“What on Earth am I doing?” That was the thought as I sat down at my desk in my new office space in Central. The uncertainty during the pandemic, and the changing landscape that we’ve all needed to adapt to, have, counterintuitively, been helpful in founding an international law firm in Hong Kong earlier this year. Why? Because we are reminded that nothing is set in stone.
As a result, with a fresh slate and with everything under my own control, I was uniquely positioned to ask myself: (a) what has worked in the past that I would like to do more of, (b) what has not worked that I don’t want to do, and (c) what have I not tried but seems worthwhile?
Hong Kong is a unique legal market in that, for international work, it is dominated by the large U.K. and U.S. law firms and, for domestic work, there is a wide variety of Hong Kong solicitor law firms. However, there isn’t much in the middle in the form of boutique “international” law firms in Hong Kong.
This arguably results in an underserved market, most notably those companies and financial firms in Hong Kong that are large enough to have international legal needs yet are still in growth mode and do not have their own in-house counsel. This underserved market can be served by all law firms – large and small – if we as a legal services industry are open to innovation and are willing to depart from traditional approaches that may actually be outdated.
It is this confluence of starting my own international law firm and being a solo practitioner, bringing to bear my experiences of working at some of the largest law firms in the world, that has been a tremendous learning experience. I am happy to share the main practice management tips that I have learned since starting my own law firm.
Earn More By Doing Less
I admit this first heading was meant to whet your appetite and have you keep reading. Another, although less enticing, heading could have been “innovate your pricing”. My law firm didn’t just abolish the billable hour; we never adopted it in the first place. Initially, this was purely a selfish decision: I had never liked keeping track of every six minutes of my working life, nor do I think any human should be subject to that system. However, what resulted was not just a loss of timesheets but a blossoming of options to better serve clients. The focus of this article is not the billable hour, but hourly rates can do real financial damage to the underserved market motioned above, namely clients without in-house legal capabilities.
Here are some things to try:
- Ask your client, how much does she expect this to cost? Regardless of whether the figure is higher, in line, or lower than what you would have proposed, this is valuable information, and at the very least can lead to a discussion on cost expectations.
- Ask your client, how did she arrive at this figure? This will also provide insight into what she considers to be important and valuable to her.
- Ask your client, what does she consider to be the best possible outcome and what are her objectives? This will help to frame the tasks around outputs and not inputs.
A simplified case study: a client asks you to give the same legal opinion on a series of transactions. At the outset, you ask her how much she expects this to cost, and she says HK$100,000 per transaction. This is lower than you had in mind, but when you ask her how she arrived at this figure, she explains that she is expecting to do four a month for the next several years, so it added up in her budget. As for the best possible outcome – she wants consistency across legal opinions and for them delivered quickly. As a result, the lawyer is doing highly profitable work because of the efficiency of the inputs, and the client is happy with the outputs.
Aim for 80%
Busyness has somehow become a measure of success. But if a law firm is too busy, that means they do not have the capacity to take on new work or new clients. What’s the solution? Always be “reasonably busy”. Although many law firms may strive to be at 100% capacity, or even over, doing so can have negative consequences from a business perspective.
Telling someone you are too busy isn’t really telling them you can’t make time for them (because you always could); rather you are telling them that (a) you have mismanaged your workload, (b) they are not enough of a priority, or (c) both.
Being too busy becomes a problem with respect to the underserved segment of clients without in-house counsel. Although these clients are often willing to pay top dollar for legal services, relative to large institutional clients, they feel they are less important to the law firm and get delegated down to a junior level. It is a worst-case scenario leaving an unhappy client who has paid premium fees.
Staying below capacity, however, is surprisingly difficult because it requires lawyers to say “no” to clients and/or work which may be the wrong fit for the firm. We think saying “no” means lost revenues when it is often, in fact, the opposite and leads to good business and higher profitability.
Some advantages of staying below capacity:
- For prospective clients, you remain available to opportunistically take on attractive work, which is the right fit, as it comes along.
- For current clients, you maintain quality of work and sufficient resources to provide due attention.
- For lawyers and staff, you offer a healthy environment in which to work and sufficient time for learning and development.
A simplified case study: a law firm is operating at 80% capacity and is approached by a prospective client willing to pay slightly below market. The opportunity cost is zero in the sense that the law firm still has 20% capacity free, but it still says no. There are three possible outcomes: (a) that client goes to another firm, realizes you are better, and eventually comes back to you at a higher price, (b) another client that is a better fit comes along and you are able to take them on or, (c) you remain at 80% capacity and enjoy the advantages mentioned above. Practice this approach for long enough, and a law firm should be left with a highly profitable client book without overextending itself.
External General Counsel
Not all lawyers would like to be compared to Netflix but it is an on-demand economy and as a legal services industry, we need to respond to evolving client needs. Everything from regulatory compliance to asset management has been decoupled from its traditional packaging and can be obtained from external providers. The same is true for legal services and the law firms that are able to offer ‘external general counsel’ services to the underserved market of companies and financial firms in Hong Kong without in-house counsel – those law firms will find themselves in a highly profitable and in-demand space. It takes a leap of faith, but being external general counsel at a fixed fee with no hour limitation can be a highly effective approach and a win-win for both the law firm and client. There is significant demand in Hong Kong for this service due to the lack of boutique international law firms.
Some advantages of an external general counsel model:
- Lawyers get to know the business of the client as it is an on-going relationship.
- The inefficiencies of on-boarding per transaction fall to the wayside.
- Clients have a dedicated legal advisor but not at the cost of a full-time, additional headcount.
- Clients can focus on the business rather than reviewing legal documentation.
A simplified case study: The salary for a moderately senior in-house lawyer is approximately HK$2.0 million. Add to that the cost of employment (benefits etc.), the risk premium of getting a bad apple and, on top of that, the fact that external law firms would still need to be engaged for specialized circumstances. Let’s say that brings us to HK$3.5 million. Say the hybrid (partner/counsel/associate) bill-out rate per hour at a big external law firm is HK$5,000/hour. That means these companies and financial firms would need 700 hours of legal needs per year (about three hours per working day) before it makes sense to hire an in-house lawyer. Therefore, on the table for external general counsel providers is a steady stream of up to three hours of work per day per this type of client.
The above three points are not aspirational but can be applied in practice, as I have done at my firm. I act as external general counsel (no hours attached), while staying reasonably busy and do profitable work at fixed prices. As a legal services industry, let’s keep up the innovation in order to better serve our clients.
Nowadays the question I ask myself: “Why on Earth didn’t I do this earlier?”.