INSIGHTS: Australasian Law Management Journal: Q&A with Paul Baker

May 2, 2016


Paul Baker
Managing Director

In our latest Q&A, Meridian Lawyers Managing Principal Paul Baker discusses his firm’s growth strategy, its embrace of strategic investors and what firms must do if they hope to survive.

Since being set up in 2004, Meridian Lawyers has become a successful boutique law firm with a particular strength in insurance law. How are you faring?

“It’s fair to say that all firms, including us, are feeling the pressure of the changes within the profession. Certainly, the buzz phrase is ‘legal disruptors’ and there’s plenty of disruptors out there who are doing things differently. But our strategy seems to be working for a number of reasons.”

What are you doing that is proving successful?

“The first thing is our structure and having strategic shareholders who sit within the main areas or sectors within which we focus – and that’s insurance, which makes up more than 80 per cent of our revenue. We are using those investors to access new clients and opportunities through their relationships.

Secondly, we are investing heavily in technology. My research suggests that the firms which are doing well, regardless of their practice base, are investing in technology. So we are looking at integrated practice management systems and automated billing processes to allow our lawyers to not only be transportable through the use of laptops and iPads, but through the ability to access systems easily and operate remotely.

The third thing is that, like all firms and especially those in insurance, the hourly rates at the moment are pretty static. It’s almost a race to the bottom in some instances. The fact that we have margin squeeze – whereby our rates and revenue per head cannot go up, even though our expense line is rising on all levels – means we are having to examine potential partnerships and utilise some outsourcing, non-client-facing activities to try to reduce the average cost. We’re also looking at different models with regard to practice, so it’s effectively a low-cost model, which is important as far as differentiating ourselves in the market.”

With outsourcing, would you look to overseas providers or Australian companies?

“I’ve got an open mind about it; we are investigating all options. There are some good operations locally, particularly with digital dictation … It’s important to use technology so that it works in your favour. Our firm has a lot of part-time, flexible work practice arrangements. For example, I have an executive assistant who now lives in Adelaide and I’m in Sydney. She does a lot of our word processing after hours. The time difference, albeit an hour and a half, means there’s some flexibility – she starts late and works late. The cost base of having someone on a casual contract is attractive compared with a fulltime employee with all the attendant added costs. You could certainly do it offshore and do it very cheaply. That’s a philosophical question that we need to broach. Given pressures on the expense line, it might be inevitable that more and more firms look for those offshoring arrangements.”

So it sounds as though having an agile, flexible business model will be important for law firms?

“Right! I don’t think the sector has faced the challenges before that it is facing now. You’ve got online providers, you’ve got remote-access providers, you’ve got firms that are really looking to utilise outsourcing partnerships and offshoring. I think we were a legal disrupter when we first came on to the scene because there wasn’t another firm like us that had these strategic investors, whereby they gave us their work and significant volumes of work at that. We deliver a profit, and we deliver the investors a dividend, which reduces the overall cost of running their operations. We’ve seen all the announcements about the challenges insurers are facing with margin squeeze. That, consequently, is having an impact on service providers such as lawyers.”

Does the existence of strategic investors present any conflicts or particular challenges for Meridian Lawyers?

“It hasn’t to date and I can’t contemplate it doing so. The reason is that they are, for all intents and purposes, shareholders. There is full delegated authority under the shareholders’ agreement, as there must be under the Legal Profession Act, for me to run the business as the CEO and for the partners or principals as part of an incorporated practice to run the firm as a partnership would.

The shareholders sit on a board of four, and it’s really a reporting board. So they are in no way involved in the day-to-day running of the business, which is important. If they sought to be involved in that way, it could cause some complications, but they understand the fact that they are investing in a business. So it’s not an issue we have had to worry about.”

Tell us about your firm’s strategy.

“We’ve really gone into a growth mode. We’ve put on 38 staff in the past 18 months and we’ve added a significant amount to our expenses. We now need to effectively consolidate and convert that into growing our revenue. Our revenue growth over the past five years year on year has been more than 25 per cent, which is extraordinary and very exciting. Now we’ve got to consolidate that and effectively expand the revenue-to-expense margin and reap the benefits of the great people and the quality lawyers we’ve attracted.”

Do you need volume of work now for the strategy to really deliver?

