STRATEGIC LAW FIRM MANAGEMENT 2009

1. STRATEGIC LAW FIRM MANAGEMENT 2009 BOUTIQUE LAW FIRMS Presented by Marcus N Beveridge Principal, Queen City Law – www.queencitylaw.co.nz LexisNexis Conference 17 & 18 September 2009

2. CONTENTS 1. What is a Boutique Law firm? 2. Common Traits of Successful Boutiques 3. Boutiques v Large Firms 4. Current Market Forces 5. Increasing Place of Boutiques/Growth of Boutiques 6. Keys for Growth/Success 7. Boston Legal 8. In Summary

3. 1. What is a Boutique Law Firm? “Boutique” French in origin (botica) “Boutiques” highly specialized or fashionable store often dealing in elite and unique items. Meaning has spread to businesses offering tailored products /services for a limited market (butcher / lingerie boutique). A boutique law firm is a law firm which specialises in a specific aspect of the law, rather than offering general legal services and assistance.

4. Such firms are popular with those who are involved in complex branches of law such as maritime law, insurance law, immigration law, intellectual property, litigation, leaky building, property development and environmental law. The lawyers at boutique law firms pride themselves on providing exemplary service in their field of interest.

5. The size of a Boutique Law Firm is not a given. Arguably Specialised Multi-National practices specialising in say Maritime Law or Aviation Law could be considered Boutique as “Boutique can apply to firms that focus on particular niche areas of law regardless of size”. Best international definition = “A firm with a single, or a small number of closely related, practice area(s) or sector focus(es) irrelevant of size”. Specialised Litigation Practices such as Shortland Chambers or Bankside Chambers could equally be considered boutique as surprised as they may be to hear this given their focus is singular.

6. However, when most people consider Boutique firms in a New Zealand context, specialised smaller practices with strong reputations in their areas of specialisation come to mind. And they are on the increase. Names such as Chen Palmer (Public Law), Chancery Green (Environmental Law), Knight Coldicutt (Property Law), Queen City Law (Property/Immigration), McElroys, Jones Fee, (Insurance Law), Kiely Thompson Caisley (Employment Law), A J Park, James & Wells (IP Law), Mayne Wetherell (Finance), Keegan Alexander, Lowndes Associates, Dawson Harford Partners, Grimshaw & Co. Blackman Spargo, all spring to mind. “If you have a heart problem, you go to a cardiologist; a brain issue – a neurologist, the same goes for lawyers”.

7. The New Zealand Law Awards definition of a Boutique Law Firm is: One that has 1 to 5 partners; Practices in one, or a limited number of specialist area(s) of practice; Provides excellence in client service; Possesses leading expertise in advising in its sole area or one/some of its specialist areas of practice.

8. Excellence in client service is defined as: Providing proactive, effective, timely, and strategic legal advice; Having a genuine understanding of the client’s business and their market sector, reflected in commercially pragmatic solutions; Being aware of cross-disciplinary impacts, with the ability to advise on them or to refer on where necessary; Being responsive to the client’s need for speedy and cost-effective resolution;

9. Advising as to the client’s legal and practical options with result-focused professionalism and clarity; and Having up-to-date knowledge of developments in legal, policy, and other relevant matters. This definition applies equally to Large, Mid-sized and Boutique firms. The same definition applies to all of the specialist awards (family, public, construction, RMA, IP, etc)

10. SPECIALIST LAW FIRMS If you are a specialist law firm and you are offering something that is not needed right now – then you may be struggling. However if you are an insolvency or litigation boutique you should be doing well. Boutique firms who offer some sort of speciality such as trademarks, patent law, employment law, immigration etc., tend to be most successful. Some boutique firms, particularly those who offer a range of services are well positioned to provide better value for money.

11. Boutique firms with lower overheads and significantly fewer costs are almost entirely reliant on the quality and reputation of their people. “All law firms have to offer is their people and their relationships with clients. The rest is not worth anything at all if you don’t have the people.” “It all depends on whether your firm can hold together during the tough times – or whether you are just out to make a buck.”

