Brexit and Artificial Intelligence (AI) offers the prospect of a new legal dawn 

Profit trumps everything, as managing partners eye opportunities via global ructions

Profit and people is what keeps law firm leaders awake at night, but Brexit and Artificial Intelligence (AI) offers the prospect of a new legal dawn, an exclusive survey of law firm heads by Eaton Capital Partners has revealed.

Eaton Capital Partners (ECP) invited 20 high profile Australian managing partners to complete a survey in early November comprising 10 multiple choice questions.

The Survey canvassed the heads of global, national, boutique and ‘NewLaw’ firms on financial, cultural, strategic and competitive matters.

Participants included Sue Gilchrist, the head of Herbert Smith Freehills in Australia, Baker & McKenzie Australia managing partner Chris Freeland, Clayton Utz managing partner Robert Cutler and the long-term head of Gilbert + Tobin, Danny Gilbert.

A clear majority of managing partners (60%) said that the most important part of their job was strategic in nature, with the remaining respondents (40%) naming people.“If you take your eye off strategy – and how to respond to the changes coming our way – the other (people, financial and reporting) short-term issues won’t matter much,” said one managing partner.

Profit (90%) was seen overwhelmingly as the most important financial consideration, dwarfing turnover and partner remuneration. Personal relationships between the client and key partners (70%) was also viewed as being significantly more important in retaining and gaining clients than Quality of your service (30%).

“As clients become more sophisticated, they become more wedded to key people rather than firms,” said ECP partner Justin Whealing. “That gives high performing partners a large amount of leverage when talk turns to equity partnership points and salaries, or indeed, if they are courted by other firms.

”Whilst law firm heads did rate strategy as being more important than people, the establishment and maintenance of a good culture was highlighted as a critical responsibility.

“Large firms depend on culture. Without it they are just a web of mutual self-interest,” said one respondent.

Three quarters of managing partners said that flexibility is championed and offered to all employees, with only one respondent saying had to be earned with tenure and responsibility.

Glass half full

The upper echelon of the legal profession globally is under assault via competitive, technological, political and economic shocks. Despite such conditions, law firm heads were surprisingly optimistic when it came to the long-term outlook for their firm and the Australian legal sector as a whole.

Managing partners viewed Artificial Intelligence (AI) as providing opportunities, rather than decimating its junior ranks. Almost two thirds of law firm heads (60%) said that AI will ensure greater efficiencies which clients will welcome. No one considered it a threat, and only 15 per cent of respondents though that AI would not have a significant impact on the profession.

“AI is a technology that will make the delivery of legal services at the top end more efficient and to the lawyer take out the tedium of repetitive tasks,” said one law firm head.

Technology was also cited by half of all respondents as having the biggest impact on the profession in the next five years, with its long-term legacy being the undermining of the traditional large law firm model. Domination of the market by global firms (30%) and boutique and specialist firms taking work away from larger full-service firms (20%) were also cited as pressing concerns.

“The traditional large law firm model built on leverage, timesheets and time spent in the office is dead,” said ECP partner Justin Whealing. “Technology is accelerating that change. It enables lawyers to work in multiple environments and gives clients the opportunity to push for cost savings, and to compare the performance of firms they engage with against set internal benchmarks.

”The assorted legal leaders also saw that Australia could be a net beneficiary of Brexit. Forty per cent of respondents saw Brexit as an “opportunity”, which would see increased demand for its firm’s lawyers. Fifteen per cent of respondents saw Brexit as “positive”, with large corporates looking further afield than Europe for growth. Forty per cent of respondents also said Brexit would have a negligible impact on their firm.

Law firm heads also felt confident in their own skin. Sixty five per cent of respondents feel they have the confidence and trust of the partnership to lead, devise and implement strategy.

Whilst optimism abounded, the assorted respondents, which included PwC Asia-Pacific legal head Tony O’Malley, noted the muscle that has come with the push of large, global consultancy firms into the legal arena.

Seventy five per cent of respondents rated large, global professional services firms as being a real threat to their firm’s market share, given the ‘Big 4” accountancy firms in particular offering an integrated service to clients, and a different model to prospective lateral partners. Sixty five per cent of law firm heads feel they have the confidence and trust of the partnership to lead, devise and implement strategy.

“I am supported by an executive committee, but our relatively new governance model moves us away from a consensus model to a model where elected leaders have the authority to lead, devise and implement strategy,” said one law firm head.

Source: Eaton Capital Partners

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