Singapore
Singapore
Despite being relatively shielded from disruptive forces, law and accounting firms would do well to plan ahead for leaner times by being more flexible, collaborative and specialised, say experts at a recent high-power panel of experts.
The challenge is to be more efficient as margins erode with the “Uberisation” of professional services, and when technology offers cheaper alternatives for corporate customers and consumers in future, they point out.
The cautionary tale comes from a discussion panel on May 26, as part of the Canon Think Big Leadership Convention 2016 jointly organised by The Business Times and Canon.
“I have no doubt that lawyers will continue to be relevant during our lifetimes and those of our children, and that many lawyers will continue to organise themselves in firms,” said Professor Tan Cheng Han, Senior Counsel and chairman of the Centre for Law and Business at the National University of Singapore.
“At the same time, we must acknowledge the strong forces that are likely to reshape and challenge present notions of legal practice and by extension the way many law firms operate today,” he added. With globalisation, he said more law firms would partner with overseas counterparts. At the same time, revenues will likely come under pressure from both corporations and individuals, especially the well-off who have bargaining power, he noted.
Technology is yet another big reason for disruption, agreed all the speakers at the event. And this is set to change the way both law and accountancy firms function in the years ahead. For example, in the United States, websites such as Legalzoom are offering to draft customised wills and other legal documents for individuals at a fraction of the price a law firm asks for.
Typically, these disruptive online services would aim for the low-end of the spectrum to gain customers’ trust and traction in the industry before they aim for other more lucrative businesses, said Ms Eliza Tan, managing director of LegisComm, a marketing consultancy for professional services firms. Besides law firms, accounting practices also face the crunch as more small companies are exempt from auditing with a new regime last year, she added. “Many are expanding their consultancy services, as audit revenue shrinks.”
All three speakers at the event point to opportunities for professional services firms that embrace the change, rather than deny it and postpone any effort to tackle the issue. Delay further and they might find themselves being “disrupted”. Lawyers and accountants could find a way to collaborate, said Ms Tan. With the combined expertise, they could offer a wider range of services to customers and be the go-to problem solvers for their clients, she added.
“Accountants and lawyers often work in silos and they were not much for collaboration in the past,” she noted. “But now some law firms and accounting firms know they can work together and offer better services.” Competition could be the driver of this change. As professional services firms face a potential “Uberisation” or de-regulation in their industries, they could find themselves in a more difficult position than before.
Prof Tan said if there was a “Uberised” model for legal services, then the bulk of what some lawyers do – transactional legal agreements and documents – could be offered by new competitors in the market.
“It is not difficult to foresee in the future that computer programmes will be so sophisticated that when provided with a set of facts it can produce a sound opinion or at least the most relevant precedents. In an ‘uberised’ model, law firms can again potentially be bypassed,” he noted.
The answer to the challenges posed is in being prepared and providing better value than what a basic “Uberised” model can offer, say the panellists. Professional services firms have to be deeper subject matter experts and better problem solvers.
Mr Charles Loh, a partner at PwC Consulting (Singapore), said one improvement he had seen at his firm was the sharing of knowledge among the different practices. Traditionally, the sector has been used to people working in silos, but if they can better share their expertise, then they can serve clients better, he added.
For example, despite not being short on talent and thought leadership at his firm, his company turned to technology to let people faster find the information they need to win a deal or solve a problem, he noted. Indeed, problem solving is seen as the next important skill to acquire, as disruptions to the market force professional services firms to adapt and be more cost-efficient.
“Lawyers need to be trusted advisers to their clients whether (they are) an MNC, an SME, or the small business person or individual,” said Prof Tan. “For example, an issue that has arisen may be symptomatic of a more fundamental problem that the lawyer can help to solve. Being a trusted adviser also involves helping the client to anticipate and therefore avoid problems in the future. ‘Preventive lawyering’ may be a growth area,” he added.
“While much of this work as a trusted adviser will take place in the context of sophisticated clients with novel or unique issues or structures, firms can be trusted advisers to small businesses or individuals who because of a lack of sophistication may encounter legal problems,” he argued.
He noted: “Or a firm can develop a suite or bundle of potential services that are useful to small businesses at a reasonable fee. To do this, they will have to spend a good deal more time investing in client relationships and knowing the client.”
