The media’s race to be first with a story can sometimes result in premature obituaries. In the 1990s, for instance, a journalist confused Connally with Connery and subsequently despatched 007 rather than the actually dead former governor of Texas, John Connally.

Such “news” typically prompts swift, good-humoured denials by shocked but still-breathing victims of the reports. But a hasty death notice can be more difficult to manage when it relates to an entire profession.

Enter traditional law – an age-old business model under increasing pressure to justify its existence, to sink or swim as a wave of new firms seek to undermine its dominion.

Recent reports of high-profile partners, lawyers and their clients jumping from big-tier vessels to mid-tier liners and boutique boats is driving a popular meme in the sector: If not yet dead, traditional law must surely be seriously broken.

Like most memes, this one has a modicum of truth. But for every advocate of NewLaw there’s an enthusiastic defender of tradition.

After all, who really knows whether the migration from big law isn’t simply natural attrition: a mix of voluntary departures and elements of sculpting common to firms of all sizes as they review their product offering to ensure it is sustainable?

Reality check

Despite the popularity and growth of NewLaw practices, law firm consultant Colin Jasper says that even if you combine the alternatives (including LPOs), traditional firms are still getting 90 per cent of the work.

In other words, old law may need a facelift, but to paraphrase Mark Twain: reports of its demise are probably an exaggeration.

“People love talking about what’s wrong with traditional law,” Mr Jasper says, “but if you look at the facts worldwide, big firms are growing revenue and profitability, and doing as well as they ever have.”

There’s a caveat: in Australia firms are overweight relative to their international counterparts.

“In that sense, there is no strategic incentive for growth,” he says.

As such, it’s better to focus on partners or parts of the business that are less profitable to increase the overall profit per partner.

And possibly rejig partnership, remuneration and price structures so the emphasis shifts to delivering top-tier client services.

To achieve that, firms need to address some key criticisms of the traditional business model: lock-step remuneration, top-heavy management structures and time billing.

The first is often cited as something that can foster a perception among teams that some members aren’t recognised for their contributions, others aren’t pulling their weight, or both.

It’s generally the result of dysfunctional management, so if there is a tangible or even perceived lack of transparency, partners feel out of the loop with regard to their influence on how the firm is run.

Colin Jasper doesn’t dispute the authenticity of these claims, nor does he believe they fully vindicate condemnation of the big law model.

And he’s sceptical of some of the alleged benefits touted by firms operating under the NewLaw model, specifically the mounting pressure from lawyers to offer clients more flexibility and better value.

“If I’m a leading professional in my sphere, one of the questions I’m going to ask is, in what business model will I be able to extract the greatest financial return for the work I undertake,” he says.

In addition, a strategy that decreases fees for partners may lead to a reduction in resources, which can make it harder for firms to pull together the required support, infrastructure and highly skilled teams.

“That’s one of the main reasons clients choose big firms,” Mr Jasper says. “I don’t think that’s ever going to change.”

Partnership pains

Top-heavy management structures are considered another impediment for traditional firms, particularly when it comes to transparency.

But while there’s a tendency for some partners to complain they’re being left out of the loop, Mr Jasper says it’s often because they’re listening to the mood as told by the chief executive, managing partner or CFO “rather than doing the due diligence that a business owner would generally undertake”.

That lack of due diligence in some small part explains how many partners of the US-based global law firm Dewey & LeBoeuf got caught up in its spectacular collapse in 2012. 

Dewey & LeBoeuf faced a confluence of factors leading to its demise, including a slowing economy, massive debt and multimillion-dollar financial guarantees to its partners. But it is widely alleged that a failure of governance led to the firm’s downfall.

“You could say the partners didn’t do enough work in their own right to understand the financials. But on the other side, even if they’d tried, in this case it would appear that some of the behaviour was unethical or deliberately misleading,” Mr Jasper says.

The upshot for Dewey & LeBoeuf – and a nub of the cautionary tale – was a massive exodus of partners.

“When partners leave they tend to take their clients with them,” Mr Jasper says. “Eventually you get into a situation where revenue is significantly less, but you’ve still got the same overhead structure. And since you can no longer afford that, you basically become insolvent.”

Play to your strengths

Maddocks, a large independent Australian firm, has recently seen several of its high-profile partners leave for other similar or boutique firms.

But CEO Michelle Dixon, who was promoted in December 2014 after 18 years with the practice (including 13 years as a partner), says Maddocks has also been a recipient of that movement, attracting new partners from top-tier firms.

“Some of the very large firms practice in a very siloed way within their teams,” she says. “We’re much more effective at sharing resources and we think that leads to better results for clients and, frankly, for the firm.”

Like Mr Jasper, she doesn’t believe the traditional law model is broken.

However, she agrees that the fact many large law firms haven’t significantly changed the way they operate in the past 100 years or so can lead to inefficiencies in how they provide services and operate as a business.

