When the Global Financial Crisis (GFC) shook the world, Australia barely trembled. But what would happen to the legal profession if our economy, roaring on a boom of international trade and rising property values came to a sudden, screeching halt? A local practice consultant went overseas to learn from the Irish experience.
Stephen Burke is a leading business strategy consultant with Practice Builders, www.practicebuilders.com.au, recognised as Sydney’s foremost business consultancy to small and medium firms. While visiting clients and attending a recent conference in London, Stephen had the opportunity to travel to Ireland on a fact finding and business development mission.
Stephen explains how the Irish profession compares to our own; “The legal systems of Australia and Ireland are both stamped from the English mould. A lawyer from Sydney would find the Dublin system different from, but no stranger than, that of London. Structurally, the legal profession in Ireland is similar to Australia’s except that it lacks the equivalent of our ‘big 6’ national corporate firms. In their place, what you find are well-run, business-focused practices with affiliations to international legal entities. Aside from that, the industry looks much like our own, consisting of a fair number of medium-sized businesses with a large rump of small practices and single practitioners”.
The death of the Celtic Tiger
The Irish legal profession has been in turmoil for the past 18 months. For the preceding 15 years the country had enjoyed an unprecedented economic boom, the so-called Celtic Tiger phenomenon. As commerce expanded, so did the legal industry. At the tail end of the boom the tiger began to feed on itself and the economy became increasingly biased towards property transactions. Firms across the land expanded their conveyance business to keep up with demand as property values, and revenues, soared. The crash was hard, sudden and merciless.
Stephen notes, “Inevitably when the economic cycle goes into a downturn, we will find examples, in all sorts of businesses, of malpractice and financial misdeeds. As long as everyone is making money, any regulation is perceived as needless nannying and the tendency is towards a light touch. When the credit crunch hit in Ireland, a small number of firms were caught up in trust-accounting irregularities. These cases were isolated, but they were also very high-profile with costly implications for the entire profession”.
“The main impact has been on the cost of professional indemnity premiums. During the boom many firms had become dependent on their conveyance practices and the bust brought countless of them to their knees. Insurance companies were reluctant to stay in the market and some firms found it impossible to renew their policies. Already expensive premiums soared, more than doubling, crippling beleaguered businesses”.
The need for a Quality Standard
I asked Stephen what preventative steps might have been taken in Ireland to reduce the impact of the GFC on legal firms, he replied; “One thing that was noticeable about the boom era was that legal firms had no universally accepted, professionally endorsed quality standard to aspire towards. Here in New South Wales I’m involved with the best practice standard, Law9000 and the QL group. QL’s major focus is to ensure that LAW9000 is the best quality management system for legal practice and that it is effective and constantly improved”.
While in Ireland, Stephen had a chance to meet Anne Neary, founder of LQ, a new organisation similar to the Sydney-based QL, with which Stephen is affiliated. I got in touch with Anne to ask her how LQ is approaching the crisis in the Irish legal fraternity. “Lack of strategic planning meant that as work dried up in traditional areas, there were no contingency plans for expanding into other areas. In addition, claims started rolling in as banks discovered that solicitors had not complied with undertakings… this crisis for the legal profession in Ireland has provoked a unique demand for a straightforward risk management standard, with detailed action plans, worksheets and precedents. So, the LQ Standard and its sister, the LQ Basic Standard were devised as solutions. Now, the percentage of solicitors adopting one or other of these standards is setting a global record. No other profession in the world has adopted common standards in so short a period”.
Australia continues to enjoy good times, and there’s no sense of impending calamity here. But then in Ireland’s Celtic Tiger, as in every bubble economy, you only know it is a bubble after it has burst, at which point everyone thinks it was obvious.
What can we learn in Australia?
The advice Stephen has for Australian legal firms is to examine their business; If you are purposefully in a niche area of law, that’s one thing. But most practices are founded on a wide revenue base; if one of those streams is becoming disproportionately large you need to be prepared to deal with a sudden reversal of fortune to that business area. Can you quickly reallocate staff and capital? Might you need to lay some of them off? Stephen’s view is that there is wisdom in having a diversified revenue stream, controlled and re-focused by systems that can be adjusted as the economic cycle rises and falls.
How would you deal with a sudden increase in your professional indemnity costs? This is a particularly difficult if it coincides with a fall off in business activity. The advice here is to put quality systems in place. This will give you improved service to customers, smoother operation of the practice and better bottom line. Also, firms with quality systems have systems in place to monitor and control risks to the firm. This makes them attractive to professional indemnity insurers and will reduce the impact of a premium increase applied across the industry.
Times are good in our lucky country, and as the global economy picks itself up and dusts itself off for the next cycle we are very well placed. But let us not forget that there is a cycle, and it is precisely when times are good that we should be putting systems in place that prepare us for the next rainy day.