Q&A: Peter Bobbin – "Operational decisions are put to the partnership and you end up with mediocrity in decision-making"

In this Q&A, Argyle Lawyers managing principal Peter Bobbin explains the rationale behind splitting legal and management roles; how his firm is moving to a new profit-sharing model; and why the billable hour remains a crucial business tool.

When you became managing principal of Argyle Lawyers in 1995, you immediately sought independent management for the firm while continuing personally to specialise in tax law. Why?

“My philosophy is that lawyers are bad business managers. Lawyers are trained and hard-wired to be ‘detail’ people – we stare at the trees knowing we are in a forest, but we need to know the type of trees, the undergrowth, the soil and so forth.  There are always exceptions to general rules, but lawyers are better off being lawyers. Lawyers who become business managers lose their briefs!

I had it described to me years ago that a business person is an 85 percenter. They’ll take the deal and get it within about 85 per cent and they’re happy with that and then they’ll hand it across to a lawyer, who is a 5 percenter. That’s what and who they want because the lawyer’s job is to take the 85 per cent and then contract it. They’re trained to deal with minutiae, they’re trained to analyse words. So I don’t mean to be insulting in suggesting that lawyers are bad managers. In fact, in some respects I’m praising them because it’s the character of what lawyers are that, generally speaking, means they don’t fit into management roles.”

So management and legal roles are separate at Argyle?

“Yes, but I should draw a distinction here. There’s management of a law firm in the context of making management and operational decisions, which may vary from the style and format of letterheads through to the employment of secretarial and administrative staff and other such operational matters. This contrasts to the direction of the business, which in a general sense should be left to the lawyers. I’ve seen and observed time and time again where operational decisions are put to the partnership and you end up with mediocrity in decision-making because it’s the lowest common denominator that becomes acceptable to all.”

Can you give us an example?

“Well, we are currently looking for new premises and our management team has full authority to lock in the premises. If, as the managing principal, I did the running around looking for premises, negotiating with agents and so forth, then I’d be wasting  a minimum of 10 hours a week. In that period of time I could probably generate enough money to pay for weeks of rent. Management can show me the building they favour, but don’t bring me in unless you’re pretty confident you’ve found the right place.”

You have experienced a range of business models and challenges during your career, including exiting a listed law firm model a couple of years ago after your parent entity ILH Limited went into voluntary administration. How is the firm faring?

“Argyle, like all firms, has gone through an array of changes, the most recent of which was its departure from the listed law firm model. Argyle has come out of that as strong as it has ever been. The perspective we take is that if we look after the client, the business will look after itself. It’s a competitive market, but we’ve always competed on service and quality, never on price.”

What is your next step?

“For the current financial year, we are ready to go through a complete profit and equity model revamp. For the current 2018 financial year we have settled on a 20-40-40 split – 20 per cent of recognised profit is retained for business expansion; 40 per cent of profit is retained for equity owners; and 40 per cent becomes a profit-sharing pool. Of the 40 per cent that is a profit-sharing pool, 10 per cent is applied to all staff on a per-head basis for those who have been at Argyle for two years or more.”

How did you arrive at those numbers?

“It arose from looking at a whole range of models and testing them financially using the two prior financial years and modelling them to see what it would look like. Of course, we wanted to achieve a balance between motivating the financial success and growth of the business and rewarding equity owners. It also recognises that some people no longer want to have equity, but nevertheless they contribute in substantial ways to the business. Likewise, with the profit pool, every member of the business contributes, hence the division of the 10 per cent of profit on a per-head basis.”

For other firms grappling with their model, what’s your advice?

“Be open and be transparent with a model that rewards contributing behaviour. People need to be able to see where and how they can fit in. With that comes honesty and with that can also come a greater collegiate environment, which is an important part of any business model because money only takes you so far. The rest of it has got to be that people actually like turning up to work.”

Argyle Lawyers has a penchant for tax work. Does this specialisation help in today’s competitive legal world?

“By staying at a high recognised technical level and combining this with a pursuit and effort for service, we maintain a highly valued charge rate and, therefore, have confident revenue objectives and profit targets. Our lawyer charge rates range from $250 to $1000 per hour. You cannot be something to everybody, unless you’re a sole practitioner or a collection of collegiate individuals in a small business where each person is effectively running their own business. Otherwise, you need to be specialists – at Argyle we are specialists.”

On other issues, we understand that you believe the death of the billable hour has been greatly exaggerated. Is that right?

“The billable hour is not dead; it’s never been dead. It’s absolutely necessary from a pure management perspective. If you have more than one fee earner or have any interest in measuring your business and the components that make it tick, you must measure billable hours. Whether or not you bill those billable hours is a different issue; how you set your billing model vis a vis clients is a different issue. Not only does the billable hour allow the business to measure and assess individual performance, but done correctly it can also allow an individual to measure and assess their own performance. They can identify what they’re doing well and what may be more efficient. You can’t do value billing unless you understand not only the value of your work to the client but also the value to you. The mistake that many lawyers face when engaged in so-called value billing is that it’s not value billing at all; they just engage in a price competition. They’re discounting their services so as to get the work. That’s not value billing.”

You have also welcomed the legal requirement imposed in the early 1990s for law firms to issue a retainer to clients and believe it is still a valuable tool. Why?

“I, like many of my statesmen brethren – or old lawyers – experienced the change and it was an absolute godsend because it forced us lawyers at the time to communicate. I have had occasions where, issuing a retainer, a client has said to me, ‘That sounds too cheap’. What it helped highlight was that I was identifying the work differently to how the client had identified it. I was giving an estimate for doing less work than they were expecting. Communication is a continual thing that we need to improve on – both internally and externally.”

What’s your view on the impact that technology will have on lawyers?

“Some people are predicting the demise of lawyers. I do not see this happening in the immediate future. Whether that transpires beyond a 20- or 30-year timeframe I don’t know, but for the present time, people deal with people. Clients are people and they want to have faith and confidence in a person. Technology should be all about assisting a lawyer in being able to provide the best service they can. Technology won’t replace the lawyer; it can only assist them. I shouldn’t reference someone as great as Einstein, but what he identified was that imagination is one of the key elements of success. Lawyers who have a good technical knowledge and skills but who also have imagination are the ones that can find and see new opportunities for clients. Technology can’t do that.”

Are there any other messages you would like to get across to your peers?

“I know my legal colleagues would agree with this point. As lawyers, we owe a debt to society.  Society exists because of law and we lawyers should in whatever way works individually for us contribute to society; that is an important part of being a lawyer. Whether that’s through pro bono work, being involved in consultative committees, through financial generosity and supporting charitable causes, that’s an important element of being a lawyer. And I see that from the country to the city.”

Argyle Lawyers is a Sydney-based firm that for more than 20 years has been advising prominent Australian listed and private companies, multinational companies, some of Australia’s best-known family groups and high-net-wealth individuals. Managing principal Peter Bobbin is one of Australia’s best-known speakers on taxation, estate planning, trusts and superannuation. He was the Tax Institute’s 2015 SME Tax Adviser of the Year.

www.argylelawyers.com.au