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Why are we in Business?

2/6/2010

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"There is only one boss: the customer. And he can fire everybody in the company from the chairman on down simply by spending his money somewhere else."-  Sam Walton, Founder of Wal-Mart, Owners of Asda


A simple message, yet one  which can be complex to deliver.  The interesting thing about Sam Walton is that he kept things simple. Give customers what they want at a price that they like, that still makes a profit for the business and look after your staff and you can't go far wrong. 

In the legal world there is plenty of anecdotal evidence that some firms are getting some, if not all of that, wrong, some of the time.  Turnover down, profits are dipping and staff are inevitably being laid off as a result. It's all about money. But is there another reason why we are in the legal business?


   I often read about people who "want to make a difference" in law and usually this is before they fully enter the profession.  I once asked a trainee lawyer to help me write a chapter for a book on the future of the law in Scotland and he stated quite categorically that as long as it was not about making money, he would do it…but if it was about money, he wanted no part in it.

I didn't press him on why he felt that way as I suspect that part of me wanted to let him have his moment and he could find out for himself whether or not he could keep the faith and carry on in the law not making any money.  

I wondered how long he would last; how he would pay the bills and if anyone would join him if he set up a firm with that as his Mission Statement.  Over the course of the next few weeks I asked some other trainees why they decided on law and a lot of them said the same thing, they wanted to make a difference. Was this a new thing or had law students always thought that way?

And something else was happening around that time.  The banking crisis had started, uncertainty was in the air, trainees were being let go, training contracts were being suspended or cancelled and there were many law students unable to get any kind of work.  
 
  Looking at the number of law students that the universities were churning out versus the number of jobs available and it was no surprise that something had to give.  Economic theory tells us that supply and demand need to balance exactly.  But what happens when the economic system gets a shock or even two shocks, recession and Legal Services Bill. How long will it take the profession to balance out? And what happens in the time it takes to balance out? Is that a time for us to consider why we are in business?

 
  The economic focus of law has already altered dramatically in the last 30 years.  The sheer number of lawyers has gone up ten fold.  Law firms now reflect the size of their clients and a huge segment of law is concerned with the delivery of corporate legal services and sole practitioners are being economically squeezed out. The domination of these larger legal firms has affected legal students and the ideal placement is now seen as a seat in one of the big firms. 

The big firms is where all the money is and they inevitably attract the star talent. Interestingly, the trainee I mentioned earlier worked for one of the big firms. Did he consider that as the best place to make a difference? Are there any big firms that exist for any other reason that to make money?  I suspect that their PR departments will fire into full spin to tell us about all the altruistic stuff that they do, but is that really enough? And in this calm between two storms, is it now time to really consider why we are in business?

 
The founders of Hewlett Packard said that"…many people assume, wrongly, that a company exists solely to make money." They went on to say that companies should "make a contribution to society, a phrase which sounds trite but is fundamental."

So does a law firm make a true contribution tosociety and have a higher purpose? More importantly can it do that comfortably alongside being profitable?
 
The Salvation Army seem to think so. That's why later on this year they are opening a commercial law firm in Sydney, Australia that will charge commercial rates, pay lawyers market salaries and channel the profits into its humanitarian work including legal services for the poor and needy.

 Before you dismiss this as some kind of gimmick, here are some facts about the Salvation Army.  

They started in 1865 and they have an annual budget exceeding $2.6 billion in the US alone with a workforce of 3.4 million workers and volunteers.  If they were a company they would be in the FTSE 250.  Of all the firms listed in the Dow Jones Industrial average in 1896 only two remain, the Salvation Army and General Electric. 

They operate in 120 countries providing services in 175 languages, they have 1,680 thrift shops and provide free accommodation for 65,000 people a night. In addition they provide counselling for former prisoners on parole or probation, nurseries for children and the elderly, community sports and recreation facilities, medical services, job training and recruitment, missing person services, visitation services to people in their own homes and they respond instantly to disasters and provide relief programmes. 

Of every £1 collected, 83p goes directly to these services with only 17p is spent on overheads and administration; a figure that surely shames any government department. Oh, and they have run a successful bank to account for all this and the annual $2-$3 billion in donations since 1890


That, ladies and gentlemen of the legal profession, is your future competition, not Tesco.

