QA John Kain You need to have a clear purpose and know why you exist

In our latest Q&A, Kain Corporate + Commercial law firm founder and managing director John Kain discusses the merits of a corporate legal business model, his forecast for the future direction of law firms and the importance of giving back to the community.

On the back of a corporate-style business model, Kain C+C has a reputation for being an innovator. Is there a conscious effort within the firm to embrace innovation?
“We value innovation, but it’s probably a bit of an overused term. Another way of looking at it is just that we have a commitment to doing things very well and a willingness to evolve and change. Those things are pretty fundamental in our business. If that all adds up to innovation, I suppose that’s right, but it is a hackneyed phrase.”

How is your firm different to others?
“The areas where we have changed from a traditional practice start with the structure of the business. We are very deliberately structured along corporate lines, or as a corporate legal business. There are a lot of incorporated legal practices, but to be a corporate legal business there are three elements that are needed. First, there’s the legal structure. In truth a lot of firms are incorporated partnerships rather than a (true) corporate legal business. Second, there’s the governance structure. We have a corporate governance structure and our shareholders’ agreement requires at least half of our Board, including the Chair, to be independent. That’s designed to bring objectivity to our high-level strategic thinking. Third, we have a corporate management structure so that we have clearly devolved lines of responsibility and authority for decisions to be made without having to resort to decision by committee. Those three elements are heavily ingrained in our business.”

Aside from your experience as a corporate lawyer, you have significant hands-on experience in commercial markets courtesy of board roles in an alternative asset management company that is listed on the ASX and a private investment company. Did that experience help convince you that a corporate legal business structure is the way to go?
“Yes. The truth of it is that you will struggle to find a sane and sensible corporate-commercial lawyer who has recently advised their clients to structure a new business as a partnership. Partnerships are increasingly rare beasts in the commercial world, but seem to be a legacy structure in our game.”

What are the main benefits of your model?
“There are two key benefits. First, it allows greater objectivity with decision-making and, second, it allows greater flexibility in getting the right people to do the right jobs. Particularly in the size of business that we have – there are about 30 people in Kain C+C – we are able within that structure to get the right people focusing on the right things, rather than saying, ‘You’re a partner who has some free time or an interest in IT, so you go and deal with the IT issues’. We can get the best person to do each job.”

Law firms in Australia are under a lot of pressure because of cost pressures and factors such as the influx of major international firms. Where is the market heading?
“My view of what’s happening in the legal game is that there are three stages of change – crudely split into 2010 to 2015, 2015 to 2020 and beyond 2020. We are at the end of that first stage of change. In that stage what we have effectively seen is a change in the behaviour of lawyers as a reaction to a change in the pricing demands of clients. So, post-GFC, clients have become more sensitive around their legal spend, and they’ve become more sophisticated in understanding what lawyers do and how they do it and where the waste is. That’s given rise to quite a lot of pricing pressures from clients, and lawyers have reacted to that and changed the way they do business.

“The next stage we will see involves further demands for change and it will also be driven by clients. However, it won’t be driven just by price; it will be driven by a demand for different service delivery. Clients are becoming better educated about the different models of service delivery and they will start to demand legal services being delivered through a channel or in a form that they want, rather than what the lawyer wants. That will drive another stage of change in behaviours. But through that first and second stage, most of the change is pretty disaggregated and it creates almost a bit of a cottage industry.

“The third stage will be post-2020, and please give me a couple of years’ grace one way or the other – and that will be the really interesting one. Post-2020, I think what will happen – and you can probably see glimpses of this in what Slater & Gordon are doing at the moment – is that the big players with big balance sheets and plenty of resources will come in and identify what has worked and what hasn’t worked over those first two stages of experimentation. Then they’ll pick up the things that have worked and they’ll distribute them to the market at scale. The people who do that might not be lawyers – it might be a Big Four accounting firm, it could be a software house, it could be Google or a well-funded start-up company. But it will be people who are better resourced than a traditional law firm and who are able to make decisions and implement them quicker than a traditional law firm. That’s where I think the real disruption in the legal industry will come.”

As someone running a very successful firm, but one that is still relatively small, how does that make you feel?
“I’m perfectly comfortable with it. Every industry evolves and you have to be alive to what’s happening and you need to shape yourself accordingly. If you do nothing, there’s not much of a future. But for those people who are alive to it and who are prepared to plan for it and properly deal with it, then the future will be a much different future from what the past 20 years has been – but there will be a good future.”

