Q&A: Warren Kalinko – "One of the key aspects of our model is that our principals are earning 70 per cent of what they bill"

In this Q&A, Keypoint Law chief executive officer Warren Kalinko discusses how his firm has adapted a successful UK law practice model to the Australian market; why lawyers with portable practices are looking for new options; and the reasons why the firm does not take a dogmatic approach to the billable hour.

Keypoint Law has this year been named ‘Australian Boutique Law Firm of the Year’ at the Australasian Law Awards, and ‘Boutique Diversity Law Firm of the Year’ at the Lawyers Weekly Women in Law Awards. How has a firm that has been in the Australian market since just 2014 achieved such recognition?

“It is very encouraging. There are probably two reasons for the strong growth we’ve had during the past couple of years. The first is that the firm’s model is a good one. The second is that there is an appetite among law partners for change. So we have a story to tell that partners of firms are interested to hear. That’s driven a lot of the interest and growth that the firm has experienced.”

So you are saying that partners are looking for different options. Is that right?

“Yes, many are. Part of the underlying rationale behind Keypoint really comes out of the analysis of the question: ‘What do partners value in law firms?’ We’ve identified that there are three categories of things that partners value. The first is the infrastructure of a firm, including IT systems, professional indemnity insurance, secretarial support, the firm’s brand and all the back-office services that are necessary in a professional services firm. The second thing that partners value is colleagues with complementary expertise, and the teamwork and collegiality which come with that. And the third element is referred work.

However, we’ve observed that partners of conventional firms often make significant sacrifices to get access to those things. In many cases, they sacrifice most of what they bill; they lose much of the decision-making power over decisions affecting their practices; and they often sacrifice their work-life balance. So what’s driving a lot of the interest in Keypoint is that, like other firms, we provide the infrastructure, the colleagues and the referred work – but our principals are earning most of what they bill, they make the key business decisions affecting their practices, and they control their work-life balance.”

Can you tell us about your billing model?

“It’s common for partners in conventional firms to earn about 30 per cent of what they bill, with their firms finding a home for the remaining 70 per cent. One of the key aspects of our model is that our principals are earning 70 per cent of what they bill. So we are saying that a law firm can be structured and organised and aligned in a way which enables people to earn the lion’s share of what they bill – for the reward to be commensurate with the value created.”

How do you do that?

“We run a lean operation; we have low overheads. Our firm’s offices don’t have harbour views. We outsource services to third-party vendors if they can deliver more efficiently in areas such as IT and client meeting rooms and other facilities. We use technology that we’ve been fortunate enough to obtain from our UK firm, Keystone Law, which they’ve developed over many years. All of these things contribute to a much leaner law firm. We also have a purely performance-based remuneration structure under which our principals earn a high percentage of what they bill, which is why we only attract partners with portable practices or those willing to back themselves to create one.”

You mentioned that there is an appetite for change among partners in Australia. Can you explain more on this front?

“Until recently, there hasn’t been a huge amount of change in the offerings for partners with portable practices in the Australian profession. The UK market is quite different and partners have had more choice in that market, and we are very optimistic about presenting as one option for partners to consider our way of working and our model and to increase the choice that partners of portable practices have in Australia.”

That 70 per cent figure must make ears prick up?

“It does if they have a portable client following. Those that have a portable practice may ask themselves the question ‘What percentage do I earn here?’ and compare what they get to what they might get somewhere else. I think it’s a significant element, but it’s certainly not the only element.”

Pricing is a contentious issue for many law firm practices. How do you handle this area?

“We have a decentralised decision-making approach on pricing, which means that our principals are empowered to set the firm’s pricing for clients. That enables our principals to drive a very competitive offering which can generate more revenue than would be the case if our pricing was dictated centrally. We’ve had lawyers join the firm because their practices were finding it very hard to compete due to their pricing being set overseas without reference to the demands of the local market. The decentralised approach to decision-making and pricing is such that we are able to compete better, be agile and offer services that are tailored to clients’ needs.”

Where does that leave you in the debate around billable hours versus fixed fees?