That said, Maddocks is a firm that still champions lock-step remuneration and equal profit share for partners.

“It leads to really good collaboration and we see that as a great strength of the firm,” Ms Dixon says.

“People observing it externally might say there are inherent inequities in it, in terms of people being paid the same amount for different contributions, but every partner here would say the trade-offs that come with that make it worthwhile.”

For instance, Maddocks is investing in areas, such as property and employment practice, that are becoming peripheral services for some larger transaction-based firms.

“If you’re a partner with a great practice and a passion for a particular area of law, it’s not very satisfying being in a firm where the message is that you’re not as valuable as other areas,” Ms Dixon says.

“Our focus on collectively working within our sectors and delivering to clients is what gives firms like ours a real advantage.”

Merit-based models

Mills Oakley is a fast-growing mid-sized firm, but it differs from Maddocks in that its partners eschew the lock-step model, preferring a merit-based approach which aligns reward with performance.

CEO John Nerurker believes partnership in a legal services context should be “about teamwork” and a common set of values: “There’s nothing more corrosive to morale and the integrity of an equal share partnership than when colleagues see that the value of their equity draw is being eroded due to an under-performing partner who is not being dealt with promptly by management.”

Firms still operating under that model, he advises, need to evolve if they are to stay competitive.

They should consider modifications to support additional components such as bonuses or a banded system that groups partners relative to their contribution.

“We’re regularly approached by partners unhappy with lock-step models who like what they’ve heard about the absence of any ‘lazy’ equity within our partnership,” says Nerurker.

“The meritocratic approach at Mills Oakley is far more nuanced than ‘eat what you kill’ models, which are the antithesis of what we represent as a firm.

“Our goal is to support our partners in playing to their strengths.”

Freedom of choice

Debate on what needs to change in the legal services sector has largely been driven by the demands of lawyers for more equitable remuneration.

To retain staff, says Nerurker, firms need to provide clear and transparent guidelines for progression.

“No one managing a law firm today can understate the importance of that. Nothing breaks the trust between a firm and its senior staff faster than shifting the goalposts for progression to partnership.”

On the flipside, clients are also becoming more influential as agents of change.

“A couple of decades ago, large firms could afford to take a set-and-forget approach to client relationships,” he says.

“Now they must demonstrate a far more nimble and responsive approach.

At Mills Oakley, that means giving clients more choice. “Our firm doesn’t dictate how clients should be billed because we trust our partners to have deeper knowledge of their clients than management,” Mr Nerurker adds.

However, partners are accountable for the results of their decisions.

They have the freedom to apply the billing model appropriate to the work and client in question, such as hourly billing or a rate premised on a volume discount for panel appointments.

For Nerurker, denying clients choice is a recipe for disengagement. “If you’re only competing on price, you need to give clients something more to care about, otherwise it’s going to be a race to the bottom.”

Different strokes

Michelle Dixon doesn’t see any inconsistencies in what Maddocks can offer clients compared with big internationals or boutiques.

“If you look at the quality of lawyers, I doubt it varies much from firm to firm,” she says. “Clients expect the technical skills will be there, whichever firm they choose,”

Where Maddocks differs, according to Ms Dixon, is in how it provides the services and value clients want.

Even though its salary costs are probably comparable to those at the big firms, it isn’t locked into enormous cost structures, which means it can be more agile and creative.

“The very large firms traditionally haven’t been as nimble, but the way we’re structured – and I think it is part of being a lock-step – empowers our partners,” she says. “There aren’t a lot of levels of bureaucracy to go through, so if they’ve got a good idea they can run with it.”

Similarly, both Mills Oakley and Maddocks forgo the frippery – and expense – of ostentatious addresses, luxurious office fit outs or indulgences that don’t add value.

“We have lovely offices,” Ms Dixon says, “but we’re not at the top end of Collins Street. Frankly, when a client walks into reception they don’t want to think: is this what I’m paying for?!”

For that same reason, you won’t see “marbled halls and liveried footmen” at reception, or original artwork on the walls, at Mills Oakley, according to Nerurker.

Changing course

The central impediment for traditional law, according to Mr Jasper, is the partnership structure.

Its very nature makes it difficult to drive change, even when management sees the need for change and has formed a view over a period of time that convinces them that something has to happen.

“Before they can do anything they have to build the conviction of the partnership,” Mr Jasper says . “And the strategy being proposed may be beneficial to some and not others, which can make the change process very cumbersome.”

That’s a problem in a market where the pace of change is increasing.

Firms can’t afford a structure that inhibits the speed at which they can respond.

However, Mr Jasper says most big firms are dealing with that by progressively moving towards more corporatised models and taking up the challenge to integrate some of the innovations of NewLaw’s new models to ensure their offering to clients is sustainable.

“I’m sure many people like to talk about the death of Big Law, but I don’t think the facts line up with that.”