Ultimately, things could come down to making best use of one’s skill sets and data on hand to make the right decisions. Besides being compliant with local regulations, how can professional services firms take advantage of the uncertainty instead of worrying about it?
In an industry where information flow is rapid and unstructured, the challenge is making the best use of the data on hand, said Mr Vincent Low, director and general manager for business imaging solutions at Canon Singapore.
Imagine having a will drafted for a mere US$69 (S$95), instead of $3,000 or more at a law firm. That is possible in the United States with online legal services such as Legalzoom, which bypass traditional law firms to provide legal services to consumers.
Presenting that as an example of an industry-wide disruption, Ms Eliza Tan, managing director of LegisComm, said previous outsiders to the industry have been eyeing a slice of the pie, starting with the low-end jobs that smaller firms take on.
However, they could also ask serious questions of bigger firms, should customers choose to go with these new players in an “Uberised” market where such firms provide a better experience, she added. While experts at the Think Big Leadership Convention discussion believed that Singapore still has some ways to go before consumers would embrace such online services, they also warned that these disruptive entrants could one day cause professional services firms to worry about their bottomlines.
Diversification, according to Ms Tan, could be a way to not just survive the disruption but also emerge as a success from it. This meant going into areas that traditional law or accounting firms may not already be in, she noted. For example, small accounting firms have expanded their consultancy services as audit revenue shrinks. Besides what they do traditionally, they have also provided financial advisory for mergers and acquisitions, managed cyber risk and even resold or provided cloud-based accounting services.
At the same time, law firms have provided compliance solutions, intellectual property asset advisory, strategic advisory and also invested in other companies dealing with communications, events and training.
One of the tips that Ms Tan offered is to improve the quality and speed of the professional advice offered, by having quicker access to research and improved collaboration with other partners.
It is important to invest in technology to be more efficient, she said, so one could stay in the competition despite the changing circumstances.
If someone has to spend so much time looking for information at a place where talent and knowledge are the cornerstone of his practice, then something can be improved. Staff could serve customers faster and more efficiently. That was one issue that was faced by PwC Consulting in Singapore, until an 18-month transformation in 2014 allowed the company to improve much of its back-end services such as IT, knowledge management and human resources.
If a person had to take two days to find a thought leadership article another person had written recently, then there was a problem, said Mr Charles Loh, a partner at PwC Consulting (Singapore). The same, if someone looked up what the margins were for a particular contract. How could the person be sure it was accurate and that he was not mistaken?
The big challenge was making sure the company could compete in a more challenging situation, where clients can be more demanding and rivals keener in a race to win over customers. Finding the right information quickly was key, said Mr Loh. This meant reconciling various types of data on hand, including that from legacy and external sources, he added, and making sense of all of it. “We are still in the midst of the journey,” he noted. “And it’s a tough journey.”
The company has shown results, however, in the many efforts it embarked on to be more efficient and agile. For example, automated project management tools now enable staff to track dealings with clients in a more coordinated fashion. Clients have a better experience, as a result.
It is important for the IT strategy to be aligned with the business, said Mr Loh. Key too are the engagement and commitment from stakeholders who will be affected by the transformation, he added. “It’s important to drive adoption. There’s no point investing so much in something and then people say they don’t even know about it,” he noted.
Full text of speech by Professor Tan Cheng Han, Senior Counsel and Chairman of the
Centre for Law and Business, National University of Singapore
I was initially reluctant to agree to speak on this topic because predictions of the future are always fraught with danger. In addition, while I am a Consultant with TSMP Law Corporation and occasionally represent parties in court proceedings, as well as act as arbitrator, I am principally an academic and not a practitioner. But perhaps there are some advantages in having a vantage point that is a little more detached.
At least I can begin my talk this afternoon on a positive note, which is that I agree with the implication underlying the topic, namely that law firms (which include law corporations) will continue to exist in the foreseeable future. I have no doubt that lawyers will continue to be relevant during our lifetimes and those of our children, and that many lawyers will continue to organise themselves in firms.
At the same time, we must acknowledge the strong forces that are likely to reshape and challenge present notions of legal practice and by extension the way many law firms operate today.