12. There is an increasing need for smaller firms because the super-sized practices tend to go after many of the same large clients. Boutique law firms represent a variety of clients, all the way from huge corporations to individuals. Boutique firms don’t try to be all things to all people. Selective narrow practice areas allow lawyers more personal freedom. “Although I don’t have the same infrastructure as I did at Clifford Chance, you get a lot of time back when you leave a big firm. The amount of internal time you spend in a large firm is enormous.”

13. 2. COMMON TRAITS OF SUCCESSFUL BOUTIQUES (i) Strong charismatic leadership (ii) High profile individuals (iii) Often considered leading New Zealand practitioners in their area of specialisation (iv) Experienced Spin Doctors in media and often sought after for sound-bytes etc., (v) Innovative and entrepreneurial

14. (vi) Punch well beyond their weight; (vii) Don’t blink if required to take on big guys; (viii) In some cases other people in practice must tie their harpoons to Alpha owners or outski (FIFO); (ix) Very strong marketeers; (x) It is the man not the company; (xi) Often have very cool offices, websites etc.,

15. BOUTIQUE THEREFORE DENOTES: Sexy Fluid Specialised Fast Client-centric All I need is my lap-top and my brain (cowboy lawyers working out of their car boots) Knowledge is everything

16. 3. BOUTIQUE v LARGE FIRMSFactors which make some Boutique firms inherently competitive include Specialisation Lower overheads / fewer costs Speed (delivery / decisions) Flexible billing options – lower cost structure, more flexible on payment terms (when you get paid – pay me – harder on large firms given big wage bill)

17. Inherent Client-centric focus of Boutiques Personalised service v ping pong ball Inherent skill base of individuals rather than the processes/systems of large firms (in which people can come and go but processes/systems subsist)

18. 4. CURRENT MARKET FORCES Recession = Contraction of demand for legal services Property Practices/M&A etc., - Idle Litigation and Insolvency = Burgeoning USA/UK/Australia – some systemic changes – mass redundancies etc. Impact on Boutique practices – not so pronounced – Why? (i) Flexible /fast/quick to implement changes or strategic plan

19. Focus on something – Just do it – little need to consult other partners, CEO, marketing, conflict checks and other inherently bureaucratic and time consuming processes; ii) Less overhead/padding – less need to rationalise in tough times; In our case we saw slowdown in Property Development (though some of the major projects we have been involved with in fact have long tails), strategised, decided to get actively involved in more contentious work and exploit our strong networks in property and construction sector.

20. We then recruited at senior level and have a Senior Associate and a dedicated team now pitching for and winning Leaky Building, contentious work Construction work and are now running an extremely active litigation practice. We are also now instructing 6 different QC’s! The delivery of this process took weeks – not months or years and to date has proved highly profitable. Bruce Grey QC was in our office the other day and said that after the stock market crash in the late 80’s;

21. (i) People were like possums in the headlights for 12 months; then (ii) Allocation of blame begins; then (iii) Litigators make hay while the sun shines. Anyway – point is our boutique practice was able to implement ideas very quickly and with finesse. (represents speed of delivery and lack of need to consult other stakeholders when implementing strategic plan etc).

22. 5. INCREASING PLACE OF BOUTIQUE FIRMS IN LEGAL SECTOR/GROWTH Short answer is “yes” Some will be forced and may become ultimately successful Some will be clinical and carefully designed and most likely successful Consider Australian /USA position (refer additional handouts) UK – some very talented lawyers now back in New Zealand More enroute from USA, Dubai, Australia etc New Zealand redundancies seems to be mainly support staff so far

23. NZ – Queen City Law, Chen Palmer, Chancery Green, Dawson Harford – all relatively new compared to 160 odd years of history – Bell Gully Buddle Weir, Simpson Coates & Clapshaw, etc Expect more Expect Synergy between some of them (USA – boutiques often refer other boutiques) Consider potential mergers at Boutique level and successful boutiques being acquired by large firms in futuro Australia (from 1000 150 lawyers gone by lunchtime – April 2009)

24. LARGE FIRMS CURRENTLY (i) Freezing Employment (ii) Reduced summer clerk intake (if any) Point = some very talented people displaced One result – have a go themselves – set up own practices

25. Like nightclubs and some restaurants in Auckland – some will succeed – others will not, and many institutional types will be sucked up again into leaner big firms as economy picks up and demand for legal services increases. In the meantime, nevertheless, bottom line with virtually all law firms is that if they are profitable they are generally happy places and if not, like any business, change will be a coming.

