At the recent Leading Edge Alliance Asia conference, a range of issues were discussed concerning the levels of remuneration partners at law and tax firms should reasonably be aiming for during their career.
That number – US$15 million. The figure, which was arrived at with broad consensus from firms throughout Asia and including China, India, ASEAN and Australia, was based upon expected partner earnings over a 15 year period, meaning that at partner level income needs to be an annual remuneration of around USD1 million plus – after tax. This amount included salary and bonus/dividend levels, acknowledged the high cost of children’s education (estimated at US$1 million per child up until completion of University), and was aimed at partners achieving a reasonable level of sustainable upper middle class income, with enough money to further invest on a personal basis to underpin income from the employing firm. Such a benchmark has been loosely adopted by most practices in Asia.
Other interesting trends also came from the conference:
* Salaries and even roles for expatriate partners in Asia are rapidly diminishing. Local language skills are now considered a pre-requisite. A large barrier to expatriates is the inability in many countries to become qualified in local laws. China is a good example of this. Salaries for expatriate professionals are in the main dropping, as returnees are filling their places. Fewer expatriates will ever be able to make partner level.
* Managing Partners of practices are not necessarily from the hardcore traditional professions and some are not from the profession at all. A move to Managing Partners with entrepreneurial skills, coupled with a deep knowledge of the industry, is now seen as a preferred model.
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* Partners are expected to retire early. Age 55 appears to be the benchmark. The stress of the position, especially for expatriates in Asia, is considered too high, and technology advancements mean older partners cannot keep up with required innovations needed to run the firm of the future. Partners are expected to have become personally financially independent by 55. Extending a career through consulting is acceptable, but playing an active daily management role is not.
* Family firms are on the way out. Todays CEO’s are not so tied to family practices as they once were. They expect firms to be modern, with high levels of infrastructure and automation as well as technical expertise and an ability to provide competitive rates. Firms with Government connections, especially in China, are being viewed with suspicion and in particular if those connections are used in marketing or in commercial access to contracts.
* The accounting profession is changing. It will absorb more legal type work, in addition to Asian strategy, technical professional skills such as TP, international tax and corporate finance. Traditional work such as bookkeeping and accounting is becoming automated. The average spend of a typical law or tax practice on IT has been 10 percent of revenues for the past two-three years. Firms that are not spending on technology to adapt will face extinction. The Big Four will swallow up the majority of audit work.
* International law & tax firms operating in Asia through local partners or via sub-contracting their work will die out. Increasing liability concerns and regulatory pressure from the U.S. will dictate that practices operating overseas will need to have been licensed by the local regulatory authority and not just rely on their U.S. or European credentials to survive. Firms marketing themselves under one brand but using two practices (such as a China WFOE and a local audit practice, or a U.S. law firm and a Chinese partner) will become increasingly subject to litigation. In short – international firms need to get local operating licenses and consolidate subsidiaries or relationships into Joint Ventures.
* Both HR and Succession Planning remain serious issues. Most firms struggle to find quality staff, and firms older than 15 years in age are facing succession planning issues. The majority of firms are not addressing this issue properly via use of professional specialists who may assist with recruitment.
Most firms operating today in Asia can be divided into one of two camps. The first are those that are run on traditional terms, with a patriarchal head and many family and business contacts that promote the practice as an extension of that individual. Often they are IT ignorant. These firms need to adapt, sell their client base, or face dwindling revenues and extinction.
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The others are those that are embracing IT and actively investing in it. A standard rate appears to be an amount of 10 percent of turnover, for about a three year period in order to offer clients advanced services in chosen areas of fast revenue growth. Smaller firms tend to buy off the shelf and then adapt; larger practices spend more time developing their own software. A future trend will be IT personnel as partners of the firm, and certainly within the required total headcount (to give an indication, Dezan Shira & Associates currently employs eleven full time IT engineers).
The other factor coming into play is that across Asia in both legal and tax professions, a large amount of consolidation is taking place. This can be expected to continue for the next five years, meaning even some well-known brands today will have been absorbed or otherwise become extinct.
Tomorrow’s piece will focus on Partner Retirement and Practice Pension plans for longer term employees and valuable individuals.
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Chris can be followed on Twitter at @CDE_Asia. Stay up to date with the latest business and investment trends in Asia by subscribing to our complimentary update service featuring news, commentary and regulatory insight.
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