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Order in the Court! A Report on British Columbia’s Legal Services Industry

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Samantha Walsh, Junior Analyst

Primus Business Information

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Order in the Court! A Report on British Columbia’s Legal Services Industry | 2

September 29th, 2013

“All Rise!” An introduction The legal services industry in British Columbia and Canada is currently situated at a historical crossroad. With a larger

number of students graduating from recognized legal university programs in Canada than ever before, accompanied by a steady increase in the demand for professional legal services across the country, the potential for future industry success is palpable. The current legal industry landscape is extremely competitive and saturated; therefore little information is needed to set a firm apart from its competitors. Though the current industry is extremely profitable and rather stable, numerous critical changes have occurred over the last decade. As in any other industry, the legal services industry faces growing pressure brought about by new technologies, globalization, demographic shifts, cautiousness since the last recession and various other new social movements.

Moving forward, firms must address upcoming industry challenges head on in order to remain ahead of the curve, sustainable and current in tomorrow’s society. Though British Columbia’s legal service industry is the third largest in Canada, its provincial Law Society is the only one that has not funded or published research on the future of the legal profession. The following report provides a snapshot of the current industry, analyzes key internal and external trends and provides recommended approaches for future actions to be taken by both small and large firms.

TABLE OF CONTENTS

“All Rise!”: An introduction 2

"The Deposition" Current Industry Snapshot 3

Industry Size 3 BC Jurisdictions: The legal industry geographically 3Error! Bookmark not defined. Economical Contributions 3 Major Competitors 4

"The Evidence": Trends and Changes in the Industry 4

Private Sector Stagnancy 4 Power to the People: Client Expectations and Tech Savvyness Climb Error! Bookmark not defined.

Bang for your Buck: Downwards Pressure on Legal Services Prices Continues 5 Supply > Demand : Excess Growth in the BC Marketplace 5

“Court Order”: Future Recomendations 6

David vs. Goliath: Virtual Firms take on the Seven Sisters 6 Is Bigger Really Better?: How Large Firms Can Remain Relevant 6

“Burden of Proof”: Reference List



“The Deposition”: Current Industry Snapshot Industry Size

Approximately 10,165 persons are employed within the legal industry, which represents less than half a percent of BC’s total

employment rate, (“Lawyers and Notaries” n.d.). 66% of

employees work full-‐time while 35% of employees are female.

The average full-‐time salary for an employee within this sector is

approximately 125,758 CAD$ per year. This small sector of the

workforce earns 88.7% more than the average BC worker

earns in one year (“Median Total Income by Province”,2012),

making the industry extremely attractive to today’s students who are willing to pay off an estimated 60 000$ worth of

student debt to attend a Canadian law school and secure

a future in this field. (“Law Tuition & Stifling Debt, 2012)

Economic Contribution

It is estimated that British Columbia’s legal firms make up 21% of nationwide industry production. However, since most large legal firms are based in several provinces, revenue recognition becomes difficult as many projects are worked on from various offices at once. BC’s legal industry’s profitability is growing at the same stagnant rate as its Canadian counterparts (below). The legal service industry is a rather steady industry in the province, as no large firms have migrated to or from the province in the last ten years. Inevitably, the industry was hit rather hard during the recession as shown below in the decrease in production between 2008 and 2009.

CANADIAN LEGAL SERVICES INDUSTRY INDICATORS Source: “Legal Services in Canada, 2013”

2007 2008 2009 2010 2011 2012

PRODUCTION (C$ MILLION) 13,573 14,507 14,117 15,134 15,428 16,134

PROFIT (C$ MILLION) 4,149 4,149 3,862 4,258 4,438 4,623

PROFIT MARGIN (%) 28.9 28.6 27.4 28.1 28.8 28.7

% INCREASE IN PRODUCTION -‐ 6.9 -‐2.7 7.2 1.9 4.6

BC Jurisdictions: Geographical spread of the industry

Over 60% of all legal service industry activity occurs in the Greater Vancouver Area (above.) This large disparity is likely due to the lack of legal offices and court buildings outside of Vancouver. The BC Legal Society as well as all of BC’s nationally recognized law schools are based in Vancouver as well. Nationally, British Columbia’s legal service industry is the third largest in Canada,

following Ontario and Quebec. (“2012 Annual Report-‐ Law Society of BC”, 2012)

