Canadian Lawyer

w w w . C A N A D I A N L a w y e r m a g . c o m S e p t e m b e r 2 0 1 4 21 A basic example is the firm's requirement to have two signatures on any cheque over a certain amount. As firms grow, central management takes on many of the tasks individual law- yers, on their own or in smaller practices, usually do themselves, such as assessing client risk, scanning the client's identifica- tion, putting together the retainer letter, setting the retainer fee, and ensuring the client can pay the bill. Monthly and bi- monthly billing have also become more common. "All of that is taking responsi- bility away from the individual lawyer," observes Simon Chester, who has dealt with client issues during his 30 years on Bay Street, most recently as a partner at the now-defunct Heenan Blaikie LLP where, he emphasizes, of the problems that led to the firm's demise, risk manage- ment was not among them. He points out it is the individual law- yers who are regulated in Canada, not the law firms. That has changed in England, where firms have become regulated, and the conversation about regulating firms has begun in Canada. The current situa- tion means the onus is on the individual lawyer to manage his own risks, no mat- ter how large his or her firm is. Lawyers, he said, still need to be aware of how the business operates, the importance of cash flow and collection, along with being sen- sitive to write-offs. He encourages young lawyers and articling students to under- stand the impact of their work on billing and look at the hours and value of the time and how that is translated to the bill that is sent out. Clients, themselves, can pose a risk to the legal business. Like many firms, Torys LLP aims for a more thorough vetting process to ensure it takes on clients that pay their bills and don't have a record of launching malpractice suits, says the firm's risk management counsel Julia Hol- land. The goal is to achieve a comfort level where it has a client with which the firm wants to be associated and the type of work the client needs done fits with the goals of the firm. "Increasingly, firms are structuring themselves to address it through a more thorough process than they used to," she says. Clients, too, are more prepared. Some are now presenting outside counsel with guidelines, a document that could be upward of 50 pages and form the basis of the agreement. That, adds Holland, is something not seen even five years ago. Compliance and business risks aren't necessarily distinguished from each other, observes Karen Bell, who leads the education initiatives for McCarthy Tétrault LLP nationally and is respon- sible for developing and delivering a broadly based capabilities curriculum for lawyers and clients. In the 1990s, when the issues of technology and glo- balization were coming to the fore, Bell developed practicePRO, a risk and change management program for legal insurer LAWPRO, which continues to address the range of risk issues. "Every- thing connects," she says. "It all feeds into our clients' demands." And clients, she points out, are the ones who drive change. Since communication remains the No. 1 insurance risk, the arrange- ment between the client and the lawyer, including pricing, must be clear from the start. Failing at that, she warns, can put the health of the practice at risk. And the malpractice errors that occur in the profession don't really differ from small firms to large ones, adds Dan Pin- nington, LawPRO's vice president of claims prevention and stakeholder rela- tions — although the size of a large firm's claims tend to be larger. Communications, time, and deadline management represent nearly half of the claims for LawPRO, which insures 24,000 lawyers in Ontario. "Knowing and flagging limitation peri- ods and having a system . . . is key," says Pinnington. Firms are also being more diligent with signed retainers and con- firming client identification to prevent fraud, as well as investing in management technology. Thinklab Consulting Inc. is a B.C.- based consultancy that focuses on com- plicated industries, including law firms. Managing director Michael Litchfield, also director of the business law clinic at the University of Victoria Law School, says keeping a wary eye out for changes to the legal profession and preparing for them hasn't yet hit the radar for many law firms, although risk management has become a main area of focus for other businesses. "There's just not a lot of demand coming from law firms for this, but there should be, in my estimation," he says. Risk management has grown to become a multi-faceted component of strategic management and came to the fore in large part due to the failure of risk management systems in the collapse of Enron and BP's Deepwater Horizon oil spill. It's based on the premise that a properly planned and executed risk management strategy can identify proper resource allocation and mitigate negative impact unforeseen situations can have upon law firms. The framework includes establish- ing the context, risk identification, risk analysis, risk evaluation, and risk treat- ment. Like project management, risk management is organization specific. For Litchfield, a major pressing issue largely ignored by law firms is succession plan- ning — ensuring there is a plan in place when a lawyer suddenly leaves. Areas that typically require attention to mitigate risk include economic, political, regulatory, financial, human resources, reputational, strategic, and technological. From an economic perspective, Litch- field points to 2008, when market con- ditions — including commodity prices, macro-economic conditions such as infla- tion and tax treatment — indicated that real estate and the practice of real estate law was about to take a hit. Lawyers who included monitoring of those key mark- ers in their strategic planning would have been in the position to prepare for chang- es and make the necessary accommoda- tion to their practices. "It's an interesting area, an evolving field . . . that a lot of other business areas are embracing." Kowalski fully expects to see Cana- dian provinces start accepting outside investment or third-party investment into Canadian law firms within five to seven years. It's a discussion taking place at most law societies and is an integral part of the Canadian Bar Association's recently released Futures report. When it's adopt- ed, he says, the impact on existing firms is expected to be significant. "You're prob- ably going to have at least one province allowing outside investment and that's going to dramatically change the game," he says. And while that is expected to address some access to justice issues, lawyers who aren't prepared could well be impacted. "It will be a shock to some lawyers," he predicts.

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