Last year, when law firm leaders spoke to Asian Legal Business about the year ahead, they warned that there would be increased pressure on firms to adapt, prioritise tech, and meet client expectations. Heading into the new year, the climate was undeniably challenging — but not exactly surprising.
Then came the COVID-19 pandemic. Hitting Mainland China first and slowly spreading throughout the globe, it left businesses reeling, and exposed the gap between those who could use technology to swiftly adapt, and those who couldn’t.
Rapidly, working from home became the norm, and the sounds of children’s voices in the background on Zoom or Teams calls grew increasingly commonplace. While the past few months have been difficult, they have been liberating for some, and a learning curve for others.
But the pandemic hasn’t just hit work culture. For many firms, it’s been a test of every facet of how they operate.
Thinking back to some months ago, Stephen Kitts, Hong Kong-based managing partner for Eversheds Sutherland in Asia, tells ALB that the firm began analysing options to address the potential impact of the pandemic in early March.
The firm responded quickly “taking direct action at a global level” in order to address the potential impact he says noting “communication and support for our clients and people were, and remain, the key priorities.”
“Equity partner remuneration has been reduced by an average of 25 percent, driven by the partners’ desire to lead the firm’s response and be the first to feel the impact of any financial measures needed to protect the business and the jobs of our people,” Kitts says, noting that working from home and flexible working arrangements were quickly rolled out in Hong Kong, and have been finetuned along the way.
“As part of the move to our new offices, everyone in the office was issued with new laptops and was able to continue working from home. Support for our clients was not interrupted for even one hour,” he says.
As lawyers across the globe navigate working from home and firms cut costs and calculate impact, law firm leaders have continued to focus on meeting client needs.
Increasingly firms have been getting creative in order to stay competitive during the COVID-19 pandemic.
Rossana Chu, managing partner of Hong Kong’s LC Lawyers, tells Asian Legal Business that firms have considered different ways of pricing services, while also offering reductions in some cases.
“For legal work where the workload can be estimated, many law firms are much more ready during the COVID-19 pandemic period to perform the work with a capped or fixed fee instead of the traditional way of charging by hours (whether by normal or blended hourly rates) because clients would like to see certainty in the legal fee bills,” she says. For work where the workload or complexity cannot be easily estimated, “fee estimates or soft caps are becoming more common and clients also want fee breakdowns for different stages so that they can compare law firms for work of different nature for the same matter,” says Chu, adding that “generally, fee levels are lower compared with the pre-pandemic period”.
But there have also been other approaches deployed by firms to maintain strong client relationships during the pandemic.
“Our firm, LC Lawyers LLP, is an independent law firm and is also a Hong Kong law firm member of the global EY network. When we provide legal services, we may also identify related issues such as tax, valuation, business modelling, debt restructuring and talent management. EY is able to provide very wide scope of services in those areas so that concerted solutions may be presented to clients,” says Chu, adding that increasingly clients are looking at ways to utilize legal technologies combined with professional legal advice.
“Competing on price is never the enduring or the most clever strategy. I believe that the pandemic makes it necessary for law firms to consider how to come outside their comfort zone of delivering merely the very traditional legal services in the very traditional manner.
— Rossana Chu, LC Lawyers
“EY Law has a wealth of experience and rich track record in providing legal managed services to those clients in areas such as contract lifecycle management, research and regulatory mapping and managed review or discovery on large volume of documents. Other law firms are now more willing to give free advice to loyal clients or potential big clients. Some are willing to expand the work scope without raising the fixed or capped fees, as an attempt to retain clients,” Chu adds.
But she has a warning. “Competing on price is never the enduring or the most clever strategy. I believe that the pandemic makes it necessary for law firms to consider how to come outside their comfort zone of delivering merely the very traditional legal services in the very traditional manner,” Chu says.
Eric Chin, principal at Alpha Creates, a consulting firm catering to the legal industry, tells Asian Legal Business that he has observed a mixture of retention measures being deployed over the past year.
