The Rise of the Boutique Law Firm in Hong Kong

The Rise of the Boutique Law Firm in Hong Kong

Introduction

As the Hong Kong legal market continues to evolve, one unrelenting reality that corporate counsel continue to grapple with is doing more work with less financial resources. These in-house counsel are more vigilant about their outside counsel expenditures than ever before, and some law firm partners are undertaking innovative measures to address these concerns.

In response to their clients’ calls for more efficiencies and cost-effectiveness some international law firm partners are wondering if their firms will be able to meet the challenge of providing strong client service at a cost that is palatable to their clients. As most large law firms will remain unwieldy, bureaucratic, prone to conflicts and most saliently, tied to the (high) billable hour for some time, enterprising BigLaw partners in Hong Kong have sought to provide their clients – and themselves – an alternative: the boutique law firm.

While some firms are evolving through the streamlining of management, operating practices and more clearly defining their strategies, most will continue to struggle to find their balance. Many large and mid-size firms also wrestle with the pressure of being all things to all clients at a time when too many firms and lawyers are chasing too few deals in the Hong Kong market.

Changes in the local economies in recent years, along with the dynamics of the pervasive “new normal” at most international firms, among other factors, appear to have triggered the rise of boutique firms. These firms typically are characterised by having founders who said goodbye to their global platforms at international law firms in order to better service long-standing and new clients which previously may have been unavailable due to conflicts. These firms include Howse Williams Bowers, de Bedin & Lee, Simone IP Services, Simon Reid-Kay & Associates and Hart Giles Solicitors & Notaries, among others. These boutique firms are proving able competitors – on both cost and service – to large and mid-size firms in Hong Kong. They offer the services of highly-trained lawyers with excellent credentials and deal experience, without the constraints that generally impede client-benefiting innovation at larger firms.

Cost Advantage

It follows that lower overhead expenses of smaller firms allow those firms to materially lower legal fees charged to their clients. Add in the lesser bureaucracy of the boutique firms which allows them to be more creative in fee arrangements and other matters pertaining to client engagements, and you have a situation that is beneficial to both client and boutique. The billable hour, in particular, is a model that some boutiques are eager to put behind them in favour of more novel billing schemes. One boutique law firm partner shares that his firm “moved away from the billable hour model” and emphasises that “we quote fixed fees and stick to our quotes.”

Partners at big firms experience inexorable pressure to bill and meet targets. From a client perspective, this scheme breeds inefficiencies that in the end cost the client more money due to the competing interest of law firm lawyers needing to bill to justify their seats. As one boutique firm partner expresses, “when you put client service first it is surprising how little you have to speak about cost.” Another partner highlights that his boutique’s “charge-out rates are not that much different from a mid-tier firm. However, what we do differently is that we are responsive to the client’s needs both commercially and financially which is something which was always desired at an international firm but politics, overhead and rigid financial targets led us occasionally to put the firm’s interest before the clients.”

Specialisation vs. The One Stop Shop

More and more clients are engaging boutique law firms that specialise in a particular practice area as they realise that the full service law firm really is not necessary to their unique matter. With a view that they will obtain the same, if not better, legal services from a boutique versus a larger international firm on a discrete matter, the decision to go boutique seems to make more sense for some clients. Specialisation, obviously, can cut both ways and will send some clients with broader needs directly to the One Stop Shops given the constraints that the boutiques present.

Unexpectedly, the specialisation of boutiques also benefits international firms who lack an area of specialisation – such as IP or property. As some corporate transactions require, for example, an element of IP or real estate expertise, boutiques such as Simone IP Services and Simon Reid-Kay & Associates can provide effective alternatives to international firms. Forming strategic alliances with boutique firms with a gap-filling specialty practice allows the larger firms to farm out matters to allied boutiques, and results in a more satisfied client.

Of course, international firms with a broad array of practices and well-trained lawyers supporting those practices will continue to attract clients who find efficiency in these offerings. However, as some partners at the boutiques are quick to mention, the perceived efficiencies of the One Stop Shops may not be what they appear. Client matters will receive the attention of multiple lawyers at a large firm, but the communication breakdowns, resultant miscommunication, needless errors, lost time and ensuing higher billable hours charged may give a perceptive client some pause.
Clients typically will receive more personal and focused attention from a boutique. The partner handling a matter generally will be more hands on than a partner at a larger firm who typically will delegate to associates and paralegals. To this point, one partner from a boutique firm maintains that clients choose to “work with a firm because they wish to work with a partner on a deal, not the other way around. So when a client comes to me they get me, and that is a huge difference from a client’s point of view.”

Is Bigger Better?

Larger firms do provide advantages that are not available at boutiques. The most obvious advantage is the large network of lawyers in multiple locations – hence the One Stop Shop – and the ability to negotiate for bulk services. Although an excellent proposition, one boutique firm partner explains, “clients very rarely use more than three departments or [law firm] offices, and tying into these types of relationships can sometimes mean you are not always getting the best person in the market for your transaction.” And so, being aware of their limitations some boutique firms have entered into informal agreements or best friend relationships with like-minded boutiques across the globe to create a loose global network to better service some clients.

Be Small, Think Big

A boutique’s small size enables the firm to turn on a sixpence should it wish to do so, whether in the way of its business model, fee arrangements with clients, or in response to market changes. These firms are more readily adaptable to client needs than the larger firms who possess multiple levels of management to effect a change. As one boutique firm partner put it, “trust, speed, passion and no bureaucracy” are the reasons why boutique firms can offer a different experience from international firms.

Indeed, most of the boutique law firm partners with whom we have spoken feel a greater sense of freedom at their firms and a renewed joy in their law practice. One of these partners disclosed that, “the freedom to work with whom you want, at a rate you want, without too many internal factors influencing it” was a prime personal benefit of his jump from BigLaw.

What’s Next?

Boutique firms are in demand and are here to stay. And while they may not be the right choice for clients in every circumstance, with each passing year, the benefits boutiques offer to certain clients have become clearly advantageous. The cost benefits and focused expertise of the boutiques are highly desirable to clients who do not require a global platform, and these clients do not have to compromise on quality.

The financial prospects of boutiques in Hong Kong remain promising. Many will continue to expand with quite capable talent from global firms in Asia. And while we do not expect an influx of new boutiques setting up over the next year, we do suspect that a couple may arise which will certainly raise the eyebrows of the international firm community. Because the boutique offers a novel alternative to the established legal community, we look forward to witnessing their ongoing evolution and development.

Katie Lowe is a Consultant in the Partner Practice Group of Major, Lindsey & Africa, the world’s largest executive search firm dedicated exclusively to the legal industry. Katie is based in MLA’s Hong Kong office. Please contact her with questions relating to this article or about the lateral partner market in Hong Kong and across Asia.

KLowe@mlaglobal.com | +852 3628 4682.