When it comes to examining the business of law, the media often places too much emphasis and focus on Big Law and metrics that apply more to Bay Street or Wall Street than main street.
When it comes to examining the business of law, the media often places too much emphasis and focus on Big Law and metrics that apply more to Bay Street or Wall Street than main street. Things such as profits per partner, revenue per lawyer, cost associate-partner ratios, the share of merger and acquisition transactions and big-ticket litigation or deals drive coverage.
It’s law firm braggadocio, sometimes on a Trumpian scale, and I’ve certainly been guilty of fostering it over the years. After all, it’s sexy talking about big numbers or, better yet, law firm blowups.
Come on, admit it, we all read about Heenan Blaikie and were engaged in its untimely demise; same for Goodman Carr. Even troubles at foreign firms such as Dewey & LeBoeuf LLP, Dreier LLP and Coudert Brothers LLP garnered Canadian coverage. In many instances, lawyers devour such information with the view of “There but for the grace of God go I.”
However, Big Law is only a small part of the legal industry equation, albeit a substantial one in terms of billings.
The reality is that most lawyers work at firms of 10 or fewer lawyers, according to 2016 statistics on law firms from the Federation of Law Societies of Canada.
Sole practitioners dominate the landscape, followed by firms with two to 10 lawyers. Firms with more than 50 lawyers are few and far between in comparison.
Simply put, small and sole practitioners make up the heart of the regulated profession, and they will tell you that heart is beating strongly.
Take Mike Seto. He started a “virtual law firm” focusing on small businesses a few years ago and today he is “as busy as heck. I am focusing exclusively on corporate commercial,” he explains. That includes helping companies with succession planning. “A virtual firm is a great way to contain costs.”
The sole and small practitioner has been a mainstay to law since Roman emperor Claudius, who ruled from 10 BC to 54 AD, relaxed prohibitions on advocates being compensated, making it one of the world’s oldest professions.
Today, there seems to be a renaissance in small firm practice. “There are more small boutiques opening up, particularly in the litigation world, which is where I practise,” says Kathryn Manning of DMG Advocates LLP in Toronto, a six-lawyer firm.
She notes that “big firms” are expensive, and that makes it challenging for litigators who are starting out their careers to bring in a steady array of business and build a book of clients. Billing rates are high and can only support bet-the-farm types of litigation, she says.
In fact, people spinning out of large law firms — or what Michele Ballagh of Hamilton intellectual property boutique Ballagh + Edward LLP calls “Big Law refugees” — are behind some of the resurgence in small firm practice.
“Me and my partner are what we call Big Law refugees. We found each other after we left big law firms,” Ballagh says.
“Big firms are a very, very good training ground,” Ballagh says. But she admits that, “I could have probably come out earlier. Lawyers don’t jump off on their own very easily.”
Ballagh says she was “surprised” at how cheap the technology was that they needed to run their firm.
The technology is evolving, she says, and it’s much more cost-efficient. “I don’t find that there is very much I can’t do that I used to do at Gowlings,” her former firm, she says.
At a time when Big Law’s growth is stagnant, small firms continue to hold their own. Take Ontario, for example. According to figures from the Law Society of Ontario, in 2017, law firms with more than 51 lawyers constituted 19.7 per cent of licensees, down from 21 per cent in 2013. Firms with two to 10 lawyers inched up to 31.7 from 30 per cent in 2013.
Seto notes that the level of sole practitioners is holding. “The numbers seem to indicate that it’s viable.”
The breakdown is similar in other provinces. In B.C., sole practitioners account for 71 per cent of law firms, while two- to five-lawyer firms account for 21 per cent.
In Alberta, there has been a growth spurt in small firms. The number of lawyers practising at two- to 10-lawyer firms has grown to 2,960 at the end of October from 2,054 practitioners in 2017. The number of sole practitioners has also bumped up in that province.
Skeptics might say the growth in smaller firms is because business is slow at big law firms and they are shedding people. New graduates are also forced to go out on their own. That’s partly true, says Ballagh, who is part of the LSO’s Coach and Advisor Network, which mentors lawyers. She notes that some graduates start their own firms, but it’s not easy, noting it takes up to five years to learn to practise law after being called to the bar. Then there’s the challenge in learning to run a business. It’s easier, she says, when you “have a book of business.”
Probably the biggest change that sole and small firms have seen recently is the type of work they take on. What used to be general practices that dabbled in a range of legal issues have become honed and finely tuned law firms with a focus on specific practice areas.
Take Allan Oziel of Oziel Law in Toronto, who started his firm almost seven years ago. It focuses on business and technology and has grown to four lawyers. “In the past, a sole practitioner was general counsel,” he says. “They didn’t become known by a particular practice area.”
He identified “a clear need” among small and medium companies for a law firm that focused on providing business and technology advice at a “reasonable price,” says Oziel.
In fact, specialization seems to be the key to success. Sole practitioners and small firms can now be found specializing in everything from family law to business, real estate, securities, technology, intellectual property, litigation, trade, Indigenous and employment law. The options are endless.
Manning says working on your own or in a small firm restores a level of independence. You have better control over the number of hours worked and billing rate, she notes, which allows lawyers to work with more closely held companies that don’t want to pay big-firm rates.
Oziel adds that the work gets more sophisticated as his business grows and clients expand. “The business evolves.”
Lawyers at smaller firms are also confident in their ability to compete for market share, even if it means taking on bigger firms.
The key to success, says Oziel, is to know what type of firm you want to be, target the type of clients you want to serve and “never waiver. Be true to the idea.”