“Thomson Reuters Peer Monitor’s most recent law firm financial benchmarking data revealed partner billings outnumbered lawyer billings for the first time in years”, while other firms have provided COVID-19 related advice to strategic clients on pro bono basis, Chin says.
Some firms, like Tilleke & Gibbins have initiated “a client listening exercise to inform how they can guide their clients through the pandemic,” he notes adding that others have developed COVID-19 guides and resource hubs for companies.
“Firms have also created automated self-assessment and self-help tools with LegalTech providers,” Chin says.
“On the other side of the equation, there are clients who have also turned to their panel firms to extend invoicing terms, apply discounts and withhold yearly rate increases,” he adds.
From his perspective, firms that have “proactively engaged clients through the measures outlined above are benefiting from that strategic investment in their client relationships.”
“The ongoing evolving environment means clients are looking for sound information, hard data and impartial advice as well as a considered approach to help them navigate a cooling economy. A strategic and controlled approach to one-off discounts and/or write-offs can be effective ways to meet clients’ needs while reinforcing the law firm’s strategic role as well as positioning firms very well for when the economy recovers,” Chin says.
Whether these various approaches will stick around in the new year remains to be seen. Chu is hopeful that demand for legal services will increase as economic activities revive after the pandemic.
“When the economic activities revive after the pandemic, demand for legal services will hopefully increase,” she says.
“Law firms will have more work to do and may give priority to three types of clients. The first type is the clients which are willing to pay more. The second is the clients which give steady work to the law firms throughout all times. The third is the clients who give a large piece of work which may not be very lucrative but has a positive impact on the law firm’s reputation. The first type of clients will drive up the legal fee levels, while the second and third types may not,” Chu adds.
CLIENTS IN FOCUS
For law firms, these testing times have provided opportunities to support their clients in new ways, while navigating unpredictable developments.
Kitts says COVID has presented “significant challenges” for the firm’s clients.
“We took the opportunity to demonstrate to these clients that we put them at the centre of everything we do. Our Asia relationship partners and teams were in regular contact, daily contact in some cases, especially with Asia-based clients in the hardest-hit sectors, such as travel, hotels and leisure,” he says. “The strength of our relationships with clients meant that many were contacting us for ad hoc advice on situations that were completely unpredictable, often changing from one day to the next. In some cases, we were so heavily engaged that our lawyers were simply treated as an extension of their in-house teams,” Kitts adds.
The takeaway from the pandemic has been that “trust lies at the heart of every successful business relationship,” he notes.
Steven Sieker, managing partner of Baker McKenzie’s Hong Kong and mainland China offices, reflects on how the firm supported clients over the difficult year. This required the team to keep their finger on the pulse, and adjust their response based on market developments, he says.
“We recognize that companies are emerging from the pandemic crisis at different paces, with some sectors facing sharp declines and business disruptions while others see an increase in demand and new growth opportunities. As businesses reorganize their operations for the new normal, we saw this as an opportunity to have renewed conversations with our clients about what the new normal would look like to them,” Sieker says. “To guide these conversations, we launched our ‘Resilience, Recovery & Renewal’ framework in April, which has enabled us to better respond to our clients’ needs with tailored advice and solutions as they journey through this pandemic,” he adds.
The mindset for clients has changed, says Sieker noting: “Clients are also looking to rationalize their legal spending, and law firms will need to be able to demonstrate their value.”
“Baker McKenzie is responding to this fundamental shift by making further investments in shared services, technology and knowledge management, so that we enhance the value we deliver to clients, delivering increased value at a lower cost,” he says.
WHAT NEXT FOR HONG KONG?
The pandemic has also added sharply to the turmoil in Hong Kong SAR, which saw protests last year, and in 2020 witnessed the enactment of the controversial National Security Law. With the legislature, press and courts currently under increasing pressure, businesses reportedly appear to be rethinking their strategy when it comes to the (so far) semi-autonomous Chinese city.
It hasn’t had a particularly negative impact on foreign law firms though.