26. 5. GROWTH / INCREASE IN BOUTIQUES Therefore safe bet there will also be some more breakaways from some of New Zealand’s largest firms for many reasons including: A) Catalyst of being in recessionary times and impact on practice; B) Breakaway from office politics and management responsibilities and get back to client work; C) Profitability (winners and Losers ) – Economic – eg looking to retain clients priced out by major law firms fee structure or no longer having to subsidise less profitable parts of their firms. (economy and now or never deadline – eg 51 years old).

27. D) Independence and freedom – “being in control of your own destiny”. Some of these newly formed boutiques will be top calibre and attract top work. Not for the faint hearted – example I heard of recently was of a leading partner in a well established Auckland city firm breaking away ….

28. How much work do those undertaking large firm breakaways take away? Not an exact science – many variables to consider but there will always be a place for major law firms, - reasons for this are numerous but include: (i) Long Standing relationships (ii) Requirement for many corporates to have cohesive group of various experts available under one roof

29. (iii) International dictates of some multi- nationals/multijurisdictional advice (iv) Professional Indemnity related issues (v) Public company requirements (vi) Panel of approved law firms Nett result is that although a select few boutiques will be able to capture instructions from some of New Zealand’s biggest companies, multi-nationals and government departments, much of that status quo: (i) will ultimately not change (ii) more likely result in client changing from one large firm to another

30. (iii) does not allow for existing position of Barristers Sole; (iv) may result in parts of work going to newly formed boutiques but permanent relationship may well be retained by larger firms: For example where say CFO of client company enjoys close personal relationship with practitioner so moves instructions over, then CFO leaves and work goes back to original large firm (not zipped up – our cleaners know their cleaners – relationship – one to one – not firm to firm).

31. Nevertheless, given the way large firms operate coupled with some of the natural competitive advantages Boutiques enjoy (flexibility, size, speed) there can be no question that there will become increasing opportunities for boutique firms to thrive in areas that have traditionally been the exclusive purvey of mega firms. New Zealand = 4 million people – 10,500 lawyers – overlawyered? Fierce competition anyway.

32. 6. KEYS FOR GROWTH Catalyst of the recession – pendulum swinging back from consolidation towards recession-proof niche practices separating themselves from struggling behemoths There is an increasing need for smaller firms because the super-sized practices tend to go after many of the same large clients. Boutique law firms represent a variety of clients, all the way from huge corporations to individuals.

33. Boutique firms don’t try to be all things to all people. Selective narrow practice areas allow lawyers more personal freedom (rather than say feeding off a corporate department) Inherent impediment for Boutiques = succession planning – next generation – same drive?

34. KEYS FOR SUCCESS My firm is Queen City Law - why have we won the Boutique Law Firm of New Zealand Award for 2 years running? If I told you I would be mad! Big ticket stuff – part is innate, part is learned and part refined. (i) Finder (ii) Minder (iii) Grinder (i) Finder – charismatic – excellent networks, rainmaker par excellence – not necessarily adept technical lawyer, strong negotiator.

35. (ii) Minder – Solid Performer, reliable, client-centric, responsive, accessible, timely delivery etc., (iii) Grinder – perhaps stunning technically at documents – but poorly presented – stutters, bad acne, B.O. – terrible in front line; My Bell Gully experiences in the 1990’s a bit like that – in Boutique practice generally need solid all rounders reasonable on all three counts to be successful – no room for “grinders” – no such padding etc;

36. Last year at same forum I presented on “Success for Boutique firms” – this paper is available from Lexis Nexis or online at www.queencitylaw.co.nz – Practical Law Library – Legal Checklists. Truth is the fundamental keys of success for a boutique firm are generally the same for any sized firm, although the audience may be different.

37. 7.BOSTON LEGAL SECRET – Success of a Boutique firm of course is a closely guarded secret but as you have all paid so much to attend this conference, I shall share part of the secret with you. My firm, Queen City Law is modelled on Boston Legal – in fact, instead of psychometric testing, we get interviewees to watch a couple of episodes in our office and if they are not crying or laughing we forcibly remove them post haste – to date no one has sued us!

