Is the Legal Profession in Nigeria Gradually Edging Towards Extinction? (V)

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Olagoke Odubunmi

Global Trends in Legal practice Partnerships

More law firms are revising their partnership arrangements in ways that bring them closer to their counterparts in other parts of the world. The trend follows challenges faced by law firms in ensuring their partnership models remained profitable during the economic downturn of late 2008 and 2009. But it has also been driven by a new generation of lawyers who are more concerned with lifestyle than investing capital and putting in the long hours to achieve traditional partnership status. In Canada for example, the primary change in partnership structure has been the introduction of ‘non-equity partners’ The ‘non-equity partner’ lengthens the track to equity partnership to give young lawyers more time to develop their skills and enables the established partners to postpone their decision on who can join them, while preserving the profits for those who’d invested capital in the firm years earlier.

More mergers and acquisitions

With public sector cuts and fiscal belt-tightening in all sectors, firms are looking for long-term solutions to secure their place in the market – a merger offers obvious cost saving and cross-selling potentials. Mergers are also important for practice expansion, tapping new markets and going global.

Partner performance management

The system is totally objective and it downplays the role of the individual. All partners in a group or department will sink or swim based on collective efforts. It promotes firm goals. When everyone pulls together the firm succeeds to the highest levels and the competitive focus is external rather than internal. There is cooperation and collegiality at the group and firm levels: Partners have faith in one another to always do what is best for the team – to willingly waive individualistic tendencies when they conflict with the goals of the team.

Weaknesses

Some partners may feel that there is a lack of recognition for seniority and experience. Unless there are levels of partners within the system, all partners would earn about the same amount. Partners may not make enough of an effort because they don’t see the direct rewards and don’t feel they need to perform at a level above others. The individual large contributor may well leave in search of a firm that will reward individual efforts more highly.

Global Trends in Legal practice Partnerships 

More law firms are revising their partnership arrangements in ways that bring them closer to their counterparts in other parts of the world. The trend follows challenges faced by law firms in ensuring their partnership models remained profitable during the economic downturn of late 2008 and 2009. But it has also been driven by a new generation of lawyers who are more concerned with lifestyle than investing capital and putting in the long hours to achieve traditional partnership status. In Canada for example, the primary change in partnership structure has been the introduction of ‘non-equity partners’ The ‘non-equity partner’ lengthens the track to equity partnership to give young lawyers more time to develop their skills and enables the established partners to postpone their decision on who can join them, while preserving the profits for those who’d invested capital in the firm years earlier.

More mergers and acquisitions

With public sector cuts and fiscal belt-tightening in all sectors, firms are looking for long-term solutions to secure their place in the market – a merger offers obvious cost saving and cross-selling potentials. Mergers are also important for practice expansion, tapping new markets and going global.

Partner performance management

Annual partner income should be driven by three (3) components: 

  1. Responsibility income. Whether each partner is playing Client service/delivery role, business development and relationships, practice management – including staff mentoring and development, thought leadership etc. This is usually between 60 -80% of ‘expected’ income available for distribution. The higher percentage considered for more junior partners i.e. putting less of the total expected income at risk.
  2. Performance income. How well has each partner performed against set expectation as determined by the agreed responsibility. Essential that each partner has a duly agreed personal plan. This is usually between 10 -20% of ‘expected income. The lower percentage considered for more junior partners.
  3. Equity income
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Component based on partners relative contribution to the business over the years. Also a reflection of capital contributed to the business. As with performance income, this is usually between 10-20%.

Benefits of Partnership:

  • Expected Economies of scale
  • Broadening the experience and skill base of the firm & service offered to the market
  • Cost saving arising from reduction in duplication of resources
  • Broadening of knowledge pool from which firm can draw internally
  • Larger pool of resources from which firm can pay out exiting partner

THE CURRENT ECONOMIC STATE OF LEGAL PRACTICE IN NIGERIA

The global economic crisis of 2008/2009 with its attendant consequences slowed down economic activities in many countries around the World, led to partial or full closure of businesses with attendant job cuts and losses, wage cuts and increase in the number of the unemployed around the World; and while the world is still striving to recover from that economic meltdown, there was recently a sharp drop in the global price of crude oil from over $100 per barrel to as low as $40 per barrel and currently undulating around $50 per barrel and has thus kept the price of crude oil very low. This of course led to a drop in income for government of oil producing countries and a consequential stress on their respective economies. Nigeria being a major oil producing country in Africa with a mono-economy dependent on oil, was exposed to these incidents of unstable oil price and did went into its own economic recession in 2016 from which she recently recovered.

The legal market in Nigeria is not immuned from the global economic situation around the world and the peculiar economic situation in Nigeria, this is because the demand for legal services will naturally increase in periods of economic boom and prosperity and would drastically drop in periods of economic stress and recession as a result of the strength or weakness in the purchasing power of potential clients. Thus, the last period of global economic meltdown around the world, the drop in oil prices coupled the most recent economic recession in Nigeria, has left indelible scars and footprints on the demand for and remuneration of legal services in Nigeria.  In this regard, many firms in Nigeria are engaging in a variety of changes in response to post-recession market forces. But the majority of change efforts can be characterized as limited, tactical and reactive. Law firms appear to be gambling that a measured approach to change will hold them in good stead among peer firms taking the same incremental approach. Most Law firms are not doing enough to change the way they deliver legal services due to a number of reasons. For larger firms it may be as a result of the fact that they are not feeling enough economic pinch to motivate more significant change when compared to the smaller firms. 

