Avoiding juristic park: how to kick-start your law firm in the post Covid-19 world
18–29 May 2020
Virtual Entrepreneurship Conference
Black Swan Ruling: entrepreneurship and the economy under and after the pandemic
Monday 18 May 2020
Avoiding juristic park: how to kick-start your law firm in the post Covid-19 world
Marco Rizzi Bratschi, Zürich; Chair, IBA Closely Held and Growing Business Enterprises Committee
Almudena Arpón de Mendívil Gómez-Acebo & Pombo Abogados, Madrid; IBA Secretary General
Anne Louise Macdonald Harper Macleod, Glasgow; Chair, IBA Law Firm Management Committee Business Development and Marketing Subcommittee
Jaap Bosman TGO Consulting, The Hague
Nunziante Magrone Studio, Milan
The first webinar of the virtual conference focused on practical advice for lawyers and their firms on how to navigate the current economic crisis.
During the webinar the Speaker, Jaap Bosman, launched his new book on the topic, titled A New Dawn. For a limited period, IBA members can download the book free from: https://www.tgo-consulting.com/book-a-new-dawn-iba. The book is in pdf A4 format which is easy to print at home. It contains valuable practical advice: a must-read for any lawyer.
Marco Rizzi very proudly introduced the Committee’s first ever webinar and explained that the project was conceived in reaction to the very sad decision to cancel the sixth flagship Global Entrepreneurship Conference, which had been scheduled to take place in Amsterdam on the same day. Marco thanked the great number of lawyers who enthusiastically supported the virtual conference project and highlighted their efforts, together with IBA staff, for the success of this new means of interaction among IBA members.
The new global legal framework
Almudena Arpón de Mendívil shared her views on the three main topics that, as a consequence of the changes to the global legal framework brought about by the pandemic, need to be attended to:
1. The enactment of measures to cope with the public health emergency has reduced several fundamental freedoms and introduced protectionist measures beyond real needs. These, together with uncertainty, which is the new dominant state of mind, have changed the role of lawyers and the support they are requested to give clients and requires major attention to possible threats to rule of law, an area of great importance to the IBA and on which the IBA's Human Rights Institute (IBAHRI) is focusing.
2. The operation of law firms has changed. Working remotely has become a need and is the new norm. Therefore technology, and the ability to use it, make all the difference and can increase the digital divide among technologically up-to-date firms (located in the appropriate environments) and those which are not. Instability, polarisation, rethinking the use of office space and working methodology are all now key issues. At the IBA, this is the focus of the Public and Professional Interest Division (PPID).
3. This is a time for cohesion: solidarity both in society and in law firms, across the world. It’s a time to be more generous, giving more pro bono time to the most vulnerable requesting access to justice, to homes and to basic needs. Again, this is another important topic for the IBA and the subject of a new initiative to be announced in the near future.
Anne Louise Macdonald introduced the results of a survey which had been taken before the webinar, launched a quick poll and introduced Jaap Bosman. Bosman is an award-winning strategy consultant and investor. He is one of the founders of TGO Consulting and has over 15 years’ experience in the legal sector. In 2013, his international strategic achievements were recognised by the Financial Times with the first ever Innovative Lawyers Award for International Strategy. He was the first non-United States person to receive the Thomson Reuters and Hubbard One Excellence in Legal Marketing Award.
Bosman introduced the topics of his presentation, namely:
- swarm intelligence;
- creation-production-divide concept; and
- value matrix.
After a quick analysis of the global economy, Bosman concluded that the present crisis is totally new: the first global lockdown which a virus that’s still out there. It is therefore impossible to rely on experience gained from previous crises. Bosman also underlined that today’s have totally different priorities than those of ten years ago.
Bosman described a number of important factors in the current situation:
- Social distancing has a strong impact on revenue and profitability in a low and high consumer-confidence scenarios. Taking (as an example) airlines, he observed that they are severely affected by social distancing rules and their economic model is in crisis. This has positive and negative ripple effects: aircraft manufacturers are not performing well; suppliers to manufacturers, such as engine producers, are affected too; as are related services, unreachable tourist destinations etc.
- The human factor: in the US, 30 million people are unemployed and millions are not actively working today. This could speed up the introduction of robots to perform industrial tasks.
- Investment and capital markets: the pandemic has had an impact on the ability to obtain sufficient funding; on investors’ earnings; and on pension funds.
A simple poll of participants was then carried out. The question: what portion of the Disney revenues comes from characters?
While the majority of the audience thought it was around 50 per cent, in fact only a tiny part of Disney revenue comes form this. Parks, resorts and consumer products are Disney's main income and media networks its second source of revenues. In a market where parks and retail stores are closed, with very few new advertisements, the result has been that in Q1 Disney has net profits lower than Netflix.
According to Bosman we all need to understand that clients and lawyers are now living in an entirely different world and clients have different priorities and legal needs. Companies don’t have legal issues: they have businesses to run. Therefore, their primary focus is currently not legal but existential commercial issues.
