Small but mighty

Small but mighty

20 March 2015 By Cyndi Tebbel

The rise of NewLaw is challenging the legal profession, bringing with it smaller, client-focused firms and more flexibility for lawyers.

As have a handful of traditional vocations, the law has retained a strong link to its cultural past.

Witness the preservation of archaic court dress at the highest levels; a time-honoured preference for impenetrable language; and – particularly in top-tier firms – a rigid business model that is now being challenged from within the sector.

However, lawyers – especially the younger generation – are becoming increasingly disenchanted with the old-guard culture of competition and long hours. They feel stifled by bloated management structures that interfere with their ability to build strategic relationships with clients, which they believe would allow them to offer better services at a cost well below the exorbitant hourly fees charged by traditional firms.

Compounding this frustration is the growing concern for their wellbeing that many lawyers have, as professionals working in a sector that (as recent studies show) exhibits high rates of stress and depression.

Clients too are becoming disillusioned and, as a result, they are becoming more pro-active. Not content to be palmed off with junior staff, they are demanding more face-to-face contact with legal experts to achieve a better bang for their service delivery buck.

Rising to meet these demands is a coterie of start-ups – new small to mid-tier firms that operate under a leaner, more flexible business model to give lawyers and their clients’ fresh alternatives to legal practice.

While often corralled as ‘boutique’ firms due to their size, a better description of this burgeoning sector is ‘NewLaw’, a term that refers to a very different way of delivering legal services, shifting the emphasis from Old Law’s partner-centric systems to a more heterogeneous structure that leverages technology to provide better outcomes and value.

Laws of attraction

NewLaw firms are frequently developed and operated by legal practitioners with considerable experience in large, established firms. They encompass a variety of practices, from online virtual marketplaces to full-service operations.

Australian start-ups are following the NewLaw model established the better part of a decade ago in the UK and US. And while it’s probably too early to predict their long-term influence on the legal services market, those who have entered the market here are already reporting strong growth.

They may start out small, but not all intend to stay that way. Sydney-based Keypoint Law, the local offshoot of Keystone Law – a 12-year-old UK firm that pioneered NewLaw – is a case in point.

Keypoint CEO Warren Kalinko says the new practice model offers many benefits for lawyers, chief among them being a reimagining of the lawyer-client-firm triumvirate. The playing field has been levelled to better accommodate the needs of all players as a holistic entity. Importantly, there’s a shift away from what lawyers can offer the firm to what the firm can offer them.

“It’s the missing piece of the puzzle,” says Mr Kalinko, who prior to leading Keypoint Law practised law for 15 years as head of legal for the OneSteel Group and at top-tier international firm, Mallesons.

“Obviously, they’re still focused on the client,” he adds, “but you can’t separate one from the other.”

A holistic approach

Keypoint services the SME and private client market. By offering clients more direct contact with senior lawyers the firm eliminated the multi-layered management structures that push as much work as possible to the most junior members of the practice.

Because Keypoint has abandoned the partnership model, principals aren’t required to meet billable hours and revenue targets, or file budgets a year in advance and undergo annual performance reviews. That means greater flexibility.

No longer defined by the narrow constraints of reaching billable hour targets, and the holy grail of partnership, lawyers can focus on designing bespoke practices that deliver better work-life balance without forgoing fidelity to the firm.

Most principals at Keypoint, for example, work from satellite locations, wherever and however it suits their needs and those of their clients. “Some are mums who want to spend more time with their kids, so they might only work three or four days a week,” says Mr Kalinko. “But that shouldn’t reflect their standing in our firm.”

There are, however, limitations for boutique law firms, says Mr Kalinko. “If you’ve structured the business in the same way as a traditional firm, but with fewer people, you may lack the economies of scale to achieve some of the desired savings,” he says, “but what I find interesting in this market is that NewLaw firms are offering completely different business models, not a smaller version of the same thing.”

Leveraging flexibility

Melbourne’s Hive Legal is another NewLaw firm that has moved away from a meritocracy compensation model. Founder and partner Simon Davidson says that kind of reward mechanism doesn’t drive the collegiality and collaboration the firm is looking for to ensure the best outcomes for clients.

For Mr Davidson, it’s about making the whole greater than the parts. “If we can get together as a group and enhance each other’s practices, that’s got to be better for all of us,” he says.

As well as flattened management structures and more equitable fee arrangements, most NewLaw firms are taking an axe to overheads and optimising their use of technology to improve both service delivery and the bottom line.

Expensive CBD real estate is also a casualty. Keypoint, for example, has opted for a central city office to handle administrative support and compliance, with other offices available for lawyers to lease as needed.