One of these is not so new – the increasing globalization of legal practice and the emergence of law firms that are multi-jurisdictional. Because this is the irreversible direction of legal practice at the sophisticated end of the spectrum of legal services, this will likely have 2 consequences for the large and larger medium sized Singapore law firms.
The first is that more of these Singapore firms will enter into formal legal relationships with large international firms. These relationships will include Joint Law Ventures and Formal Law Alliances but I believe that the real future is one in which many of these Singapore firms will be incorporated into the large international firms.
The second is that the current distinction between whether a firm is a foreign law practice or a Singapore law practice as the determinant of who can provide Singapore law-related services will disappear, at least as far as transactional work is concerned. In future, the determinant will be whether the person providing the Singapore law-related service is a person who qualifies to be an Advocate and Solicitor of the Supreme Court of Singapore (and who of course has a Practising Certificate in force) rather than whether such person works within a Singapore law practice or a foreign law practice.
It is doubtful if the current distinction is optimal for Singapore. Today, there are a good number of Singapore qualified lawyers – many who graduated from NUS – who are partners in international law firms. It seems incongruous that they cannot practice Singapore law except in certain limited circumstances.
The second major force that law firms must contend with – and this applies to all law firms – is the changing revenue structure. It is fair to say that legal bills are not always very transparent and clients have often resigned themselves to paying what is billed though corporates or wealthy individuals sometimes have sufficient bargaining power to negotiate discounts or fixed fee arrangements. Of course there are exceptions to this, a notable example being conveyancing where retail clients will often shop around for cheaper quotes. In the future this will become more of the norm.
At a time of lower domestic growth given Singapore’s developed status, more choppy economic cycles, and a better educated population, the charging practices of law firms will come under increasing pressure, both from corporates and individuals.
In addition, the days of the government tightly controlling the supply of lawyers is probably a thing of the past. It is likely now that economic factors (and of course interest) will play a more important role in determining the number of young people who wish to read Law. While this will naturally constrain supply by discouraging some of those whose only interest is financial reward, the days of artificially low supply as one of the reasons for high legal fees will likely be a thing of the past moving forward. With increased supply, the premium attached to a legal career will of necessity be eroded causing further pressure on fees.
A third factor that will give rise to pricing pressure for law firms is the likely move on the part of larger companies to have bigger in-house legal teams so that less work needs to be outsourced to law firms. [This is not necessarily bad for lawyers of course as many may prefer to work within a corporate structure.] This is a process that has already been underway for some time though it is probably fair comment to say that much of the growth of in-house legal teams has been to cope with the increase in work that has traditionally been done by such teams due to business growth. In future, the growth is likely to be skewed to doing things that in the past were outsourced to law firms.
How can law firms meet this revenue challenge? In broad terms, they will have to reduce costs and be more efficient. I will say more about efficiency later. As for costs, a major cost for law firms is rental. In future, I see law firms maintaining a minimal footprint in terms of office space. For example, I can see smaller law firms combining to share a relatively small footprint. Most lawyers and other staff will work principally from home, space for meetings will be rented as needed, and documents will be stored electronically. Frankly, this can already very easily be done today except that many partners are used to a different paradigm. What is essentially limiting this transition today is culture. However, with increasing pressure on costs, such a move is inevitable and not only for law firms.
This trend will be also be true for larger firms though in certain areas of complex legal work where lawyers need to work closely as a team there may be a preference for greater proximity. Some of the large firms may therefore prefer a model where most operations shift to lower cost premises. [Needless to say, this development will have knock-on effects on other sectors but this is beyond the scope of this talk.]
The third major factor is of course technology. It has been the great leveller and dis-intermediator and will continue to be so. It can bring advantages to law firms as per the preceding point and lead to greater efficiency. But it could also usher in a period of disruption before a new (temporary) paradigm takes place, though it should also be borne in mind that periods of disruption can bring opportunities.
The extent to which there will be widespread disruption to law firms depends on the extent to which de-regulation or ‘uberisation’ of legal services takes place. If the provision of legal services moves towards an ‘uberised’ model, law firms are likely to face increased competition. The competitors are likely to develop programmes that can, for example, produce agreements or legal documents for a wide variety of different situations that are reasonably standardised, which form the bulk of what transactional lawyers do today.