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Legal Services BC Employment



Major Competitors

11% of legal practitioners work in Public Administration, 6% work in other offices such as non-profit organizations. British Columbia has a total of 2,614 sole practitioners practicing throughout the province. Larger firms within the professional business service sector provide the remaining 83% of legal services and compose an extremely competitive industry landscape. Highlights of the competitors include Borden Ladner Gervais LLP is Vancouver and Canada’s largest firm, employing over 750 lawyers in 6 major Canadian cities. McCarthy Tétrault LLP employs approximately 600 lawyers across the country and is second largest in terms of employees. Lastly, Clark Wilson LLP employs 80 lawyers and is based solely out of downtown Vancouver. Each of these firms provides a wide variety of legal services both nationally and internationally, specializing in various sectors as shown in the table below.

BC Firms, by number of lawyers employed

FIRM SPECIALIZATION # EMPLOYED PROVINCES/COUNTRIES

FASKEN MARTINEAU DUMOULIN LLP Business, Industry and Governmental Law 140 ON, AB, QC, USA

BORDEN LADNER GERVAIS LLP Business Law, Commercial Litigation, Intellectual Property Solutions

136 ON, BC, QC, AB

DAVIS LLP Tax, Forestry, Employment and Labor Law 110 BC

LAWSON LUNDELL LLP Mining, Corporate Finance, Securities Law, Mergers and Acquisitions

100 BC, AB, NW Territories

BULL HOUSER AND TUPPER LLP Infrastructure, Natural Resources, Real Estate, Aboriginal Law

100 BC, ON, AB, QC, Tokyo

(Source:” Lower Mainland Law Firms”, n.d)

The Evidence: Trends and Changes in the Industry Private Sector Stagnancy

A main concern for both employers and future employees lies in the lack of hiring capacity that many large law firms will likely experience in the upcoming years. The sector is expected to have a surplus of applicants for the amount of future available jobs. In addition to this bleak hiring outlook, 55% of firms do not plan to increase salaries in the next year. Explanations for this phenomenon include a shift towards legal outsourcing and larger corporations retaining their own legal counsel internally. However, 77% of corporate legal departments plan to raise salaries and 45% intend on hiring additional legal council. Additionally, BC has lagged behind other Canadian provinces legal and other professional services growth for the past decade (below), demonstrating the necessity for BC based firms’ expansion into other provinces across the country.

Source: (2010). Legal and Accounting Services: A Profile



Power to the People: Client Expectations and Tech-“Savvyness” Climb

With the growth of social media and consumers’ wide variety of choice in terms of law firms to choose from comes a larger set of client expectations. In today’s marketplace, consumers demand value, personalized services, greater involvement in the decision-‐making process and a thorough explanation of all possible alternatives when they are faced with any legal decision. This shift in power from the legal counsel to the client plays a role in various aspects of the legal transaction process, from payment structures to meeting locations now expected by the clients. (“The Future of Legal Services in Canada, n.d). Clients expect relationship-‐building processes that are tailored to their individual case. Additionally, social media and various other technologies are expected to be used throughout the process to solidify client-‐attorney relationships.

