“The greater interest in part-time or what’s colloquially called reduced hours working arrangements, for both men and women. I think that’s been perceived as a female-only issue whereas in our own firm there are now a significant number of males that work part-time as well on reduced hours,” he says.

Additional reporting by Deborah Hodgson and Kellie Harpley

3-Aug-2006

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