“It’s a combination. Certainly, the most successful firms are those that can leverage their more junior lawyers at a bigger ratio – that is, a revenue-to-expense ratio. Firms that don’t have that are really struggling. What firms need to do is look at their client base. For us, insurance is a big part of our business and not all insurance work requires your senior lawyer. What it does require is adequate supervision, adequate processes and adequate protocols to allow some junior lawyers to be trained while being appropriately managed and mentored. This then gives the client and the legal firm the benefits on a cost basis.”

Speaking of staff, nine out of 17 of your Principals recently made the respected annual Best Lawyers list. What does this high proportion say about the quality and culture at Meridian?

“It certainly gives us some credibility to go to the market and say, ‘Look, we’re a firm you may not have heard of and we may not have a huge profile in insurance law as at today, but we are a firm that is quickly growing’. We’ve been very selective with regard to lawyers we’ve taken on. And the culture we’ve generated is really based on four pillars: people, respect, integrity and trust. If you get those four things aligned, everything else fits into it. I know people can talk about culture and values, but it’s why our turnover rate is extremely low and it’s why we’ve got a (very high) staff engagement score.”

What makes lawyers happy?

“Again, it’s a combination of things. Firstly, the nature of the work being done is critical. Secondly, the work environment and having a flexible workplace is also important – we’ve got 28 per cent of our staff on part-time or flexible work practices. Thirdly, realistic budgets are crucial. All of our staff, including our administration team, are on an incentive system, which encourages them to do that extra bit of work while rewarding them for it. Effectively, our value creators are rewarded by reason of what they can do for the business and they are seeing our growth. So they know there is career progression at Meridian and there are opportunities at the firm.”

In the past 15 months, the number of principals at Meridian has jumped from eight to 17. How has that affected your management approach?

“In the past, I could consult widely and effectively with eight principals. But we will get wheel spin and make no progress if we all have to collaborate with 16 other people on every issue. So the management team now has to understand what constitutes a significant decision that really requires input and collaboration, as distinct from those decisions that really fall within the parameters of ‘business as usual’. You don’t always get the balance right, but you need a culture within the partnership that allows any individual to ring up and say, ‘Hey Paul, I’ve read this. I’m wondering if you’ve thought about A, B or C or I have a concern about this’. That’s the change in dynamic to the management style that I’ve had to put in place which has been foisted upon us by reason of our growth. But any business that can balance appropriately a collegiate, collaborative style with the respect that is required to go out and make the hard decisions that need to be made – that’s what really shows true leadership.”

A lot of firms are trying to position themselves in highly competitive markets. Where do you fit in?

“We’ve got a clear strategy and it’s really about having an eastern seaboard presence. We will consider a wider footing if the opportunity arises, but I think we are better off investing our time and effort in consolidating our existing footprint. We want to maintain our revenue base in four key areas: insurance, commercial, commercial litigation and employment because they all dovetail into the client work that we do. We want to be an employer of choice, provide career progression, be profitable and have a great culture. It’s not a scientific or complex strategy. We are successful in attracting people we’d like to recruit, but I can’t put my hand on my heart and say that the Meridian Lawyers brand is as prominent as some of our competitors at this time. That’s something that we need to do if we are to take the next step towards success.”

Are you positive about the future for law firms?

“You have to remain positive because he who hesitates is lost. I am apprehensive about where it’s tracking. We are seeing pressure on rates and margins. We are seeing more and more insurers doing things in-house. We are seeing more firms, even third-party administrators, effectively handling more work that traditional law firms would have handled in the past. So it would be ignorant of me to say there aren’t some significant and almost unseen challenges ahead. However, we are all informed enough to know that we need to adapt; we need to look at changing the traditional model. For instance, the hourly rate is almost dead except for certain sectors of work. So I’m as concerned as I’ve ever been about where this is tracking, but those firms that remain focused, those firms that remain alive to the challenges and the need to adapt and implement change and innovation and technology and have a stable workforce will do well. Those firms that don’t change in the next few years, I think they’re dead.”

Do you have any final words about your firm?

“I’m really proud of our team. I think the challenge for management is to provide an effective value proposition. Why are you an employer of choice? What is your value proposition? I know that’s management speak, but what is it that sets you apart? Firms have to sell themselves and their vision and have a clear strategy. That’s where leadership comes in – my role is to sell the vision and communicate the vision.”

Published with permission – originally published by Law Council of Australia.

Australasian Law Management Journal, General Management, Marketing & Business Development, People Management, Strategy & Leadership,Technology, March 24, 2016