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Mega firms in business imitation

Mega firms in business imitation

IT IS TIME to ask whether the business model of the big firms presents a most “intolerable conflict” between partners trying to help their clients save money, and help their firms…

IT IS TIME to ask whether the business model of the big firms presents a most “intolerable conflict” between partners trying to help their clients save money, and help their firms make even more money, New South Wales Bar Association president Bret Walker SC said last week.

Speaking at the St James Ethics Centre, Walker gave a speech entitled ‘Lawyers and Money’, in which he discussed lawyers’ rates and over-charging, personal injury lawyers who are often met with “usually unmeritorious, protests that the lawyers are merely engaged in a colourable crusade to line their own pockets”, and how the legal profession fits into its new role as a business.

But it is the big firms that received the most damning commentary from Walker, who said “the published aspirations of many big law firms have much more in common with large accounting combines and dazzling millionaires factories, than with their legal colleagues in small firms, in the country and sole practice”.

Much of the work conducted by commercial lawyers, though not just in large firms, has a diminishing connection with justice, said Walker, “let alone an involvement in its administration”.

The problem began when “the wrong fork in the road was taken” and the profession determined to specialise and sub-specialise its brightest graduates when they had obtained their generalist law degree and practical legal training.

“In many cases, the commercial lawyers are really part of the clients’ entourage, being served with the client by the litigators and counsel,” he said.

“Perhaps it is time for that division to be recognised formally: by the business-services part of the legal profession, the lawyers closest to the big money of their business clients, having nothing really to do with the general corpus of law and no real interest in the administration of justice, to leave the legal profession and join with the management consultants, accountants, finance brokers and merchant bankers.”

Elements of imitation have been caused by “excessive proximity” to business clients and their money, said Walker. He said this was unlikely to enhance professionalism, adding that “the phenomenon of the big — and bigger and bigger — law firm should probably not simply be witnessed passively as if it were a force of nature”.

It should be remembered “if we pinch ourselves”, that the leading firms in this country, “big by the standards of their times”, once had so few partners and staff compared to the present situation, “that they would not even be considered mid-tier firms”, said Walker.

He asked whether such firms could even “conduct the largest and most complex litigation, minister the most important property and commercial transactions, that their clients required”.

“Could they carry out the legal research and inculcate the learning and scholarship needed to advance the law and win the hardest cases in the highest courts for their clients? Were they good lawyers? Were they undervalued as members of society and as professionals? Did they live in penury?

“I suggest the answers to these questions utterly vindicate those many solicitors — fortunately, still a majority — whose practices are conducted through what are condescendingly called small firms. The answers to those questions certainly do not support the truth of slogans such as “grow or die”. They do not substantiate the claim that only mega-firms have the capacity, whatever that means, to provide the services required by mega-cases,” Walker said.

The economy of scale is of no use to describe and justify the current situation of large law firms, claimed Walker. “The idea is that a mass-produced motor car will be much cheaper than a custom-made one with comparable specifications, and may even be better. Everyone wins (apart from the custom-builders).”

But if that analogy was appropriate for the provision of legal services in private practice, the biggest firms would have the lowest fees, he explained, “but they don’t”.

“If it held good, the biggest firms would provide legal services to the broadest range of willing clients. But they don’t. Motor car manufacturers don’t incur fiduciary and other obligations like confidentiality which prevent them from selling their models to all-comers. Lawyers do. The economy of scale is not a useful concept to justify more and more lawyers becoming less and less available to more and more clients — which is an inexorable effect of big firms, demanding business clients and reliable registers of conflicts,” he said.

A conflict of interest between the clients and large law firms arises, said Walker, when one examines the “financial pages of serious newspapers”. Australian newspapers have started to report and discuss the performance of aspiring middle-sized law firms, “virtually the only yardstick of performance, equated to professional quality, and thus held out to new recruits including the brightest and best, is money”.

“Very occasionally, the money won for the client, never the money saved by the client, nor the value bought by the clients’ money. Mostly just the money received by the firm, the revenue. To rub it in, the figures are presented and re-presented to drive a message home. Whether it is the journalists or the firms who want the message sent is difficult to say — but one rarely reads of disclaimers or resistance by the firms with the glittering figures.

“What is the message? That money defines the most desirable professional attainments in private practice: see the number of leveraged fee-earners per equity partner; the revenue per head of professional staff; the margins between revenue and costs; and especially the profit per partner. Business clients presumably put up with this perverse publicity on the part of their chosen lawyers, because imitation is understood to be the sincerest form of flattery,” said Walker.

But it is time to question that if money is the measure, “who would dare say that money for the lawyers is more important than money saved by the clients”, he said.

“The money necessary to keep a big firm going, to open the doors every morning (assuming they ever close during the 24 hours), is pretty scary. Decent human and social responsibilities to the many members of staff and their families mean that the partners and lawyers must generate very large sums of money by fees from clients, at a more or less constant level. Perhaps it is time to question whether that business model does not present in the most obvious fashion imaginable an intolerable conflict between the partners trying to do the right thing by their colleagues and staff at the firm, and doing the right thing by minimising their clients’ expenditure on legal services.”

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