The Salvation Army could easily be followed by the SSPCA, Shelter, Oxfam, RNLI, The Red Cross, RSPCC and others.


So what can we do about it?
 
Here's an idea that formed out of the discussions with the trainees and a couple of books that I read once.

Paul Ormerod's book entitled "Why Most Things Fail" postulated that corporations and businesses needed to adopt certain strategies in order to stand a chance of prospering in a world where only one thing was certain… failure.  In that book Ormerod quotes Freidreich von Hayek, the Austrian economist and 1974 Nobel Prize winner who said that "…innovation, evolution and competition are the hallmarks of a successful system…"

Ornerod also tells us that it was Joseph Schumpeter, another economist and creative thinker (and victim of a collapsed bank!) who coined the phrase "gales of creative destruction".  Schumpeter disagreed with Karl Marx on the collapse of capitalism because he said that " innovation led to gales of creative destruction which caused old ideas, technologies, skills and equipment to become obsolete….and this caused continuous progress and improved standards of living for everyone."


 
So we need innovation in the legal business to progress and improve standards of living for everyone.
 
Here's an idea.
 
Why don't we include a clause in the Legal Services (Scotland) Bill that requires all lawyers working in Scotland to donate a minimum 20 hours a year to pro-bono work for the poor and needy?

Firms could designate Wednesday afternoons from 3-5pm as Pro-Bono time and take appointments.  This would relieve the pressure on the Citizen's Advice Bureau and the small number of lawyers who donate upwards of 100 hours a year to such causes.

Greater minds than mine can work out the details, but in principle, why not?


 Yes, we are in business to make a profit and to make money, but we also all once wanted to make a difference.  This is an opportunity to make that difference, to give something back and to make Scotland and Scots Law unique in the world once again.

 Any reason why not?

Do me one small favour.  Before you answer, please read the blawg below on "Impossible".





 
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MSP's support the Legal Services Bill

29/4/2010

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Members of the Scottish Parliament (MSPs) have backed controversial plans to introduce so-called "Tesco law" in Scotland.

Despite what the lawyers themselves think, MSPs gave their backing to the Legal Services (Scotland) Bill at yesterday’s stage one debate, but agreed that amendments were needed at stage two to address concerns.

The bill, which would allow solicitors set up in partnership with other professionals, such as surveyors or accountants as alternative business structures (ABS), will now go to the Scottish Parliament’s Justice Committee for further scrutiny.

The bill would also allow external ownership or external funding of law firms and could see organisations such as banks or supermarkets providing legal services in Scotland for the first time.

In its first reading at Holyrood, MSPs backed it by 92 votes to two.
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Law Society Vote Delayed

6/4/2010

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I didn't post the "For" vote argument and link as the vote has been delayed.

The Law Society of Scotland has announced that the reconvened special general meeting on alternative business structures (ABS) will be held at the Sheraton Grand Hotel in Edinburgh on Friday 16 April at 10 am.

The initial part of the SGM on Friday 25 March was adjourned to allow for further discussions between the Law Society, the Scottish Law Agents Society and others.

The SGM was held following a requisition by SLAS, which called for a debate over its concerns about proposals to allow external ownership of alternative business structures in the legal services market.

Ian Smart, president of the Law Society of Scotland, said: “I can confirm that discussions are ongoing, but it was important that we set a date for the reconvened meeting.

“The venue has now been secured and I hope that as many of our members as possible can make it along – especially those who took the time to come along to the SGM on 25 March – to continue the meeting and participate in the continuing debate.”

A formal notice to all members will be issued this week.


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Law Firms must modernise or Lose Out

22/3/2010

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Law firms must modernise or lose out as a major power shift is taking place in favour of the in-house client, a new report from Evershed's has warned.


The report, which canvassed the opinions of 130 general counsel and 80 law firm partners around the world, reveals that eight out of ten (78 per cent) believe that the recession will have a lasting impact on the profession, and that value and efficiency are now the non-negotiable attributes a client looks for in a legal partner.

