I was pleasantly surprised yesterday to find a copy of the 'Business Times' insert on 'Who's who in Law' sitting on my desk when I reached home. Turned out that my dad had specifically gone the extra mile to extract it all the way from Jurong Island on Wednesday. (:

Appended one article for your viewing pleasure in case you're lazy to click on the link above..
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What's in store for the future
ROBERT SAWHNEY reviews recent changes in the legal industry and the implications for Asian law firms


'BIG LAW is a dead man walking ... nothing can be done.' These words from Professor Larry Ribstein (University of Illinois Law School) were spoken at the recent legal conference at Georgetown University in the US - Law Firm Evolution: Brave new world or business as usual?

Whether this is true is subject to argument, but given the impact of the global financial crisis (GFC) on the worldwide legal market, never before has the law firm world been more acutely interested in what changes and trends are truly going to impact the structure and competitiveness of the legal industry.

These trends include:

- Greater demands from clients on fees and how legal work is carried out in terms of cost, efficiency, outcomes, and relationships;

- Alternative fees and the demise of the billable hour;

- Legal process outsourcing (LPO);

- External ownership and capital (Legal Services Act in the UK);

- Technology and commoditisation of legal services;

- Performance of legal services by non-lawyers;

- Globalisation and liberalisation of legal markets;

- The increasing influence of China, India, and the rest of Asia;

- Associate training, progression, and motivation;

- Lock step vs merit based remuneration;

- The move towards more corporate styles of management including non lawyers as managers;

- Firms relying less on leverage and utilisation for profitability;

- Client value as the key driver of reputation, performance, and profitability.

Whilst these trends have been around the industry for some time now (the billable hour for example was supposed to have been dead 20 years ago) it seems that in light of the GFC, they are gaining considerably more traction. Research from the UK (Eversheds: the clients revolution, 2010) shows that in-house counsel are in the driving seat and are using their bargaining power to demand lower fees. The research also shows that in 2008, 52 per cent of partners dismissed alternative fee arrangements as nothing serious, but by 2010, 88 per cent believe they are here to stay.

There have been countless examples in the West of these changes in practice. Recently, Levi Strauss and Co decided to give all its legal work to Orrick, Herrington and Sutcliffe for a fixed yearly fee. Levi will only retain one other firm, Townsend and Townsend and Crew, which will handle its brand protection issues. Numerous firms are creating alternative career progression paths for associates and moving towards merit based pay systems (such as Orrick mentioned above, Howrey LLP, and Reed Smith).

Additionally, in Australia, Slater and Gordon listed on the stock exchange and are using the additional cash to buy up smaller practices around rural Australia as part of their expansion strategy. It seems that others may soon follow the same path.

Research from Asia Legal Business shows that two factors have the biggest influence on client's choice of law firm: expertise and experience. Additionally, research from the UK shows that clients increasingly expect their law firms to be business partners who can drive commercially driven solutions, rather than just being providers with excellent technical skills.

The war for talent

So, what does all this mean for law firms in Singapore and South-east Asia? One of the crucial areas will be the war for talent. As foreign firms continue to expand into Asia (this may be particularly true for UK firms as they will have cash at their disposal once they receive external investment), local firms will face increasingly hard times in keeping their best people. Most will probably not be able to compete on pay and will have to look hard at their culture and values in terms of creating staff loyalty. Getting their associates away from endless document reviews and training them for the realities of being a proper lawyer would be a good place to start.

Hong Kong provides a stark example of the effects of entry of foreign firms into the domestic legal recruitment market. Only three of the largest 20 firms in Hong Kong are local-based. Lindsay Esler, the operations, management and projects partner of indigenous firm Deacons, says that the firm has adapted to deal with this issue.

'We have aligned the timing of our graduate recruitment with the international firms who are seeking the same top graduates as us. We also emphasise that with promotion decisions being made here rather than in Chicago, London or New York we can offer far better partnership prospects and a viable alternative career path.'

The Committee to Develop the Singapore Legal Sector published statistics revealing that in 2001, there were 61 Singapore lawyers who left the profession to move to a foreign firm in Singapore. By February 2007, this number nearly doubled to 119. These numbers do not include lawyers who had left to practise directly overseas. One may speculate that this trend will continue (and possibly accelerate) as more opportunities open with the rapidly increasing number of foreign law firms establishing operations in Asia.

More competition ahead

Another crucial area will be competition and the increasing demands of clients. In Singapore, the liberalisation of the market through the enhanced joint venture scheme or the Qualifying Foreign Law Firm (QFLF) will only intensify the changes taking place. No longer can the big local firms simply rely on their reputation and relationships to generate work. Whether this involves non-lawyers as chief executive officers or other moves towards a corporate style of management is not important.

What is important will be the ability of the law firm to leverage its knowledge more effectively in order to enhance client value. The 'eat what you kill' culture and its concomitant practice silos will have to end as increasingly complex legal work will require cross practice expertise and knowledge sharing.

Whilst the 'Big 4' Singaporean law firms may continue to dominate the market, such domination can only last if they have both the talent and reputation to bring in the work. I believe those factors are becoming more tenuous. Reputation will no longer be driven by past capital and will be increasingly driven by client value and satisfaction. The growth of legal process outsourcing (LPO) is a good example of this. As technology drives both efficiency and ubiquity of information, greater amounts of legal work are becoming commoditised. Clients are less willing to pay junior lawyers and associates hundreds of dollars an hour for work that can be done at a fraction of the cost elsewhere and by non-lawyers (the Indian LPO market is now worth about US$1 billion). Firms will have to learn how to use project management techniques to improve efficiencies, predict and manage costs, as well as break work up into 'chunks' to identify where they can add the most value and which areas can be done by someone else more cheaply and effectively. The effects of these changes may be magnified as a stratification of legal work takes place, evidenced by changes in the Western legal market.

'Bet the company' work will remain relatively price insensitive but all other work will be increasingly price sensitive as in-house counsel shop around based on value and less on reputation. This has real implications for the star partners as they will gradually migrate to where the 'bet the company' work is going and the more profitable firms.

It's about client value

The existing structure of law firms is under attack. The pyramid system upon which law firm profitability has been predicated is coming to the end of its usefulness. In-house counsel and other clients are becoming increasingly discerning buyers and their demands are increasing. Firms that want to thrive will have to become much more astute at building and managing a marketing culture, not merely in terms of business development, but in terms of creating a culture within the firm that aligns human resource, knowledge management, strategy, and marketing to client value.

Understanding what clients need, their business, and their industry, will be ever more important. Firms that can live and breathe this marketing culture will have gone a long way to creating a sustainable advantage in the market place that will be very hard to copy.

The writer is the managing director of SRC Associates Ltd, a Hong Kong based firm that works throughout Asia with law and other professional service firms on their key strategy, marketing and leadership issues. He is also the author of Marketing Professional Services in Asia (Lexis Nexis, 2009).

www.srchk.com, [email protected]

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