Podcast: Revamping the law firm model

13 July 2016 By Stefanie Garber
Luke Geary

In the latest episode, the Lawyers Weekly Show speaks with Salvos Legal managing partner Luke Geary about formulating a healthier law firm model based on incentives other than equity.

Under the current system, most law firms reward lawyers for long hours at the office – and the carrot for working harder tends to be moving up the ladder, towards the end goal of equity partnership.

In Mr Geary’s view, this model fails to recognise other contributions made by lawyers and can detract from their relationships and other pursuits. In particular, he warns this approach is unlikely to motivate and retain Millennials, alienating the next generation of talent.

Our host and acting editor Stefanie Garber chats with Mr Geary about the potential issues with the current structure and how firms can rethink their models to create a more motivating environment primed for the future.



Listen to other episodes of The Lawyers Weekly Show:
Episode 4: Bringing creativity back to the law
Episode 3: From outback to Martin Place
Episode 2: Is law school teaching enough critical thinking?
Episode 1: Legalising medical marijuana

Podcast transcript

Intro: Welcome to the lawyer's weekly podcast, for an in depth look at the issues facing the legal profession. This is your host Stefanie Garber.

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Stefanie Garber: Hello and welcome to the lawyer's weekly show. I'm your host Stefanie Garber and today we're looking at revamping the existing law firm model. I'm joined today by Salvos Legal managing partner Luke Geary, who will share his thoughts on how to restructure a law firm to provide incentives other than equity. Luke what do you see as the evolution of the current law firm model? How did we get to where we are today in terms of what we see in firms?

Luke Geary: We're at an interesting time within the legal profession in Australia. Just by way of our background, I was able to read an article that was published in the UNSW law journal back in 1979 which was kind of a warts and all study on the history of law firms within Australia. In a brief snap shot what they found was that over the twentieth century law firms in Australia originated from really family held partnerships, so for the first half of the twentieth century, equity was never available to outsiders to the firm and so the firms were quite small in size. But that had a big change during the mid twentieth century where Australia had a lot of investment coming in post the second World War and also I think a lack of patience by those other lawyers who were employed to be denied the right to hold a stake in the business.

As the 1950s and '60s and '70s emerged, there was a very significant shift in the way that law firms structured their businesses, who they let into equity, on what terms and for what period of time and that reflected changed economic activity in Australia as there was a lot of foreign investment, a lot of looking overseas to how businesses were succeeding in motivating individuals. Even since probably the late 1970s there's been a massive further change where corporate law firms have really emerged and started to be driven by the need to make return for the investors, the equity partners and more recently including shareholders. We have a couple of publicly listed law firms, we have Slater & Gordon, we have Shine and that brings with it a whole other dynamics of play in terms of duties to shareholders and the way that the company needs to run. Also the nature of how you create investment to build the business.

We've got a few things that are at play and the times I guess have reflected generational changes. We've seen each of these evolutions based on I guess patterns within society where we have baby boomers for example, who have certain values that they bring. Then more recently gene X and gene Y who've helped I guess bring firms to where they are now but I think probably what I find most interesting and really what I guess is an interesting point for Salvos Legal is, we're looking to the future and seeing what the millennials will really expecting in terms of the investment they want to make in their careers and what types of business models will appropriately fit them so that both the organization and the individuals can succeed.

Stefanie Garber: I think it's fair to say that under the current model, that equity is the main driver of a firm. It's how lawyers are rewarded for their efforts and it's the equity partners are obviously the major shareholders who benefit from the firm’s profits. Do you see flaws with that model?

Luke Geary: Yes, it's not so much the concept of sharing the profits that I see an issue with, it's the basis on which firms decide how to share them. I think historically there's been a recognition that the entitlement to share those profits is based on the rain maker or the person or persons who drive the increased revenue and that's measured pretty simply through feet under management, going, getting work and adding it to the business. Historically a lot of firms I think have recognized that to the detriment of recognizing other contributions by other lawyers within the firm who bring other things to the table which are really part of the ecosystem that keeps all of the pieces together.

