While...the ILP structure is awkward for Maurice Blackburn...the ILP structure itself offers benefits, and it can be the right structure for firms that truly do operate as companies.
Maurice Blackburn is a plaintiff law firm with 30 permanent locations in Australia. It has approximately 1000 employees, of which 300 are lawyers. The firm’s shares are privately held by approximately 25 of the firm’s lawyers, called Principals.
Our firm was founded almost 100 years ago by a man named Maurice Blackburn. He helped people who were underprivileged in a number of ways, such as by assisting labor unions and advising unmarried pregnant women. He would accept payment in different forms, such as crayfish, whatever his clients were able to give to him, if anything. He held seats in both the Victorian and Federal Parliaments throughout his life, and was a pacifist and campaigned actively against conscription.
Today, we have about 1000 people across 30 offices in Australia. We still act in ways that Maurice Blackburn would be proud of. For example, we recently represented 110 babies born in Australia to asylum seekers. Our legislation regarded the babies not as human beings but as “unlawful maritime arrivals.” We lost our court case contesting the legislation, but the pressure we brought against the government, together with others, was so intense, the babies were granted visas. That was a massive win for us. We funded that work ourselves — that is, we were not paid.
Another example that Maurice Blackburn would be proud of is our continued pro bono work to challenge the validity of patents relating to isolation of the BRCA1 gene for breast cancer screening, a case that has had substantial publicity. It is before a High Court awaiting judgement.
We have a Social Justice Committee which draws in people from across the firm. For us, social justice work is in our DNA. It is a primary motivator for our staff. Our criteria for picking these cases are that they have a high profile and that they will have an impact beyond the case itself. We have strong ties with the media and we are able to use the press to bring strong pressure for social justice purposes.
We also take on cases on a paid basis that are aligned with the pro bono cases. For example, we are currently suing Australian banks for overcharging on customer-related fees. For the public, it is natural that we, Maurice Blackburn, have taken this case as it has a social justice element as well.
We take on a number of cases “on spec” which means that if we lose, we get nothing, usually not even our expenses reimbursed.
These examples demonstrate why we are Australia’s leading social justice law firm. With this reputation, we are able to attract the best and brightest socially-aware lawyers and staff. We have a low staff turnover, and we get a huge amount of discretionary effort from them because we take on all sorts of cases without fear of failure. Obviously we balance that against the costs and risks of the case, but taking on high profile social justice cases is what we are renowned for.
When you do that, your brand becomes extraordinary. Our research has highlighted to us that we are not seen as ambulance chasers, we are seen as social justice lawyers — “fighting for fair”.
We are a very large firm. We have over 15,000 cases open at any time, most of them personal injury matters, run on a “no win no fee” basis. These cases mean that we have a strong and steady cash flow. In addition, unlike commercial law firms, we retain a portion of our earnings in order to invest in our future.
Some of our clients come to us because of referrals from other lawyers who don’t do the cases we do. Those recommendations are gold, especially when you consider that research shows that only 30% of clients compare law firms.
Maurice Blackburn became an Incorporated Legal Practice in 2003, before I joined the firm. The reasons why the firm decided to become an ILP are difficult to understand, but I believe it was for a combination of these reasons:
– There was a question of succession planning — with partners coming and going, an ILP was seen as a means to assure an enduring structure,
– The firm contemplated providing multidisciplinary services (but it ultimately decided not to do so),
– For a variety of reasons, at that moment in time, the value of the firm was estimated to be quite low. This meant that the tax consequences to make the change were low, meaning that if the change was to be made, that was the right time to do it.
On one level I do not think it was a good idea for the firm to become an ILP. I think that if a firm will in fact be run like a company, then becoming an ILP makes sense. But if the firm will psychologically and culturally continue to be a partnership instead of a company, and if it will continue to be run like a partnership, then becoming an ILP does not make sense. If you will continue to act like partners and not shareholders, then trying to run the structure as a company is at odds with that. The shift from one to the other is difficult and painstaking.
For example, Maurice Blackburn has a Board — it has taken years to establish the pre-eminence of the Board. This is because everyone still regarded themselves as a partner with the right to have a hand in the decision making. This is no longer the case today, but it took the firm over five years to adjust to that change. Again, this was painstaking requiring a significant cultural shift.
To be clear, while I think that the ILP structure is awkward for Maurice Blackburn, I think that the ILP structure itself offers benefits, and it can be the right structure for firms that truly do operate as companies. It’s too bad that there is no hybrid structure between a company and a partnership, as it could have served Maurice Blackburn well during the psychological transition. A clear advantage of this structure has been the ability to compare ourselves with the two listed companies.
