Trends in 2011 MRC law firm performance comparison

During 2011 the Management Research Centre (MRC) of the University of Waikato carried out its 15th biennial comparison of law firm performance. The Law Society provides assistance by publicising the comparison and encouraging firms to participate.

The 2011 comparison obtained information from 87 practices. While participating firms’ individual results are confidential, the aggregate results are available from the MRC. Some of the key findings on questions related to practice management are summarised. Information is for the year ended 31 March 2011 or the nearest balance date for which information is available. For a quick check on trends, we have also provided indicators from the 2005 comparison.

Written marketing plan

Of the 85 practices which responded to the question, 25 (29%) said they had a written marketing plan, while 60 (71%) said they did not. Generally, the bigger the practice, the more likely it was to have a plan – 54% of firms with over six equity partners had a marketing plan, while 28% of sole practitioners, 23% of 1-3 equity partner practices and 26% of 4-6 equity partner practices had a written marketing plan. Of firms in metropolitan areas, 33% had a plan and 27% of firms in provincial cities or rural areas had one.

  • In the 2005 survey, 21% of practices had a written marketing plan and 79% did not.

Use of value billing

Participating firms were asked if their practice used value billing (ie, based on a value assigned to the information or service instead of time spent). With 83 firms responding, 49 (59%) said they used value billing. Sole practitioners were the foremost proponents, with 76% using value billing. Of firms with 1-3 equity partners, 58% used it, with 45% of 4-6 equity partner firms and 62% of firms with over six equity partners. Metropolitan firms were slightly more likely to use value billing, at 61% of respondents, compared with firms in provincial cities or rural areas (58%).

  • The 2005 survey did not ask this question.

Top 10 fee-earning clients

Participants were also asked how much of their gross fees were generated by their top 10 fee-earning clients. Of the 53 practices which responded, nine (17%) earned over 50% from their top 10 clients, nine (17%) earned over 30% and up to 50%, 21 (40%) earned over 15% and up to 30%, and 14 (26%) earned up to 15%.

  • The 2005 comparison did not ask this question.

Practice objectives or strategic plan

When asked if their practice had written practice objectives or a strategic plan, 43 of 85 responding firms (51%) said they did, while 42 (49%) did not. Size definitely counted here, with only 28% of sole practices having a plan, 45% of 1-3 equity partner firms, 65% of 4-6 equity partner firms and 69% of firms with more than six equity partners.

  • In 2005, 44% of responding practices had a plan and 56% did not.

Written partnership or shareholder/director agreements

Of 77 responding practices where the question was applicable, 52 (68%) had a written partnership agreement or shareholder/director agreement and 25 (32%) did not. All responding incorporated practices had an agreement, but only 63% of unincorporated practices did.

  • The 2005 comparison found that 66% of applicable responding practices had a written agreement and 34% did not.

Partnership arrangements

The comparison also asked a number of questions about partnership arrangements. Of 85 responding practices, the partnership in 32 (38%) included salaried partners. Of those, 18 (56%) remunerated salaried partners with a salary only, and 14 (44%) remunerated them with a salary plus bonus. Of 83 applicable practices, 51 (61%) had equal profit sharing for partners (excluding entry and exit arrangements).

  • In 2005, 23% of responding practices had salaried partners. Of these, 44% remunerated salaried partners with a salary only, and 56% with a salary plus bonus. Of applicable practices, 78% had equal profit sharing for partners (excluding entry and exit arrangements).

Trends between 2011 and 2005

While the comparison covers a relatively small proportion of New Zealand’s law firms, a quick glance at the 2011 and 2005 results indicates that a higher proportion of practices have a marketing and business plan now, there has been relatively little change in the proportion with written partnership agreements, and there are more salaried partners around today, with partnerships less likely to have equal profit sharing.

This article was published in LawTalk 789, 17 February 2012, page 20.