The entrance of global firms is driving a significant shake-up of the Australian legal sector.  But where do partners fit into the new market of rivalling, restructured and rebranded Australian law firms? Leanne Mezrani investigates.

If you like the idea of being a global partner, you’re in luck! 

The colossal law firms with thousands of lawyers, hundreds of partners and offices around the world want to plant their flags in Australia. UK firms, in particular, are salivating over our booming resources sector and our proximity to Asia.

Herbert Smith is the latest UK firm to hedge its bets on Australia in an effort to counter economic troubles back home. Boasting around 1300 lawyers, based in Europe, the Middle East and Asia, the global firm recently announced a full equity merger with Freehills that will take effect from 1 October this year. The marriage makes Freehills the fourth top-tier Australian law firm to form a global alliance, along with Allens, Mallesons and Blake Dawson.

Herbert Smith managing partner David Willis says the rush of UK firms forming alliances with Australian firms is leading to the swift consolidation of the legal market.

“The market for premium legal services will become increasingly dominated by a small number of truly global firms.

“This merger will therefore put us in a strong position to provide clients with the single global offering they increasingly demand.”

Another Brit to land on Australian shores with the hope of gaining greater exposure to the booming resources trade with Asia is Clifford Chance. When the merger with Sydney’s Chang Pistilli & Simmons and Perth’s Cochrane Lishman Carson Luscomben was announced in 2011, Clifford Chance managing partner David Childs said that Australia was becoming increasingly attractive as it was the second-largest market for outbound investment from China after the USA, and had emerged as the largest M&A market in the Asia-Pacific region over the last five years. 

The move appears to have paid off, with Clifford Chance posting a seven per cent increase in revenue to nearly $2 billion for 2011-12, with its Asia-Pacific arm growing by 28 per cent. 

“We are now part of a high-quality global network of over 3000 lawyers and many of our colleagues have a wide range of experience in different types of work and countries,” says Mark Pistilli, managing partner of Clifford Chance in Australia.

“Our partners draw on this expertise on a daily basis, refer clients to their colleagues in other continents, and offer Australian law advice to international clients of the firm in return.”

Partners in global firms also have the opportunity to take a leading role on a range of cross-border matters, he adds. 

“You are no longer the ‘Australian law firm’ on the deal, you’re part of the global firm driving the deal or arguing the case.”

Banking on it

Craig Burrows, head of Burrows Legal recruitment firm, agrees that many partners are attracted to the global model for these reasons. 

For corporate partners, particularly in banking and finance (B&F), greater access to multinationals, panel arrangements and tenders are big selling points. 

Burrows has observed “a lot of movement in banking and finance”, which is reflected in the recent partner appointments across firms. Almost one in three of 29 partner promotions made across a number of firms in late June were in B&F groups (Lawyers Weekly 587). 

B&F partners also rank highly among those being poached by global firms. Burrows says a greater focus by firms on nabbing B&F clients is driving this trend. 

The transportability of the practice is also a factor, Burrows continues, adding that globalisation of law firms has meant that certain practice areas simply don’t fit within the global model. Insurance is one of those practice areas, he says. 

For Allens, insurance was a practice area the firm appeared relieved to have lost to global firm Clyde & Co. The UK-headquartered firm recently poached six of Allens’ insurance partners for its new Sydney and Perth offices.

Michael Rose, chief executive partner of Allens, says the firm wants to concentrate on corporate work and complex and reputational litigation.

“We made the conscious decision to exit our insurance practice in Asia – the departure of a number of partners to Clyde & Co is the natural outworking of that.”

Rose adds that it is inevitable that firms, particularly the top tiers aligning with global firms, will continue to review and adjust their practice offerings.

“This is clearly now the reality in a rapidly-globalising legal market, and we have taken the opportunity to strategically shift our insurance practice to align more closely with Linklaters’ global practice, which focuses on high-end corporate and litigation work.”

John Edmond, group leader of Allens’ insurance and reinsurance practice, will be one of Clyde & Co’s new Sydney-based partners. He returns to Clyde & Co after a 14-year stint at Allens.

Aside from the phase-out of his standalone insurance practice, Edmond reveals that he left Allens because of an increase in conflicts that would see his insurance practice lose out to B&F work.

“We had a lot of approaches from insurer clients where we were simply being conflicted out,” he says.