Bang for your Buck: Downwards Pressure on Legal Services Prices Continues

Effective July 13th, 2012, British Columbia’s registered paralegals were given permission by the Law Society of BC to provide additional services than previously permitted in hopes of making legal counsel more accessible and affordable to BC residents (“Paralegals” n.d.). This change in legislation has also led to a decrease in the amount that clients are willing to pay for legal counsel on a case as clients continue to pressure firms for greater value. Clients are less willing to pay top dollar for services that a paralegal can now provide at a fraction of the cost. Moreover, there is an increasing demand for a reduction of law firms’ typical “billable hours” payment scheme and a movement towards alternative fee arrangements (AFAs). These pressures are forcing even the most prestigious firms in the Lower Mainland to re-‐evaluate their pricing models and look into cheaper alternatives (“The Future of Legal Services in Canada, n.d).

Supply > Demand: Excess Growth in the BC Marketplace Lastly, as touched upon earlier, the number of graduating law students in BC is growing at a rate that is 5 times faster than the population growth of the province (“The Future of Legal Services in Canada, n.d), most of whom intend to practice law in the Lower Mainland. This is partially due to the fact that law school vacancies are escalating quicker than the industry growth for the sector as a whole. In addition, the number of paralegals and alternative legal services that are available to the general public are on the rise. In particular, accountants and consultants have begun to provide services that legal practitioners had worked on in the past. Areas such as intellectual property, international trade, privacy and electronic law are expected to face greater demand in the future, however, online alternatives to seeking face to face legal advice is expected to lead to a more educated public who are less in need of an abundance of legal services.

Causes for Concern: Visual Recap

Private Sector Stagnancy

Client Expectations

Willingness to Pay

Workforce Supply



“Court Order”: Future Recommendations

David vs. Goliath: Virtual Firms Take On the Seven Sisters?

In today’s digital world with wireless connectivity, laptops, smartphone technology and cloud computing, the future for virtual law firms is bright. Clients expect accessible service around the clock and often at locations that suit their busy schedules. Furthermore, associates have a strong desire for greater work life balance; particularly in such a competitive and time-‐consuming industry where a typical workweek often consists of over 70 hours. Firms must consider these client and employee demands, as industry turnover is on a steady of 5% rise per year. This issue is deeply connected to British Columbians who pride themselves on enjoying life more so than many eastern provinces. Online capabilities and processes have allowed small firms in BC such as Valkyrie Law Group to earn profits that make small to medium sized firms green with envy (“The Real World of Virtual Law Firms”2010). Virtual firms allow for lowering turnover, overhead costs and firm inefficiencies. Telecommuting and virtual meeting spaces are on the rise, and small firms would be well advised to embrace this trend with the creation of a virtual law firm division where clients and legal counsel meet online or at various mobile locations rather than in the confines of a more traditional legal office setting.

Is Bigger Really Better? : How Large Firms Can Stay Relevant

Large law firms in British Columbia have taken a beating over the past decade (see Private Sector Stagnancy). Clients’ decreasing willingness to pay for legal services has led to the rise of smaller virtual law firms, which is making larger firms rethink their value propositions. Research suggests that the end for BC’s largest firms is not as near as it seems for firms that merge with national and international competitors. (“The Future of the Legal Profession in Canada”, 2013). Only two firms out of BC’s top five firms already have international reach. Another option for larger firms who do not have the resources to compete internationally is to affiliate themselves with other firms. This provides visibility and prestige for the firm both in BC and abroad, while providing both affiliating firms a wealth of knowledge about both industries and acts as a dry run for a future official merger.

In addition, large law firms in other Canadian provinces have begun the practice of establishing multi-‐disciplinary law firms (MDPs). These firms employ partners who do not have common or civil law degrees but rather have another professional designation (often in accounting or real estate.) According to the BC Legal Society, no applications for such firms have been thus far (“Multi-‐Disciplinary Practice”, 2011.) Establishing new multi-‐disciplinary sectors of law firms should be taken into consideration in order to provide clients with complete services including financing, insuring, real estate or other planning strategies from both a legal and industry perspective. Before implementing this decision, it is imperative to consider the pros and cons listed below as this strategy will not be ideal for all law firms.