38. A couple of our younger practitioners genuinely think they are Alan Shores – hand movements and all, we have no Hands Anderson, do have a younger version of Shirley Schmidt, and for some reason I am now lovingly referred to (just out of ear-shot) as: “Mad cow” – Which is odd given - i) I have no gun; and ii) I do not generally fondle women’s bottoms in the office. (I will return to the topic of bottoms if time permits); and iii) Do not have Alzheimer's; and iv) Do not keep a blow up sex aid in my office.

39. BOSTON LEGAL - NEXUS What is the point ? The point is that Boston Legal is the finest legal repertoire the world has ever seen. Clearly, the residue of Crane, Poole & Schmidt would form the genesis of the finest fictional Boutique Law firm on the planet.

40. 8. In Summary 1. More boutiques will pop up in NZ landscape – some forced – some in any event. 2. Success of these boutiques will differ but those with the right people – team – team work – philosophy, vision, drive, culture etc., but first and foremost – PEOPLE – generally will be entrepreneurial, innovative, charismatic, passionate and driven will succeed. 3. Specialist – Leading Boutique firms will often be considered market leaders in their areas of specialisation - some of these firms recession-proof

41. as their disciplines may not be subject to ebbs and flows of transactional work and a diversification of clients and areas of specialisation mitigates against a one pony show. 4. Systems – Leading Boutique firms will have legal databases, research engines, precedent systems, and other technology that will be on a par with (and in some cases superior to) some of New Zealand’s largest law firms.

42. Reputation / PR etc., - Leading boutique firms will often have more media penetration and air time than New Zealand’s largest firms. Patience may be required as this does not normally happen overnight. 6. Client Loyalty – top boutique firms will be exceedingly client-centric and nurture client loyalty far more successfully than other law firms (and should zip these relationships up).

43. 7. Profitability – leading boutique firms will often be disproportionately profitable. 8. Firm’s culture speaks for itself (and naturally easier to implement with less road blocks). 9. Service Industry – people – ideas – documentation - timing – service – be client- centric from MD to receptionist.

44. 10. Develop Trusted Partner Relationship – part of their business, understand their business, shareholder mentality, tailor advice to client’s own business practicalities – listen / care with conflicts. 11. Add tangible - real value – and develop relationship so you can charge more for doing so – touch once touch right – anticipate – loyalty – here is where real profit may be made ( but only applies to certain clients). 12. At the start of this presentation I referred to the Law Awards definitions of top New Zealand law firms – own it.

45. 13. An inherent weakness of any boutique is survival beyond the retirement of the founding partner(s). 14. In the future some boutiques will merge, some will be swallowed up by the large firms, some will go sailing and at some stage history will again repeat itself. As you will observe many of these KEYS are the same for any legal practice. Boutiques can and do survive and thrive when the formula is right – getting it right requires a tenacious attitude and continuous critical review.

46. IN SUMMARY How meaningful is the shakedown in jurisdictions like the US to our own NZ based practices ? Certainly the situation here is not as poignant and in event we are now told that the recession ends tomorrow at 8:37 am – Still , there are plenty of lessons here for all of us .

47. SOME RELEVANT ARTICLES 1. Client-centric focus – www.queencitylaw.co.nz – Practical Law Library – Legal Checklists – Lexis Nexis Strategic Law Firm Management – September 2008. 2. Boutique firms rise to the occasion – Cabral Douglas – 24 March 2009 – ALB Legal News. 3. Challenges Ahead for Kiwi Law Firms – 16 June 2008 – Law Fuel.

48. 4. Fee sensitive clients prompting lawyers to form boutique firms – Houston Business Journal – Ford Guntur – March 13 2009. 5. Small firms luring large clients – Houston Business Journal – Ford Guntur – November 25, 2008. 6. Boutiques Network to Compete with Big Firms – Jesse Greenspan – International Network of Boutique Law Firms June 5 2008.

49. 7. Boutiques – focussing on being different. Derek Bedlow – Which Lawyer? Yearbook – 2006 Edition. 8. Large Firm Layoffs Lead to Small Firm Startups – Petra Pasternak – 02/11/2009 9. A Study in Why Major Law Firms are Shrinking New York Times – 05/06/2009

50. Q & A