“On a day-to-day basis that has an effect on your practice and frustrates client relationships ... that’s obviously not good for a sustainable business.”

Edmond believes Allens is not the only merged firm that will see a growing number of disenfranchised lawyers entertain offers from other firms.

Who’s got the power?

For those in the mid tier, or national firms with global aspirations, joining a giant like Clyde & Co is not always an attractive proposition, says Burrows. He has received feedback from clients who feel much of the voting by partners is little more than a formality in international firms.

“The power of impact is certainly an issue ... partners often don’t have the standing they did at a mid-tier or national firm when they move to a global.”

Burrows has observed a greater number of mid-tier firms acquiring partners from recently merged firms who want independent control over their practice.

Ivan Pignataro, director of First Law International, has observed the same trend, with the mid tiers bringing a pretty good deal to the table.

“The mid-tier firms offer lower overheads, good salaries, quality work and more personal service to clients,” he says.

While some partners simply want relief from high-billing pressures at the global firms, he adds.

“You have partners at different stages of their careers that look at the billing pressures and expectations of the global firms and they will decide to make the move to the upper mid tiers or even small top tiers like Corrs.”

Moving from a global to a national or mid-tier firm may appear to be a step down, but Corrs Chambers Wesgrath CEO John Denton disagrees. He argues that the definition of success is being redefined.

“Partners are still working out what success looks like,” he says. 

“People are told a global firm will provide a platform to the rest of the world – maybe it will – but partners also like to have control over their own destiny, in particular decisions about investment in clients.”

Denton adds that a number of partners he has recruited from merged firms cited a desire to maintain client relationships as the reason they made the move.

Interestingly, partner numbers at Corrs have fallen from 123 to 122 full-time equivalent partners since July 2011.

Of its 122 current partners, 22 are women – three of whom were promoted during the recent round of partner promotions.

Diverse strategies

Corrs is the only national law firm to publish a diversity policy compliant with ASX Corporate Governance Guidelines, even though the firm is not publicly listed, reveals Denton. The firm has set measurable objectives for achieving diversity, including targets for women in senior positions.

While Denton doesn’t like quotas because he believes in promotion on the basis of merit, he admits targets result in a “significant improvement in female representation in leadership ranks”. 

The globals are just as determined to boost female partner numbers. King & Wood Mallesons announced in July that it plans to lift its female partner ratio from the current 25 per cent to 30 per cent by 2015.

Clifford Chance has also set itself the target of achieving a 30 per cent female representation in its partnership globally, reveals Pistilli.

Gilbert + Tobin, with a female partner ratio that has nudged 40 per cent over the last few years, is viewed as the leading top-tier or large mid-tier firm with regard to the promotion of women.

Danny Gilbert, managing partner of Gilbert + Tobin, claims G+T is a meritocracy and does not have female quotas: “We promote and reward on the basis of merit and we haven’t seen it necessary to have a diversity policy.” 

He also claims the firm is a strong supporter of flexible working arrangements, which is attracting female lawyers at partner level.

Being viewed as a female-friendly, flexible firm is one way the nationals are competing for high-calibre partners, says Burrows.

“There will come a point where those firms that aren’t part of a global entity will have to differentiate themselves.”

And these firms will have to provide a “significantly better” proposition to what partners are getting at their current firm, he adds.

The good news for partners is that this fight for talent has led to comparable salaries between mid tiers, nationals and globals, according to Pignataro.

His view is supported by Hudson’s Legal Salary and Employment Insights 2012 report, which found that structural changes in the legal industry – as international firms seek to establish themselves in the local market and large Australian firms adjust their market positioning to align with them – are causing the gap in salaries between top-tier and upper mid-tier firms to narrow.

As partners at the top and upper-mid tier top up their salaries, the rumour mill continues as to which international firm will be next to land in Australia. 

But Denton warns that partners need to focus less on their firm and more on clients if they are to survive in the new globalised legal market.

He believes lawyers have become more internally focused since the recent spate of global mergers, adding that debates about firm structure are dominating the dialogue within the legal marketplace.

Clients are picking up on firm preoccupation with the merger activity and internal restructuring, he says. “Clients aren’t interested ... and they’re asking: does anyone care about us?”

What will these supposedly neglected clients think of our ‘global lawyer’? Will they still seek him/her out when the international firms lose the urge to merge? Only time will tell...