A leading legal market consultant claims the risk of a law firm collapse in Australasia is “definitely a possibility” due to rapid legal market changes.
Ted Dwyer, principal of Dwyer Consulting, said the rate of change in the legal market in Australia in particular in recent years was challenging for firms.
“You can see change in the foreign firms entering the market, you can see it in client needs changing, and you can see that in talent movement between firms.”
“The market has changed and certainly, the market it has never been more dynamic in Australia than it is now,” Dwyer said.
“What does that mean? It means the old way of running firms, where you could simply rely on steady increases in fee income and profit has to change.”
Dwyer said a major problem firms face is a situation where their main aim remains protecting partner earnings, rather than adapting to the new normal.
“If your primary goal is to protect the drawings of partners, then the orientation is inward and not outward; firms with that orientation will suffer,” he said.
Partners who have until now been walking down this path are urged to ‘swallow their pride’ and separate their own needs from the needs of the firm.
“The solution for that is you have to invest in key people who are typically not lawyers but know how to run a business, and then give them real power.”
Dwyer said bringing business management expertise into law firms would engender a more strategic business outlook – if partners can cede power.
“You can’t just bring them in and then keep all the power to yourself,” he said.
Another risk facing firms is the implementation of poor growth strategies, Dwyer said, often involving star lateral partner hires brought in from other firms.
The recruitment of such talent can often result in difficulties in decision-making within a firm as well as financial over-commitment, leading to troubled waters.
Mergers and acquisitions with other firms that haven’t been thought through – particularly in relation to cultural fit – are another stumbling block.
“The solution to that again is about partners understanding there are people who understand more about business than they do, and trusting them with the keys to the kingdom,” Dwyer said.
“Firms that do that are doing much better in the market today than firms who are not,” he said.