“We’ve had the opportunity to approach legal practice with a fresh set of eyes. Keystone built the model from the ground up rather than inheriting an embedded approach to legal practice. We don’t have billable-hour targets for our lawyers, and we enable our lawyers to decide what the firm’s pricing should be for the clients that we service. Our view is that the person best placed to price our services is the lawyer with the client relationship because they understand the market in which the firm is operating and they understand the competition in that market. So we don’t dictate that you must bill on an hourly-rate basis. Equally, we don’t dictate that one shouldn’t bill on an hourly-rate basis. We don’t have a dogma one way or the other. Rather, it is about empowering our principals to tailor the firm’s offering to the circumstances at hand.”

It sounds as though your alliance with Keystone has been critical to your success? Have you made many tweaks to the model?

“We have continued to innovate with the model, but largely it’s the same, and that relationship has been very beneficial to us. Keystone pioneered this model of legal practice over a decade ago in the UK and it’s tried and tested. Keystone has now grown into quite a sizeable firm; it has got about 220 senior lawyers across the UK and we work very closely with them. We’ve been able to access their know-how and understand how to run a firm like this through the experience that they’ve had. Our clients are able to access the UK firm for UK legal services and the UK firm’s clients have been able to access Australian legal services through our firm. It’s been a very fortuitous relationship.”

Along the way, what have been the key challenges for your firm in Australia?

“The key challenge is being new and different. In the early days in Sydney we had a lot of people expressing interest in our model, but many were reticent to be an early adopter. We’ve seen that change significantly in Sydney, where we now have quite a large team. But in each new city we enter – we recently launched in Melbourne – it is about slowly building confidence in our firm in the same way as we did in Sydney. We’re now heading towards our third year in Sydney and we’re getting ourselves on corporate and government panels, we’re winning some awards and we’re building confidence and momentum. The challenge is to do the same in Melbourne and then we hope to enter the Brisbane market as well.”

As CEO of Keypoint, what management philosophies have held you in good stead?

“We have three key philosophies that drive our approach. The first is that we want to create a high-calibre law firm with talented senior lawyers providing high-quality legal services. The second is we want our firm to be inclusive, egalitarian and progressive. And finally we want our lawyers to be very well remunerated for the value they create. We try to reflect those three philosophies in all of the firm’s management.”

Apart from your experience as a commercial lawyer in private practice, you also have considerable experience courtesy of in-house counsel roles, including head of legal with the OneSteel businesses. How has your experience in the corporate sector been an advantage?

“There’s absolutely no doubt that one of the most significant features of the legal market in the past 10 or 20 years has been the power shift from law firms to in-house counsel and the way legal services are now procured. It’s driving a lot of the pressure being placed on law firms. I have been fortunate to have both a private practice and in-house background and it does enable me to wear two hats; that of the service provider and that of the customer. My experience as in-house counsel has definitely helped me form the conclusion that corporate clients generally want to be dealing with partners and they’re not particularly receptive to being pushed down to more junior lawyers who themselves may be on relatively high hourly rates. We’re fortunate that our model has been built for the times, in a way, because we’re offering our clients a senior partner-level service in a leaner operating environment, with the ability to tailor that offering to clients’ needs.”

Keypoint clearly identifies itself as a ‘new model’ firm. In an era of disruption, does this mean you see change as an opportunity rather than as something to be feared?

“That’s most certainly the case. We think partners are looking at their options very carefully and there is increased competition emerging for partners with portable practices and that’s an opportunity for a firm like ours.”

Are you worried about others coming into your space?

“I don’t think anyone can afford to be resting on their laurels no matter who they are, big or small. We don’t take anything for granted and the market for partners with portable practices is highly competitive. There are also lots of boutique firms being established by partners leaving larger firms, but I do think many boutiques are miniature versions of larger firms, just without the economies of scale. And they’re not really that different in terms of the way they are run and the model they operate. So I do think we are strongly differentiated from any of the boutiques that are popping up.”

You have worked with some good leaders in private practice and in the corporate world. What makes a good leader?

“My observation is that they tend to share two key traits. The first is a high level of personal integrity – you could trust them, they did what they said they would do, they led by example. And the second is their absolute commitment – both to their organisations and to the people in them. They demonstrated an absolute commitment to achieving the objectives of the organisations they were leading.”

How do you see the future playing out for your firm?

“We will continue to work really hard to grow our firm with talented senior lawyers and to focus on extending our Melbourne and Canberra offices and opening in Brisbane. We are committed to being a strong national firm, to growing organically with the right people, and to providing a wonderful alternative to sit alongside the traditional law firm offering.”

www.keypointlaw.com.au