The provision of legal advice can also be affected. It is not difficult to foresee in the future that computer programmes will be so sophisticated that when provided with a set of facts it can produce a sound opinion or at least the most relevant precedents. In an ‘uberised’ model, law firms can again potentially be bypassed.
But I do not believe that an ‘uberised’ world of legal services is feasible in the near future because of regulatory concerns nor do I think the public is ready for such drastic dis-intermediation. This means there is a window of opportunity for law firms. Firms should work with companies developing such technology so that services can be provided at lower cost.
This will help with the erosion of margins. It is difficult for a law professor to say this but the implication is that the law firm of the future may not need as many young associates to perform much of the routine legal work that young associates are today employed for. [I don’t think any law school is seriously thinking about the implications of such a possibility.
There are possible solutions but this is a big subject that is a separate topic in its own right. Suffice it to say that none of the solutions are likely to be easy or palatable to law schools.] The increased investments in technology ought to be significantly lower than the cost savings of fewer employees and lower rental.
Nevertheless, there will be pressure on law firms because a major user of such technology will be large corporate clients. Such technology will make it easier for their in-house lawyers to perform work that is presently outsourced. Technology will also further commoditise certain areas of legal work with the consequent negative impact on fees for such work. So law firms need to do more. There are several possible paths, which are not mutually exclusive.
For one, lawyers need to be more sophisticated problem solvers. There is a tendency for lawyers to approach issues situationally; to resolve the present issue or to see the matter in the context of the law only. Lawyers need to be trusted advisers to their clients whether an MNC, an SME, or the small business person or individual. For example, an issue that has arisen may be symptomatic of a more fundamental problem that the lawyer can help to solve. Being a trusted adviser also involves helping the client to anticipate and therefore avoid problems in the future. ‘Preventive lawyering’ may be a growth area.
While much of this work as a trusted adviser will take place in the context of sophisticated clients with novel or unique issues or structures, firms can be trusted advisers to small businesses or individuals who because of a lack of sophistication may encounter legal problems. Or a firm can develop a suite/bundle of potential services that are useful to small businesses at a reasonable fee. To do this they will have to spend a good deal more time investing in client relationships and knowing the client.
One particular aspect of this is work on the regulatory side. Much law today is not contained in the statute book but in subsidiary legislation and rules and regulations. Helping clients to navigate this forest of rules could be an area of growth.
Some small and medium sized firms may also find greater specialisation to be a possible solution. Presently, there are some firms where matrimonial law or personal injury work form the bulk of the practice. It would not be surprising to me if the future saw some boutique criminal law practices. Perhaps some firms will develop into specialist mediation firms, or provide simplified arbitration services for low value disputes given the high cost of dispute resolution generally. The latter may involve arbitrators hearing cases in an inquisitorial manner without any lawyers appearing for the parties.
We are also likely to see more associations of small firms where such firms band together so as to have greater bargaining power with landlords, share resources, cross-refer work, and even work jointly on more complex matters. Some of these lawyers in small firms may have previously worked in large firms and have experience in complex matters but prefer to be their own bosses.
Many law firms of the future will be multi-disciplinary practices. This is hardly a new idea but when professional firms are doing well, the impetus to change to a different business model is not compelling. However, just as law firms are likely to face challenges in the future, accounting firms are also susceptible to similar issues. The fundamental question facing both professions is how to reduce margin erosion while maintaining or increasing the volume of work.
Accountants who have faced margin erosion in their traditional work of auditing have been quicker to find alternative sources of revenue, e.g. tax, insolvency and corporate services. Law is probably the big prize for them which will likely dwarf all their other alternative sources. For lawyers, combining with accountants will allow them to provide more sophisticated and holistic legal services that for some time at least will reduce the effect of the wider forces at work.
There are regulatory issues that need to be overcome but the case is a compelling one and I have no doubt that the authorities will eventually remove any regulatory barriers to such multi-disciplinary practices. [One possibility is that regardless of the firm, lawyers and accountants will continue to be regulated by their respective industry bodies.]
The market will then take its course and this should lead to true multi-disciplinary practices with lawyers and accountants being integrated into a unified firm structure. Such a structure is not only for the larger law firms but should be something that small law firms embrace as well to allow them to provide a broader suite of professional services useful to the small business.
To conclude, there are significant forces that will radically reshape the current model for the delivery of legal services. All law firms are likely to be affected though in different ways.