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Jim Middlemiss

Transparency and law firm numbers

Dentons LLP is in a dogfight with American Lawyer magazine over the media empire’s Global 100 law firm rankings. The firm takes issue with the profit-per-equity-partner figure cooked up by the magazine, after Dentons announced last year it wouldn’t disclose its numbers. So much so it created the web site to argue its case after the firm says requests for corrections fell on deaf ears.

What is interesting is not so much the fight between a law firm and a legal media outlet. Rather, in its arguments, Dentons raises a very interesting point. Is it relevant to compare statistics such as profits per equity partner in a world of global law firms operating in multiple countries versus those operating in more homogenous markets?

“It’s like comparing apples to minerals,” Joseph Andrew, Dentons’ global chairman, told Canadian Lawyer. Using profits per equity partner as a comparative figure is “a fundamental misunderstanding of what the global practice of law looks like and what clients are seeking.” Dentons takes the position on accuracy100 that it is “impossible for a single global number to reflect accurately the diverse economies in which our clients and we operate. We also believe the ongoing focus by the media on global profitability figures is a distraction from what clients really care about, which is the quality of work provided by a law firm.”

Elliott Portnoy, global CEO of Dentons, told us “the global average profit-per-partner number is meaningless. . . . Clients don’t believe law firm value relates to law firm economics.” Of course, the opposing argument is Denton’s numbers are out of line and it’s trying to obfuscate, but the firm dismisses that suggestion, stating the numbers reported in the magazine were mathematically impossible.

What I find interesting about this dust-up is that when U.S. media outlets first started publishing law firm numbers, people were outraged, in the same manner Dentons is now, and as I vaguely recollect, some firms felt coerced to co-operate or face the wrath of “guesstimates.”

Dentons is right to suggest that apples should be measured with apples. However, I believe financial figures do provide benchmarks and help the legal industry understand itself, given the lack of available economic information. Even the Canadian Bar Association’s Futures Committee has bemoaned the “lack of hard data on the legal industry in Canada.”

In Canada, I played a hand in starting Law Times in the 1990s and over the years we were eager to get at similar data, as was Canadian Lawyer. However, we were constantly rebuffed in our efforts. Simply put, there is no culture of public disclosure here in Canada when it comes to law firm financial data. There should be. Rather, firms take the position they are private businesses reporting to the various legal regulators only what they have to, such as trust account information or insurance coverage.

Interestingly, Canada is not alone in its approach. Andrew notes out of 186 countries, only 10 have some form of law firm disclosure mechanism. “They are all different. There is no consensus law firms should be reporting anything.” When it comes to law firm reporting, the United Kingdom is the most thorough and public, with the Solicitors Regulation Authority requiring LLPs to file a range of financial information, which U.K. publications pore over.

Interestingly, following the financial crises of 2008, both banking and accounting regulators introduced a raft of new laws to avoid a repeat event. The legal community, arguably a third leg of the financial eco-system stool, remained outside the scope of scrutiny. Shouldn’t clients also have confidence that their law firm is financially viable and will be around to complete an important transaction or critical litigation?

Law firms are private organizations, but they operate in a world of public trust. At any given time in Canada, collectively, law firm trust accounts hold hundreds of millions of dollars (similar to small financial institutions). Transparency is a good thing. It fosters discussion and encourages whistleblowing.

If a law firm has to provide revenue and profit information it knows will become public, that acts as deterrence toward fraud. Alternatively, out-of-whack numbers raise eyebrows among skeptics, snoops, and competitors, more than they would when only a handful of people at legal regulators have the true picture.

Canada needs to move toward the U.K. model and adopt a new national regulator to oversee the legal business, one that has more latitude in forcing disclosures, and which operates at a greater distance from the firms it oversees through an independent board of non-practising lawyers (also known as clients).

It will take rankings out of the hands of legal publishers, level the playing field, provide researchers access, and stop the numbers shenanigans. Standards can be set for the public reporting of information for firms of various sizes to take into consideration the proper parameters for measuring international firms and advance our understanding of law firms economics.

More importantly, though, it might also lead to the more constructive rankings and examinations that Dentons seeks — ones that take into consideration clients and the creation of objective key performance indicators to measure things such as competence, client service levels, and that all-elusive “added value” that many firms purport to provide. Now that would be a major development.

Jim Middlemiss is a principal at