We have considered bringing in a passive investor, but we’ve decided not to. This is because we see the key ingredient of Maurice Blackburn is discretionary effort. Usually a passive investor will want their pound of flesh. That is, they will want to drive ongoing exceptional returns / dividends as well as having an exit strategy for their shareholding, which usually takes the form of a significant payment or public listing. We don’t believe that we need the capital or having someone outside of the firm having some influence over it. This focus is prone to damage our culture.
As mentioned previously two of our competitors are publically listed. So their employees cannot become shareholders of a private company. All things being equal, we believe that partnership in a private firm is far more attractive for an employee as a career option than just getting shares or options in a public company.
We have approximately 25 shareholders, all of whom work in the firm. We opened up the shareholding significantly over the last few years, bringing in eight new shareholders. We will continue to bring our talent into equity.
Normally in a professional services environment, profits, in full, are distributed quarterly or at least half-yearly. That is not our model. As a plaintiff law firm, we have to retain earnings. Under our “no win, no fee” arrangements, we pay the client’s expenses along the way. At any moment we have tens of millions of dollars which we’ve paid for clients. In addition, many of our class actions we fund ourselves — that requires a reservoir of capital. Finally, we get involved in litigation funding — funding other law firm’s litigation – to do this we use partly our share capital and partly debt. So, in sum, we need to retain earnings as part of our business model.
Another thing that we do differently from some other law firms is that we have many offices — 30 at the moment. We have to go where injured people are — they don’t come to capital cities just because you are a good law firm. Having so many offices requires us to have effective internal communications as well as external. So we spend a lot on IT, to be sure that our communication networks work, to communicate with each other and with our clients. That being said, many of our clients prefer personal contact to contact over the phone, SMS and Skype — at least at this stage.
We are also investing in IT to review processes to become more efficient and automated where appropriate: standardization of documentation and online processing of documents, for example.
We have three pricing models depending on the area of practice. Around one third is hourly rates, one third is court scale and another third is by agreed fixed costs with the client. We seek regular client feedback for input on our pricing levels and models.
At Maurice Blackburn, three things matter, in this order: staff relationships, their career path, and remuneration.
As regards relationships: If you do not get on with other staff, you might not be here very long. This is typical of any workplace; money/ salary does not substitute for happiness.
As regards career paths: for lawyers, the career path is associate, senior associate, salaried principal and then equity principal. The six people we brought in last year as equity principals were in their 30s or early 40s. This is a different career path than the one our publicly listed competitors offer.
One of our major competitors has followed an aggregation strategy, and in doing so they’ve become one of the largest firms in the UK. We have chosen a different path. We fund litigation overseas — we fund law firms to take on litigation that we think has merit. We think that we have an advantage over other funders because of our deep understanding of complex litigation and the attendant risk. We have about ten of those cases and we intend to increase this portfolio.
In personal injuries litigation, we have one of the largest market shares in Australia. That being said, we do not see ourselves as a consolidator of the market because we think it is best to grow organically. We have acquired some firms, but nowhere near the number our competitors have. Organic growth permits us to protect and enhance our culture.
Even if we are not a consolidator, we are in a consolidating market, and because our brand is so strong, we do attract a large share of the market.
I have heard the fear expressed that in a consolidating market, the consolidating firms will cherry pick the most profitable work and neglect the least profitable. I don’t think that this would be a wise strategy to adopt, for two reasons. The first is that there is a legislative risk — if you pick a narrow range of services, you could lose your entire livelihood because of a legislative change (for example if a no-fault scheme is adopted). A second reason is that some work is part of our DNA. It’s work that clients expect us to do, and if we didn’t do it, it’s unlikely we would get the referrals we need for the more profitable work.
I’ve been asked a hundred times if Maurice Blackburn will go public. I won’t say that the firm will never go public because I don’t know what direction future generations of the firm will take. But for now, we don’t need external capital. Moreover a public listing would require that we grow aggressively by acquiring other firms — that is at odds with maintaining our strong organically-grown culture. We think it could harm to our culture if we brought in other firms that we were not able to integrate successfully.
Our number one achievement is the discretionary effort we get from our staff. We think this is harder to do inside a publicly listed company environment because people don’t have the career path they had before, and aggressive growth leaves the original culture changed or, at least diluted.
We care very much about relationships and developing people’s careers. Our lawyers have the chance to become partner/owner in the traditional sense. We pay our staff competitive commercial rates. We think this is better offering than other firms that prioritize financial outcomes, that don’t care so much about culture and relationships. It is a clear choice, of course both models can be successful.
We don’t lose many people to other law firms. We have about 60 senior lawyers — about one third of them have shares. Some people have declined the opportunity to become and owner, because of the added responsibilities that come with that. In some cases those people remain as Salaried Principal, or as Special Counsel or General Counsel.
To download a pdf of this and the other stories, please click below.