PROS CONS

PROVIDES A VARIETY OF CLIENT SERVICES IN ONE POTENTIAL CONFLICTS OF INTEREST

INDUSTRY EXPERT HELP AVAILABLE IN HOUSE POTENTIAL SELF-‐GOVERNANCE OF THE PROFESSION

POTENTIAL EXPANSION INTO INDUSTRIES THAT WERE PREVIOUSLY INACCESSIBLE

MORE DIFFICULT TO ENSURE CLIENT-‐ATTORNEY CONFIDENTIALITY

FIRST MOVER ADVANTAGE FOR ALL FIRMS IN BC MORE DIFFICULT TO AVOID OF THE NON-‐AUTHORIZED PRACTICE OF LAW

OFFERS AN INSIDE LOOK INTO MANY PROFESSIONS, TRADES AND OCCUPATIONS

CERTAIN FORMS OF MDP ARE NOT COMPATIBLE WITH CERTAIN FORMS OF LEGAL PRACTICE

“The virtual model was primarily driven by the economics of it and the desire for autonomy and flexibility — all of us wanted to work from home (and knew) what would be the most cost effective for clients.”

-‐Pam Jefcoat, Valkyrie Law Group, Vancouver, BC



“Burden of Proof”: Reference List

2012 Annual Report. (2012) Law Society of British Columbia. Retrieved September 18, 2013, from

www.lawsociety.bc.ca/docs/publications/ar/2012-AnnualReport.pdf Business in Vancouver. (n.d.). Lower Mainland Law Firms. Business in Vancouver. Retrieved September 29, 2013, from

http://www.biv.com/article/20120605/BIV050102/120609986/-1/BIV/biggest-law-firms-in-the-lower-mainland-in-2012

Lawyers and Notaries. (n.d.). WorkBC. Retrieved September 29, 2013, from

http://www.workbc.ca/Careers/Career-Profiles/Pages/Lawyers-and-Quebec-Notaries-4112-page4.aspx Legal Services in Canada (2013).Passport, 7411. Retrieved September 18, 2013, from

http://www.portal.euromonitor.com.ezproxy.library.ubc.ca/Portal/Pages/Search/SearchResultsList.aspx

Median total income by province. (2012, June 27). Statistics Canada. Retrieved September 29, 2013, from http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/famil108a-eng.htm

Multi-Disciplinary Practice . (2011, January 9). The Law Society of British Columbia. Retrieved September 20, 2013,

from http://www.lawsociety.bc.ca/page.cfm?cid=2111 Paralegals. (n.d.). The Law Society of British Columbia. Retrieved September 29, 2013, from

http://www.lawsociety.bc.ca/page.cfm?cid=2582 Ruben, S. (2012, July 25). Law Tuition and Stifling Debt. Lexpert. Retrieved September 27, 2013, from

http://www.lexpert.ca/Student/articleview/ballooning-law-school-tuition-means-stifling-debt-131/ Rosborough, P. (n.d.). Legal and Accounting Services: A Profile. Statistics Canada. Retrieved September 29, 2013,

from http://www.statcan.gc.ca/pub/11-621-m/11-621-m2009083-eng.htm The Future of the Legal Profession in Canada. (2013, January 1). CBA Legal Futures Initiative. Retrieved September

21, 2013, from www.cbafutures.org/CBA/media/mediafiles/PDF/Reports/Future-of-the-profession- eng.pdf?ext=.pdf

The Future of Legal Services in Canada. (n.d.). CBA Legal Futures Initiative. Retrieved September 8, 2013, from

www.cbafutures.org/CBA/media/mediafiles/PDF/Reports/trends-isssues-eng.pdf?ext=.pdf The Real World of Virtual Law Firms. (2010, January 9). The Law Society of British Columbia. Retrieved September

29, 2013, from http://www.lawsociety.bc.ca/page.cfm?cid=162&t=The-real-world-of-virtual-law-firms

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