The report, Law firm of the 21st century – The clients’ revolution’, commissioned by Eversheds, also reveals that the recession has had a major impact on how ‘magic circle’ law firms are viewed, with just over half (51 per cent) of clients and 46 per cent of partners citing the term as defunct.

When asked if this revision, to the traditional law firm hierarchy would be a welcome development for the market, an overwhelming 94 per cent of clients and 81 per cent of partners agreed.

While the recession has proved to be a key catalyst for this change, the report also highlights several other factors that have contributed.

The primary factor identified by over a third (37 per cent) of all respondents was globalisation, particularly the move to the East, with many international law firm leaders, as with other business sectors, considering moving their headquarters from the West to the East.

An additional driver for change is the increasing status and professionalism of the in-house lawyer (35 per cent). Three-quarters (74 per cent) of general counsel said they now occupied a far more senior commercial advisory role in their companies compared to before the recession, with 55 per cent assuming more responsibility for corporate governance.

Technology has also been a factor for change – over half of clients (58 per cent) had used technology to deliver legal services more efficiently.

The Legal Services Act in England and Wales was seen as having the least impact, with only 8 per cent believing it would have a transformative impact.

Commenting on the findings, Bryan Hughes, chief executive at Eversheds, said: “When we conducted our first report into the legal sector – The 21st Century Law Firm – two years ago, we found that many law firm partners were resistant to change, despite their clients asking for it.

“For example, two years ago, only 22 per cent of clients and 48 per cent of partners saw value billing as a trend for the future. Now, 86 per cent of clients and 88 per cent of partners say they often or sometimes use value billing.

“As well as globalisation and the increased use of technology to deliver efficiency, the key change is the shift in power to the client, which is largely due to in-house counsel taking a more important commercial role within their companies.

“This will prove to be a real shake down for the legal sector and its workings, and law firms will need to really to prove their worth as in house teams expand their expertise.”

The report also tracks the demise of the hourly rate, which is now seen as just one tool among many.

While many law firm partners are adapting to change, particularly in the area of alternative billing structures and added-value offerings – 63 per cent of clients reported seeing better value for money since the recession started through add-ons such as free-of-charge secondees – many are still not delivering what their clients want.

Two-thirds of general counsel have demanded lower fee rates from their external lawyers, and 47 per cent of partners recognise that this is their clients’ number one priority. However, only 25 per cent of partners are actually delivering reduced rates.

Mr Hughes added: “Law firms need to demonstrate where they can add real value to a client’s in house team – 87 per cent of clients now say that value-added services such as secondees or free access to knowledge management resources are a crucial factor in their decision to instruct external law firms.

“The change that was predicted to take place over the next 10 years is here now, and it will be those firms who respond to the trends identified in the report who will see the real benefits.”
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King Canute and the legal profession

10/3/2010

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Faced with massive change, what's a lawyer to do these days?

Order the tide to stop coming in or get busy building a boat.



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Two Words..."Turkeys" and "Christmas" Spring to mind

4/3/2010

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The Legal Services Bill debate is hotting up.  First of all lawyers in Scotland said they were all for it...now..er..they're not so sure.

As I quoted in a recent article in The Firm Magazine (Feb 2010), "When we are no longer able to change a situation, we are challenged to change ourselves"

Not content with accepting that they are unable to change a situation or not content with having to change themselves (probably the latter), the Luddites
are out to cause a storm.

I also quoted, "Faced with the choice between changing one's mind and proving there is no need to do so, almost everyone gets busy on the proof!"

Sorry, but the Law Society have not negotiated a bill that threatens the independence of the legal sector; economics, market forces and social change threaten the legal sector and the Bil is an attempt to regulate that.

You can stand at the beach and ask the sea not to come in, or get busy building a boat.

I know what I prefer.

More info on the article here: http://tinyurl.com/yfy7w5w
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    Author

    After many years paying lawyers,I became one in 2005 Just in time for the largest upheaval in the law since records began. Brilliant. Exiting times ahead.

    Disclaimer.  The thoughts, ideas and comments on this Blawg ("Blawg - a legal Blog) are my own and not to be confused (unless otherwise stated) with anyone else and certainly not of anyone in the Firm where I used to work and they are not the views of the firm where I used to work.

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