Firms must avoid drowning in a sea of irrelevancy

Partners are leaving, the ones staying are demanding reform, and clients are spending less. Beware of any legal leaders telling you their firm will ride out the storm, writes Justin Whealing

What we are currently seeing in the Australian legal market is unprecedented.

The traditional law firm model is under siege as firms grapple to hang onto their star performers, clients bristle at exorbitant hourly rates, lawyers grizzle about being judged by how much work they do every six minutes and global giants seek to knock-off established local firms.

If that wasn’t already giving law firm heads a headache, an Australian Corporate Lawyers Association survey released in May showed that in-house legal counsel had cut their average annual external spend by 20 per cent over the last three years.

Competition is now not just provided by new firms setting up shop, but by corporates keeping work inside because they believe its lawyers can do a better job.

News like that sees that managing partner headache morph into full-blown convulsions.

The reaction of law firm heads to these external and internal threats now will determine whether the good legal ship they steer will complete the journey intact, or indeed, survive the present storm or go under.

Over the last five years many of the strongest firms in the domestic market believed they needed a bigger ship to last the distance, even if that meant ceding command of the vessel.

Blue-chip local firms have traded in or altered their names with the hope that by hitching their star to one in the wider legal cosmos, they will not be left behind in a global marketplace.

Just look at what has happened to four of the “big six” over the past five years.

Blake Dawson is now Ashurst, while the domestic powerhouses of Freehills, Allens and Mallesons are all, to varying degrees, playing second fiddle in mergers or alliances with global suitors.

While each of those firms have now got international connections they did not have previously – the flipside is they all have a diminished presence in the local market.

What the proliferation of new firms (with Hogan Lovells the latest global behemoth to enter the Australian market) and old firms with new names, the previous rigidly structured “tiered” ranking of law firms has been rendered redundant.

A by-product of that is an erosion of the importance clients now attach to a law firm’s name.

A recent survey by Eaton Capital Partners of 34 managing partners in Australia found that law firm heads were pretty much split as to whether clients value personal relationships with partners more (42%) against law firm ‘brand’ and reputation (45%).

That is not surprising when you consider that the number and calibre of new entrants has seen partners hop between firms with the enthusiasm of previously staid couples being exposed to the Swingers scene for the first time.

Such partner pilfering no longer raises an eyebrow in these more transient times.

They might be spending less, but clients are becoming more loyal to lawyers than firms.

Leadership and flexibility

With the legal market in such a state of flux, new, small market entrants are having great success in winning large-scale work, often on the back of attracting big-name lawyers.

Hordes of young and old lawyers, including some who previously held management positions at large national or global firms, are knocking on the doors of boutique firms such as Hive Legal as they often champion flexible work options and a move away from hourly billing. Lawyers at such firms report a sense of belonging and worth that is often lacking within the strictures of the larger firms they cut their teeth at.

The more progressive national and global law firm heads have taken note and sought to offer a more personalised service to clients and a more collaborative and flexible working environment to its lawyers.

It has been gratifying to see the managing partners of some of the biggest law firms in Australia meet this year to discuss flexible work options and to devise strategies to increase the pitifully low numbers of female partners.

Being big should not and does not necessarily translate to being stubborn, inflexible and rooted in the past.

A handful of the world’s largest global law firms have realised this when entering the Australian market, and have structured their respective domestic strategies accordingly.

Global heavyweights such as Jones Day, Seyfarth Shaw and Clyde & Co have picked key battlegrounds on which to fight in Australia, with the result they are winning work from more established rivals on the back of specialist local knowledge and expertise, not because they have a network of international offices.
Think global, act local.

National firms like Gilbert + Tobin, Hall & Wilcox and Mills Oakley also continue to demonstrate that there is a place for well managed independent firms in the present climate.

Those three firms continue to pick-off leading partners from larger rivals.

What all this tells us is that essentially, size does not matter.

What is important is that law firm leaders offer a coherent and clear strategy which sees other firms want to be like you, and the best clients and lawyers want to be with you.

Relying on past glories and traditional ways of doing things will quickly cast your firm into the sea of irrelevancy – regardless of size.

Justin Whealing is an associate director with Eaton Capital Partners.

An edited extract of this article appeared in the Australian Financial Review on Friday 26 June