Tony Williams, principal at Jomati Consultants, says that while competition remains fierce in Hong Kong, major international firms “appear to be faring very well despite the pandemic.”
“The legal sector has been remarkably resilient, and lawyers have been able to work reasonably effectively from home. As a result, depending on the practice mix of the firm, they could achieve results similar to or a little off last year. There will be a range of performance and the date of a firm’s year-end could result in different outcomes. Some firms will not wish to waste a crisis, so I expect some restructuring of firms and the closing or downsizing of some offices. We have already been seeing signs of this in relation to the China and Hong Kong offices of some international firms,” Williams says.
He adds that some firms will revisit their approach to Hong Kong “not so much because of the National Security Law Itself but because of what it could mean in terms of the independence of the Hong Kong courts and the acceptability of Hong Kong as a forum for disputes and the role of Hong Kong as a major business and financial centre.”
“Many international firms have deep and long-established roots in Hong Kong and are likely to remain committed but some may rationalise their presence or even leave. Hong Kong is a challenging place for international firms to make money so inevitably it will be closely reviewed from time to time,” says Williams, noting that if Hong Kong becomes “less important as a business, financial and disputes centre, then inevitably its attraction to international firms will reduce.” But at the same time, Williams says the city’s resilience through crises means “it is far too soon to write Hong Kong off.”
The next few years will provide greater clarity, says Williams, noting that this, combined with “how other regional cities respond will ultimately determine the future significance of Hong Kong.”
Williams also expects to continue to see Chinese firms significantly increase their presence in Hong Kong over the next few years.
“They are already a significant presence in the Hong Kong market, and I expect that to increase especially given the impressive growth that they have achieved in relation to their size and revenues in mainland China,” he says.
What 2021 holds is unknown, but firms remain tentatively optimistic that the new year will provide more stability. At the same time, they are also gearing up for increased competition as the dust begins to settle. Singapore and Hong Kong are both remarkably competitive hubs, home to mature legal markets and talent, and firms in both jurisdictions face fierce competition that is only likely to increase.
Sieker says that the legal market in Greater China has weathered more than just the pandemic, citing “domestic unrest, geopolitical tension and rising regulatory scrutiny” as challenges for the jurisdiction.
“Despite this we see many businesses, including our own, looking for opportunities, realizing that this may be a once in a generation opportunity to enter or grow in the Hong Kong market while valuations are more modest. With China expected to be among the first economies to rebound from the pandemic, and the GBA initiative moving ahead in full force, many multi-nationals and Chinese companies are eyeing the GBA and Hong Kong as part of the GBA with immense interest, anticipating the enormous growth potential, particularly at this time,” Sieker says.
Jonathan Olier, partner and head of M&A and private equity for Southeast Asia at White & Case, says that in Singapore, a busy year of growth is also expected. “Arbitration and restructuring, as ‘counter-cyclical’ practices, have been busy areas amid this year’s economic downturn and we expect this to continue in 2021,” Olier says.
Additionally, the city-state's steady push as a regional arbitration hub is only growing. “With the Singapore International Arbitration Centre now being a leader on the world stage, and clients experiencing mounting pressure, arbitration is becoming increasingly active here in Singapore,” he says.
“We also foresee a continued uptick in oil and gas-related restructurings, especially within industries most prone to the impact of the pandemic and a fall in oil prices. Thanks to recent and innovative legislation, in part modelled on the U.S. Bankruptcy Code, Singapore is quickly emerging as a global restructuring hub,” Olier adds.
Looking ahead to the new year, Kitts of Eversheds says there is “considerable pent up demand in the markets across Asia. With signs that a vaccine or vaccines for COVID may be available within months, we expect to see strong deal flow, in particular as we head into the second half of 2021.”
“We are already seeing signs of an upturn in M&A activity, driven in particular by PE-backed deals. Our banking team has been operating at 100 per cent capacity all year and their pipeline for next year is particularly strong. Employment has had one of their strongest years, while the technology practice is advising on truly ground-breaking transactions,” he adds.
To contact the editorial team, please email ALBEditor@thomsonreuters.com.