General observations on the Outlook of Legal Practice in Nigeria:

Some of the general observations on the outlook of the legal practice in Nigeria indicate the following:

General Decline in Demand for Legal Services: Market demand for legal services has failed to return to Pre-recession levels in a majority of law firms in Nigeria. Thus, most practitioners are concerned on how to grow profitability in a market characterized by stagnant or declining demand, intense competition from old and new sources, commoditization and price pressures.

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Surplus of Lawyers: Broad overcapacity is creating an ongoing drag on law firm profitability. Overcapacity and underutilization are prevalent among Associates and Partners, especially in large firms. Compensation adjustments are being used in some firms to deal with underperforming Associates and Partners, and in extreme cases, chronic underperformers are being counseled to resign.

-Overcapacity of equity and non-equity partners, especially in larger firms, is endemic and a drag on profitability.

-Non-traditional competitors are actively taking business from law firms and the threat is growing.

-Increases in law firm profitability are clearly linked to strategic changes in lawyer staffing, efficiency of legal service delivery and pricing approaches.

-A high level of decision-making authority conferred on law firm leaders correlates with better economic performance.

-In majority of law firms with significant numbers of aging partners, partners aged close to 60 or more, control a greater percentage of total firm revenue, but with only  a few of such law firms having a formal succession planning process. 

Financial Performance & Outlook

Within the current economic suffocation, many law firms are not optimistic about the ability to maintain an upward trajectory on profitability. The current economic realities seem to suggest that a slow-down in profit is a permanent trend in the profession. In this regard, most Law firms’ financial trajectories are no longer predictable, consistent or guaranteed. Significant number of firms drifts between profit and loss on their account book from year to year buffeted by a variety of market forces. Thus, a drop in profitability especially in consecutive years may trigger key partners to leave the firm (taking away blue-chip clients with them), thereby creating immediate financial vulnerabilities. 

Demand for Legal Services 

By a consistent pattern of consecutive years of decline, the erosion of overall demand for work done by law firms in Nigeria seem to be a permanent trend. A combination of market forces has combined to put pressure on law firms’ traditional flow of work from clients. These intervening forces amongst others includes: more price competition, commoditization of legal work, replacement of human resources by technology, and competition from non-traditional service providers. The most immediate threat comes from clients. Many firms have lost businesses as a result of Corporate-Clients’ in-sourcing of more legal works to their Corporate Law/ Legal Departments, and insiders. In addendum, is clients’ use of technology that reduces the need for lawyers and paralegals. Larger firms are more vulnerable to this specie of competitive threats than smaller firms.

As a result of the evolution in the market place with its attendant change in the nature of services required of legal practitioners, law firms are thus faced with an evolving competitive landscape and shrinking or shifting demand that requires the vigilance of legal Practitioners to the changing market around them. In this regard, any law firm that fails to actively pace up with competence to meet the challenge of the change in the nature of legal services demanded, does so at its own peril as “a man who uses yesterday’s method of business in today’s world would be out of business tomorrow”.   

Surplus of Lawyers: Supply Exceeding Demand 

With the consistent decline in the demand for legal services and the concomitant consistent increase in the number of legal practitioners churned out from the Nigerian Law School yearly to flock the supply market, there is more supply of legal services, and less but continuous decline in the demand for same. A general principle in the law of demand and supply is that when supply exceeds demand, there is a drop in price. In this regard therefore, a consequential result arising from excess in supply of legal services which declining demand cannot absorb lies in the cheapening of legal practice as clients are willing to pay less for a service for which there is excessive competition to provide, while competitors are waiting in the wings to snatch such clients at a far lesser price. The aggregate consequence is that there is a drop/deterioration in the quality and standard of livelihood of a majority of legal practitioners, with some frustrated to abandon the profession in order to seek refuge in other fields. 

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Lawyer Staffing, Overcapacity and Growth 

Firms are having trouble keeping their lawyers fully utilized. In terms of over-capacity and under-utilization, it could be estimated that 50% of Associates and equity partners in some firms are not sufficiently busy. Widespread overcapacity is holding down profitability. In this regard though, it could be argued that while growth in lawyer headcount is required for a firms’ success, declining economic situation seem to suggest fewer associates and partners as a permanent trend.

A majority of firms are now practicing basic labor arbitrage- employing the services of less costly lawyers as associates, while some now engage the services of lawyers on a part-time basis to meet demand as needed. Some law firms also now outsource their work to outside lawyers to minimize cost, thereby dispensing with the need to employ associates who will earn monthly salaries from the firm.

The most obvious solution to the overcapacity problem is to terminate the services of underperformers. Thus, associates who do not have enough work to do in a firm may be dropped, and in extreme cases, chronically underperforming partners may be removed as well. While most law firms are aware of their peculiar staffing imbalances which ought to be addressed, in most cases however, personal, political, cultural, religious sentiments and obstacles are hindering pragmatic economic decisions. In this regard therefore, law firms cannot maximize their effectiveness until the necessary will is summoned to deal with the issue of overcapacity- head on devoid of any sentiment.  

Efficiency 

Law firms are now improving on their approach to efficiency through the embrace of knowledge management and use of technology tools to replace some human resources. For instance e-library & e-law reports are now replacing the need for a physical library and paper law reports, and have reduced the man-hour spend on legal research on principles of law and current cases which can now be accessed on line instantly via the click of a button. It has also reduced or eliminated the need for research assistants.

It is imperative to note however that techniques that really challenge the way legal work has been done traditionally like, legal project management, or re-engineering of work processes, are less likely to be adopted in smaller firms.

Olagoke Odubunmi LL.M, BL. Legal Practitioner and Tax Research Officer at Maples & Temples, Lagos.

Part I here

Part II here

Part III here

Part IV here

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