It will be interesting to see how those three stages play out.
“Well, the theory has been proven true in the first stage. The jury is out on the second stage, but I believe it will be proven right. With the third stage, firms like Slaters and Shine and others have the resources and scale to do things – and they’re already doing some really interesting things. If I were running a suburban personal injuries firm, I’d be thinking there’s not much of a future for me because I am going to be out-resourced. The same will happen in commercial stuff in some shape or form.”

Tell us more about client behaviour. What are you witnessing?
“I’m not really seeing clients at the moment demanding, at scale, a different type of service, but what has changed and what will continue to change is that the one-stop shop is a thing of the past. There are not too many clients of any meaningful size who will just use one law firm for everything. They will slice and dice it and get the best people to do the work that’s appropriate. So that’s where a lot of the demand for different service will come from.

“Then there’s in-house legal capacity in companies. In some respects the legal sector has trailed the accounting profession by 20 or 30 years – not in everything, but in some things. One of the parallels I draw is that if you look at a small business of, say, sub-$10 million turnover, 40 years ago it would not have had a CFO or a dedicated in-house accounting function. Today, there wouldn’t be a company with a $5 million to $10 million turnover that wouldn’t have some form of dedicated finance and accounting function. That’s in part driven by increasing regulatory demands and in part recognising that you can actually do it better internally and integrate it into the business better than through outsourcing.

“We’re seeing the same thing happening in legal at the moment. If you go back 20 years, large companies had a small in-house legal capability and they outsourced everything. Now, large companies have a large in-house capability doing very sophisticated work, and small companies are developing it. That legal capability brings greater internal knowledge of the service options. So clients are able to say, ‘Well, I don’t need everything from firm A, I’ll get this bit from them and then I’ll shop the rest of it around’. And they’re becoming aware that it doesn’t all need to come from a lawyer either. Some of this is really a business process or a legal process that they can outsource. So we’re starting to see that disaggregation of individual client demand and over time clients will become more aware of different options and they’ll continue the disaggregation.”

On your firm’s website, there is a line about how you like to recruit lawyers with ‘personality’. What, in effect, does that mean?
“They don’t necessarily have to be able to do a song-and-dance routine. But lawyers do need to be able to relate to and engage with clients. And you need to fully respect the fact that we’re lawyers and we are here to give legal advice, but you need to be able to think like a client as well. You need to be able to make recommendations.

“One of the things that we work hard on here at Kain C+C – and we haven’t got it completely right, but on the whole we do it pretty well – is being a business that actually makes recommendations to clients. One of the things we abhor is saying to a client, ‘Well, you can do A or B’. In our view that’s not doing our job. Doing our job is saying ‘You can do A or B, here are the pros and cons of each, but I recommend you do B for these reasons’. It’s about having a view on things and being prepared to express it. In a fairly obtuse way that requires a certain personality. You need to be able to interact with and really understand the client to do that effectively.”

In a personal sense, you are very committed to charitable causes, including through the Kain C+C Charitable Foundation, which has raised hundreds of thousands of dollars for the community, provided thousands of hours of support for worthy groups, and contributed to the building of a hospital in Uganda. How did this come about?
“It’s one of the driving reasons that this business exists. I’ve been a partner in a couple of other firms and, when I was contemplating the next 20 or 30 years or whatever it was going to be in my working life, I gave a lot of careful thought to what I wanted to achieve and the environment I wanted to work in . One of the things I was very keen to achieve was to make a meaningful and lasting contribution to our community. I thought then, and even more so now, that by harnessing the combined resources of the business, that community contribution can be more effectively made. We are pretty clear on our expectations with everyone who joins us and after a while that becomes a bit self-selecting. I’m sure there are people who haven’t joined us because of our expectations in that regard and there are probably some people who have been attracted to joining us because it resonates with them.”

Finally, do you have any other messages on management philosophy?
“There are a few things that you need for any organisation to be successful. You need to have a clear purpose and know why you exist. You need to have the right people. You need to have the right structure for those people to operate within. You need to have everything in the business aligned towards that common purpose – and then you need accountability. They are the key ingredients.”

For more details on Kain C+C, visit www.kaincc.com.