I think firms really need to reflect on what they're rewarding and how they're rewarding it. I guess maybe pea in a pod, there's 2 issues. One is, firms really reflecting on what values they want to drive as a healthy organizational mix so if it is recognized that perhaps silos might be created by only rewarding rainmaking, then firms might reflect well how can we break those silos down so that people work better together. But also if people aren't on a whole only interested in making money, what other things are going to drive those healthy behaviours so that the firm as a whole can be a success and that sustainability and engagement with employees including senior employees is optimized.

Stefanie Garber: You mentioned this idea of reward, how do you reward our partners for things other than bringing in revenue but still run a profitable business? How do those two commercial and other values go hand in hand?

Luke Geary: In the past, we've seen that lawyers have been happy to chart a career path with the ultimate goal being equity partnership and either consciously or unconsciously accepting that there is a commitment that's going to be required of them and biting their lip and persevering until they take their equity. But the future is going to look very different because it's my observation based on looking at other firms and looking at our own firm and the individuals who are really high performers within them; they're looking for different things and so they're prepared to commit different periods of time, different ways in which they want to work, they want to have more control over the working habits and flexibility.

But also they want to get a different outcome perhaps than what maybe their appearance or their friends appearance that I observed in the generations before them were able to achieve.

In part, millenials have observed what they've perceived to be mistakes of an earlier generations healthy approach to work and they want to, like any generation be a greater success than the one that comes before them. Interestingly Deloitte has found that 75 per cent of the workforce by 2025 will be millenials. I think we can't as responsible leaders of law firms, ignore the fact that the significant majority of our workforce is going to bring an attitudinal difference to the firms which they choose to commit periods of their life. We have to really carefully exam who it is that we expect to want to attract to the firms and what are the things that are going to drive their behaviours so they are the highest performing individuals for the organizations goals.

The data suggests that there are really a series of differences with millenials than there are with generations that proceed them. Things like millenials are obviously a lot more focused on flexibility within the work place, we know there's a lot that's written about that, but they're also very focused on creating a form of social impact with their time. Whilst they may be prepared to commit significant amounts of time working for a firm, they want to see that there's more of an impact than simply dollars and cents. They want to know there's value for their contribution. I think that's a significant observation different to generations in the past who have perhaps been less overt in their comments about that. Millenials are very upfront about it and so if firms aren't offering that as one of the benefits of being a senior person within the organization then the millenials won't follow them.

Stefanie Garber: Sure, so it's a question of future proofing the profession by providing gold that millennials will be motivated by as opposed to purely equity.

Luke Geary: Yes and also setting the expectations for those that don't want that career path. Say, some select into the traditional equity type approach, so long as there’s full disclosure and they understand what they're committing to then that's okay, but I think we've seen a lot of law firm refugees, so people leaving traditional firms after a few years because they feel a little dejected by what they were led to believe was going to be the case and they're looking to places like NewLaw firms who offer all in-house, who offer alternative approaches to a career. I think there's a couple of elements. One is rewarding healthy behaviours in a healthy way and the other is disclosing really frankly, candidly what life will be like as a partner. I don't recall myself or any of my friends who are partners in other firms being given that sort of candid instruction early on in my career so that I could make an informed decision.

I don't fault firms for not doing it, firms traditionally are very closed environments and that article from 1979 I was referring to, really made that as an observation, that lawyers are very far different to other businesses in that regard. But I think probably what would be important is for firms to let its future leaders know what the organization would expect of them. Then it would have either full buy in or would be able to limit the expectations of the individual so that there is a fair reward for a fair day's work.

Stefanie Garber: Sure. So helping people understand what they are actually signing up for when they put themselves in that partnership track.

Luke Geary: Yes. I think the problem is, some people find out too late and they've committed a significant part of their life to a firm and it's getting longer and longer to become a partner in a firm than it used to be. What they're seeing is, and I'll just say anecdotally, the colleagues I work on matters with in other firms who tell me in a way that seems to be acceptable to them that they don't get to see their kids at all during the week. I don't think as a society that should be something that we accept as being normal healthy behaviour. They see their kids just on the weekends and that's almost like a really bad outcome in the family law parenting dispute but these are people who are in relationships who are making sacrifices that can never really be properly rewarded. The time that is lost in a parent's engagement with a child can never be remunerated or it can never be compensated for.

