Incorporated boutiques find ‘sweet spot’ in the market
Smaller firms find it easier to adopt a corporate structure and benefit from making the transition, the new managing director at Brian Ward & Partners has said.
Long-time legal consultant Philip Gleed (pictured) announced on Thursday that he will move back into private practice as the head of Brian Ward & Partners.
Speaking with Lawyers Weekly, Mr Gleed said incorporated boutique firms such as Brian Ward & Partners have unique advantages in the market.
While large firms often find the financial reporting requirements and tax burdens associated with incorporation insurmountable, small firms are agile enough to discard the partnership model, according to Mr Gleed.
He explained that incorporation has a number of benefits and is one of many strategic advantages that come with being a small company.
“There is a real sweet spot for boutique firms at the moment and that has been a very influential factor in my decision to come back into private practice,” he said.
“From my travels as a consultant I have seen in-house counsel are not so much requiring a brand or a particular size of firm.
“They are now looking for service delivery and value for money; I think those two things play to the strengths of boutique firms.”
Mr Gleed said boutiques can respond more quickly to changing environments because they are operationally flat in terms of their management structure and can make decisions faster.
Making the switch
Mr Gleed is taking the reins from Brian Ward, who founded the firm in 1976 and is now stepping into an executive chairman role.
Mr Ward, who oversaw the incorporation of the firm 14 years ago, said there are many compelling reasons to move away from the partnership model.
He said having a board with independent representation gives the firm’s leadership a much more external focus.
“[Incorporation] makes you much more acutely aware of issues like solvency and capital adequacy and balance sheet strength,” he said.
“Over a long period of time that has enabled us to build a strong balance sheet so that we are free of a lot of the anxieties that trouble other fast-growing service firms.”
Incorporation also helps with recruitment at the senior level because people interested in an equity position can easily gauge the company’s success, he continued.
“If someone was coming in to join us there are a set of accounts, there’s a capital structure, there’s a valuation mechanism for shares, there are financial disciplines that make an assessment of us very easy,” said Mr Gleed.
Remuneration structures are also strengthened by incorporation, said Mr Ward.
The use of salary and dividends under incorporations means there is a direct link between remuneration and the performance of the firm as a whole.
“It’s not like some fixed draw that much bedevils practice managers at larger law firms, where they commit to the expenditure and then try to find the revenue,” said Mr Ward.
Under the incorporated remuneration model, lawyers are invested in the performance of the firm or company as a whole, he continued.
“And that helps break down silos and gives the chemistry that flows over to other factors like commitment, shared values, goals and just enjoying professional practice,” said Mr Ward.
Mr Gleed said fluctuating remuneration under the partnership model is behind a lot of the movement by partners between law firms.
The tax benefits of incorporation are equally substantial, as the company tax rate is relatively low and there is a lower tax threshold to retired debt.
This allowed Brian Ward & Partners to pursue an aggressive debt reduction strategy and “rocket our debt down”, said Mr Ward.
Incorporation also eliminates the complication of taking into account the personal tax circumstances of individual partners. “The back is broken on tax,” said Mr Ward.
Despite these advantages, “incorporation hasn’t really taken hold as much as it might have”, he continued.
“Incorporation of firms generally is on the increase and a lot of those incorporations are at the smaller to boutique firm level,” explained Mr Gleed.
Behind this trend are the heavy regulatory burdens on large companies, according to Mr Ward.
“Once you become a large propriety company, the regulatory environment shifts and you are judged more like a public company with audit requirements. You’ve got to take into account work in progress,” he said.
Other commonly cited issues are payroll tax and WorkCover issues, he added.
“[But] I think if people understood that to be one of the advantages of incorporated entities they might be a bit more attracted to it,” said Mr Ward.