Bosman introduced the ‘Value matrix’ concept, which explains the relationship between price and value. He stressed that it is important for a lawyer to be higher on the return of investment (ROI) axe in order to be part of the money-making process, rather than being on the lower end of commoditisation, where legal services are not creating value for clients but regarded only as a cost.
By way of illustration, Bosman gave an example of an employment practice. Clients think that there are plenty of lawyers who can do employment law. But if your client is, for instance, Uber, or another gig economy champion, employment is the key element of their business model and the key to success or failure. To be ‘part of the opportunity’ (where you help the client to make money) instead of being ‘part of the cost’ allows a very different pricing strategy. While having the same specialisation, you can be at the two opposite sides of the graphic.
Anne Louis then shared the results of the survey that was conducted before the webinar. The most interesting results were:
- 64 per cent of those interviewed work from home;
- 36 per cent are somewhat below target (in the region of 90 per cent of target revenue);
- 62 per cent expect to go back to the office in Q3.
- Answering the question ‘will you permanently change the way you work?’, 73 per cent foresee the introduction of shared working at the office and from home; 27 per cent expect to reduce the number of assistant/secretaries’ hours; 28 per cent expect to cut office space; and 81 per cent expect to travel less and use video communications more.
- When asked about how practice areas will develop over the next 12 months, the areas of main concern were M&A, capital markets, real estate and construction. On the other hand, insolvency and restructuring and employment and dispute resolution are expected to be more busy. Bosman, to a certain extent, disagreed with this view and stressed that the situation must be examined from a new angle and new opportunities must be sought – he expects capital markets to expand, due to the need for liquidity. He also believes that competition lawyers will be extremely busy due to new rules on state aid.
- 53 per cent expect that effective rates (collected) will be lower.
The next topic, a hot one, was that there is no linear relationship between time and value. Bosman stressed that this is now the right time to think beyond billing on hourly rates.
The topic was introduced by a very effective anecdote about Picasso who, on the request of a customer in a restaurant, drew a sketch on a napkin and then, asked by the customer how much he owed him, asked for a substantial amount. When the other person replied that the amount was a lot, since it had only taken 30 seconds to create it, Picasso replied that it didn’t take him 30 seconds, but 30 years to become Picasso and develop the ability to draw such a sketch.
On the basis of that anecdote (which he calls ‘the Picasso Principle’), Bosman concluded that time is not a good measurement of value. A lawyer’s value to the client lies in ‘creation’ (little time, high value) rather than in ‘production’ (much time, little value). Value is not to be found in time-consuming activities such as due diligence, but rather in the creative phase of the lawyer's job: the right idea that comes in a second. Clients are not putting price pressure on the creation: they appreciate a brilliant mind; experience; knowledge; moral standards; an ability to prioritise; strategic insights; and the proper division of risks.
Technology is not the way to avoid the trap. Lawyers have human skills and will not be replaced by robots. To fight price pressure, associates need to be faster and more efficient and not to spend time that has no value in the eyes of the client.
Bosman then introduced the topic ‘Swarm Intelligence’. This new and different crisis doesn’t allow us to rely on previous experience. Lawyers can be shrewder as a group if they put together all the firm’s collective brain power. Look together at the market and at the opportunities it offers; stop working in silos but team-up; and exchange market intelligence and practices. These are all Bosman’s recommendations.
In Bosman’s view it is important for a successful firm to look after ‘Cognitive Diversity’. This is not necessarily the usual racial and gender diversity, but diversity made by the presence of lawyers coming from different environments, capable of giving dissenting opinions that enrich discussions with different point of views.
Bosman concluded his presentation, stressing that post-Covid-19 is the ideal time for lawyers to reinvent themselves, to start cooperating rather than competing and to start understanding what clients really need, rather than being deliverers of legal products (‘you ask, I deliver’). This is the ideal time for more cooperation and teamwork, so as to understand where the real value is.
Marco Rizzi summarised the many questions, which gave the opportunity for Bosman to expand further on a few more topics, in particular about price reductions requested by clients.
Bosman explained that, in his experience, legal cost weighed around one per cent of the overall costs of a large company. Therefore, when general counsel talk about haircuts, they are talking nonsense. Their real concern is protecting their internal team members, who are under scrutiny. To be part of the opportunity and not of the costs is the answer to that.
On the aspiration of associates to work remotely: considering that not all meetings must be in person, once associates’ human skills are properly educated/developed, a 50:50 split between meetings conducted in person and remotely could be the solution.
With regard to how to record the minimum hours worked by associates, Bosman stressed that the number of hours worked is irrelevant. Attention must focus on the firm’s bottom line - on profits - not on billable hours or revenues.
About the reduction of fixed costs, Jaap’s advice was to devote more resources to outsourcing, so as to move from a fixed-cost model to a flexible-cost one. His final words were: ‘not every mandate is equal, understand what brings value to clients. Concentrate on human skills, on legal core functions, on bottom-line rather than on revenues.’
The webinar and survey results can be viewed on the IBA website.