I think the millenials are very aware of that and are going to commit to firms which will offer them the things that they want in life and so if the firms don't really reflect carefully on who they want to work for them and what it will take for those people to come and work for them in the future, they're going to get hit really with a very stark reality of people not being attracted to them as an organization.

Stefanie Garber: Sure. In that case what does a firm that's millennial friendly look like? What is a healthy model for a law firm in 2016?

Luke Geary: Yes, look I don't have all the answers Stef but I would say that it's one that rewards a balanced scorecard for an individual's performance. I think it's really important that people are valued for the contributions that the firm asks them to make. A firm must in the twenty first century ... Corporations are really good at this now and law firms are lagging behind. Corporations recognize that there's a lot of value in for example, the leaders in HR or in the leaders in strategy or in the leaders in business development or in the leaders in operational engagement. So that it's not just one silo wealth employee who is to be the definition of success.

Law firms though need to really re-calibrate how they acknowledge and how they reward behaviours across the full spectrum of employees. What that means is reflecting on the fact, and being candid with all the staff about the fact that everyone's contributions is what makes the organization as a whole successful and having a system for reward and recognition that really adds substance to that comment. I think it's important as well to recognize that money is not the only way that people can feel engaged and there's a lot of data out there that says, non-financial rewards are very significant for people.

One of the things that is a massive non-financial reward is time. Giving people extra time either during the week or extra annual leave, or extra days off from time to time to allow them to have the flexibility to do the things beyond work which are really important for them. Whether that's volunteering, whether it's pursuing professional study, whether it's pursuing a hobby, whether it's spending time with family or friends, those are the things that employees find incredibly gratifying as a way of being rewarded. I think firms really need to build structures that have those sorts of rewards as the outcomes for the behaviours that firms want to reward.

In terms of moving forward, I mean there's been a lot of work done in the consulting space particularly in America about the potential for the four day working week. I think Europe it'll also experimented in that area and I think is a great opportunity for firms to consider ways of flexibility and non-traditional working that perhaps law firms have been a little bit conservative to approach in the past.

Stefanie Garber: One other factor that is traditionally been attributed to millennials is a desire for social change or a desire to impact on the society in which they're living. I know that Salvos has a thriving pro borno arm which is supported by the commercial practice. Do you find that's particularly appealing to millennials?

Luke Geary: It is, but it's no silver bullet. I'm not going to say that we are the shining example for law firms. We do what we find is the way in which we want our firm to run but I'm not going to suggest that it is a substitute for the full profit world. We attract certain individuals based on a range of our employee value proposition elements and one of them is the social impact that is undertaken through the work of Salvos Legal Humanitarian. To date that firm has served in over 16,000 cases for free so it is a significant impact but we want our commercial lawyers to do more than simply know that the money that they are generating through commercial fees is funding.

We want them to fully integrate with that work by volunteering in our night time services for example. But also in the ways that we communicate with them and share the good news stories of those clients is how we engage them and our other supporters. By letting them take a little bit of ownership of the outcomes that are achieved in those cases so that they know that they're actually making a difference. I think each firm has an opportunity to do it in its own way. Just because organizations might be a full profit structure doesn't mean they can't make a significant impact. What it means though is firms should really carefully co-design some form of social engagement which will respond to the stakeholders that they have in their business.

There's a lot of data that says if you give a top down solution, it will be rejected but if you want to engage with the individuals who you're seeking to engage with you've got to talk to them and say what would be really impacting for you for us to do together. Firms, I would encourage to consult with the staff that they want to be motivated by these sorts of things and really understand what is it that drives them. Is it going to be setting up a pro bono clinic for the firm, is it going to be allowing staff to volunteer overseas in a refugee organization, is going to be allowing stuff to go and work in an aged care facility spending time with people who otherwise don't have company, is it going to be allowing staff to undertake advocacy and policy work from the office? Everyone's going to have their own different approaches and I would encourage firms to consult with those individuals who really are the future of the organization so that they take ownership of this and feel very empowered by it.

Stefanie Garber: Thank you for sharing your thoughts Luke. Today we've been talking about the revamping the traditional law firm model. Thank you so much for listening.


Podcast: Revamping the law firm model
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