Operating structures have been reimagined too. Cost-effective third-party service providers have replaced bloated, revenue-sapping departments such as IT, HR, business development and marketing, leading to lower fees for clients and more equitable remuneration for lawyers.

At Hive, innovation extends to outsourcing legal services to other practitioners to ensure they get the right person for the right job. “If that person is in another firm,” says Mr Davidson, “we’ll approach them.”

That gives the firm “ultimate flexibility” to turn the tap on and off as required. “Using technology and innovation to lower the infrastructure costs that clients ultimately pay for but get very little benefit from, and spending money on things that drive value for clients and the ability of lawyers to do their job is the way of the future,” says Mr Davidson.

The need for self-rule

In addition to wanting more flexibility, many young lawyers say they’re making the leap to NewLaw for more autonomy. Jeremy Snow, a new associate principal at Hive Legal, says he’s already reaping the benefits.

An experienced commercial and transactional lawyer, Mr Snow specialises in the IT, telco, financial services, energy, infrastructure and health sectors.

While he’s only been with Hive since February, he’s already enjoying the opportunity to work more collaboratively with clients and fellow practitioners as he develops his practice. Even better, he’s now getting home in time for dinner with his young family.

“It is genuine flexibility, endorsed from top to bottom,” says Mr Snow. “Everyone is on the same page, and that recognition gives you the motivation to take part as a key participant in the business that contributes to the greater whole.”

The mix of autonomy and interdependence is light years away from traditional large law firms, especially those affected by mergers and globalisation, which can result in lawyers feeling far removed from the decision-making process.

Mr Davidson remembers being one of 1,500-plus partners, an environment that makes it very difficult for lawyers to stand out or have any influence on operations.

“Suddenly you’re being told what to do by an executive committee in Chicago or London,” he says, “and there are five layers of reporting between them and that executive committee. That’s a real challenge and many lawyers don’t like it.”

Different strokes

One of the advantages of NewLaw is that firms can cherry pick specific aspects of the business model that suit their needs – now and in the future.

Sydney firm Speirs Ryan has opted to retain a central office for its staff, who enjoy working from a top floor suite at King Street Wharf. James Ryan, who started the property law practice with Robert Speirs in March 2014, says it’s a wonderful environment.

“It’s not the same as Keystone – we’re more focused on creating a fantastic workplace. Everyone’s desk overlooks the water, and we spend most of the year with the doors open all day so there’s fresh air.”

He admits office rental represents the greatest overhead for the firm, but it’s been set up to work as cost effectively as possible. “When you remove all of those non-revenue producing in-house expenses, it’s very financially rewarding,” he says.

On the operational side, it’s a very different set-up from Piper Alderman, where Mr Ryan was a senior associate. He notes that while he has always had room to move and fashion his own practice, he and Mr Speirs wanted to “build something from the ground up that actually suited our industry and the expectation of clients”.

Unlike Keypoint and Hive, lawyers at Speirs Ryan still record hours. But time sheets aren’t used as a blunt tool to measure performance. “We know what everyone’s doing and how they’re performing,” says Mr Ryan, “so our expectations are focused more on how client relationships are progressing.”

That approach is already reaping rewards. Mr Ryan reports an increase in new clients who want to discuss the firm’s non-traditional arrangements. By that he means new ways of charging for services that don’t rely on set fees, but rather examining transactions to find “a workable outcome that suits their requirements and ours”.

That goes for lawyers too. Systems have been designed for remote access so if some need to work from home, they can. And when things get busy, says Mr Ryan, “everyone knuckles down and gets the work done”.

As for professional development, Mr Ryan is confident the firm’s young lawyers are actually exposed to far more prospects for career growth than where they came from. “We support them 100 per cent to ensure they get the same, if not better, opportunities than their mid- to top-tier counterparts,” he says.

A cautionary tale

Nevertheless, Old Law firms aren’t in danger of extinction – at least, not yet. There’s still plenty of business from large organisations requiring multi-jurisdictional transactional work.

But they need only look to the challenges now facing ‘old media’ for a warning of what can happen when organisations fail to embrace more innovative approaches to service delivery.

“It’s about being an organisation that’s willing to accept change and the reality is, a lot of law firms can’t do that,” says Hive Legal’s Simon Davidson. “They’ve got legacy issues all over the place, so change is a massive exercise.

“The partners aren’t interested because they’ve done very well in the past and don’t see why they should change.

“They are capable of doing it,” he adds, “but can they do it as comprehensively and quickly as we can? Probably not.”

Small but mighty
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