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Incorporation boosts profits: OLSC

Incorporation boosts profits: OLSC

LAW FIRMS that incorporate are seeing an increase in their profitability and levels of staff happiness said the NSW Legal Services Commissioner, Steve Mark. In a paper prepared for the…

LAW FIRMS that incorporate are seeing an increase in their profitability and levels of staff happiness said the NSW Legal Services Commissioner, Steve Mark.

In a paper prepared for the Australian Lawyers Alliance Conference last weekend Mark said that his scepticism about the incorporation of legal practices had been assuaged by the positive benefits he was seeing as a result of the requirement that incorporated firms adopt sound management principles.

“We’ve received lots and lots of letters from those who have been incorporated saying ‘thank you, very much. Your system has been extremely useful, we are a much happier firm, we are making more money, we are doing a lot better’. It improves their performance, it reduces their stress because they know where things are. Having management systems means you know what to do so when the inevitable problems in all legal practices do arise there is some mechanism to deal with them,” Mark told Lawyers Weekly.

Under the Legal Profession Act firms are required to implement “appropriate management systems” and failure to do so may be treated as professional misconduct.

“Appropriate management systems” are not defined by the legislation, but the Office of the Legal Services Commissioner works with firms to develop practices that adhere to what are becoming known as the “ten commandments” — a list of objectives for sound legal practice. Mark believes that because the new regime encourages firms to reflect on their own business practices and develop their own best practice solutions, they end up with management processes that suit their needs.

“When a law firm opens its doors they don’t necessarily have management systems in place so this gives them a requirement to develop those systems. And they develop it themselves, rather than go out and buy some software off a shelf where they don’t really know how to use it, they don’t want to use it, and it’s not really real to them.

“One of the underlying management philosophies is that if people build their own systems they usually own them more than if they are imposed. And they are more appropriate to their individual needs and requirements and more likely to be followed rather than just given lip service. So the approach we have adopted seems to have struck a chord with a lot of these firms, where instead of imposing some sort of management or best practice system we have encouraged them to develop their own system, and we are happy to give them support and assistance in doing so,” Mark said.

Frank Egan, managing director at LAC Lawyers said incorporation was the best business model for their firm, which was one of the first firms to incorporate approximately six years ago.

“We would not think of any other way of running a business. When you’ve got a whole group of partners they want to squabble and carry on together and they can’t reach a consensus — that’s the problem with partnerships. Incorporated legal practices have a proper corporate structure, proper management and so on and as a result everything gets done as it should get done. It’s a discipline. So from that point of view it’s far more attractive than any other structure out there,” Egan said.

As more and more firms incorporate, Mark believes this will also result in fewer complaints being made against lawyers.

“Having a good management system may mean if you are going to deal with negligence you are clear about the sort of work they want to do. A law firm that doesn’t think that way will take any work that comes in the door because they fear that they have a cash flow problem. This creates immense problems for them because they do work before they have the competency. And then they delay things because they don’t know what to do, or they may have to go out and spend more money, getting barristers’ opinions and whatever. So it actually is very bad for customer relations,” he said.

The OLSC estimates that the number of incorporated legal practices in NSW is about 18 per cent of the 4,278 law firms operating in NSW.

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