The impending demise of the billable hour as a basis for charging for professional services and in particular, for legal services, has been anticipated in various media for some time.  In support of this argument it is usually stated (often as ‘fact’) that this method of billing encourages inefficiency i.e. the longer it takes to do a job the greater the billable hours and the more lawyers can and will bill.

I have never believed it is as cut and dried as this.

While there are undoubtedly issues with time-based billing, it is a system which has worked reasonably well for lawyers and for clients, both of whom are good at managing the limitations so as to achieve a fair outcome.

In-house counsel have thrown a firm life-line to the billable hour as a basis for charging - Sharon Larkan Graphic - ArtStudio on iPad & PS ©

Survey of in-house counsel:

So it was interesting to read of the results of the inaugural Compass Corporate Counsel Annual Survey 2011 (pdf) conducted by Mallesons, and  reported on by Alex Boxsell (pdf with annotations!) in the AFR (26 August 2011) which indicated that:

  • a majority of corporate counsel still use billable hours as a basis for charging – there was a broad preference for this;
  • there may be criticisms and imperfections but it is still the core and staple system which has worked reasonably well for a considerable time;
  • half the respondents stated that 90% of the work they have done for them is done on the basis of billable hours; Continue Reading Billable hour remains preferred basis for charging

Despite a period of patchy M&A work, scratchy demanding clients and less ‘sticky’ partners, Australia’s ten largest law firms (Big Law Australia: BLA) have recently reported record gross fees, high equity partner profits coupled with a bullish view of their future world (Alex Boxsell and Samantha Bowers reporting in AFR 16 September 2011). However, they are facing real challenges from abroad and locally; a few thoughts on all these below.

 

On the back of excellent reported results, top Australian law firms are being challenged by foreign firms entering the Australian market, as well as local mid-tier innovators - graphic by Sharon Larkan on iPad (adapted from online image - artist unknown)

Good news for a majority of the top ten Australian law firms:

  • improved gross fee income over the past year with partner teams (equity and fixed share) generating annual fee revenues above $2m
  • tightly managed expenses
  • profit margins averaging 41%
  • average top equity partner earnings in the range $1.8m to $2m

These are outstanding results by any world standards, from some of Australia’s best-run businesses. However, a more in-depth consideration of developments over the past year or two, and the published AFR performance results for Big Law Australia (BLA), seem to indicate they have been (or should be) feeling the heat from both internal and external forces – some obvious and some not so obvious:

Employees own shares in this dynamic 105 year old Australian law firm M+K Lawyers, headed up by National Managing Director Damian Paul. M+K has embarked on a remarkable growth strategy around a unique business model and culture. Damian agreed to answer some questions:

Sean: Your business model is unique and was the first of its kind in Australasia – how has the firm grown since this model was introduced?

Damian: Somewhat late in our over 100 year history, the new model took effect in July 2008! Since then, over the past 3 years, the firm has grown in revenue by 150% to A$50m, in staff by over 100% to just over 300 and from one office to locations in all key east coast centres; New South Wales, Queensland, Victoria and Tasmania.

Sean: How would you describe M+K Lawyers?

Damian: A national commercial law firm, operated in a corporate, businesslike structure.

Sean: How does it work?

Damian: An incorporated legal practice (ILP) in each of the 4 states in which we currently operate (News South Wales, Queensland, Tasmania and Victoria), each 100% owned by a parent company which, in turn, is owned by M+K directors and employees.

Sean: Why did you choose this model?

Damian: We saw it as the model most suited to helping us acheive our growth ambition to become the leading law firm in Australia for middle market clients.

Sean: What take up has there been – from other firms and from staff ?

Damian: In a relatively short time since July 2008, seven law firms have joined us (including the foundation firm, Macpherson+Kelley). Senior employees have the opportunity to invest in the firm by buying shares in our parent company, thereby acquiring a stake in the national firm. Continue Reading Australian law firm offers senior employees opportunity to own shares