Nine international and interstate law firms have entered the WA market in the past two-and-a-half years and more are likely to follow. The industry is still debating what it really means.
Nine international and interstate law firms have entered the WA market in the past two-and-a-half years and more are likely to follow. The industry is still debating what it really means.
Most lawyers in Perth agree the industry is going through one of the most significant changes ever experienced, yet they also say their work has not changed much, if at all, as a result of the influx of international firms.
This paradox illustrates the strange times in the Perth legal market.
The question lawyers really struggle with is this: where will the industry be in three or five years?
Will Perth be more tightly integrated in global networks, or will the international firms shift their focus back to the larger northern hemisphere markets, as those economies recover, leaving Perth as a remote mining and energy outpost.
So far, the international firms are betting on Australia being a bigger part of their future – particularly Western Australia.
Eight international law firms have set up shop in Perth in recent years.
The first mover was English firm Norton Rose, which took over the Deacons practice in January 2010. Industry peers are almost unanimous in agreeing this move has been a big success.
Norton Rose was followed by four other UK firms – Clifford Chance, Allen & Overy, Holman Fenwick & Willan and Ashurst – and two US-based firms, DLA Piper and Squire Sanders.
Adding to the mix, was this year’s merger of Chinese firm King & Wood with blue-chip Australian firm Mallesons Stephen Jaques.
Sydney-based Gilbert + Tobin has also moved into WA, through its merger with West Perth firm Blakiston & Crabb.
In addition, the two large full-service firms that count Perth as their home have completed in-market mergers – Jackson McDonald absorbed corporate and commercial practice McKenzie Moncrieff and this year Lavan Legal took on Maxim Litigation Consultants.
Who’s next?
Arguably, all of these moves could be trumped by the next union, tipped to be between leading Australian firm Freehills and English ‘silver circle’ firm Herbert Smith; the two firms confirmed earlier this year they were having merger discussions.
With 26 partners and 192 legal staff in WA, Freehills has the largest legal practice in the state, according to WA Business News’ Book of Lists, and is one of the top firms nationally.
Interpeople director Chris Bates reckons a merger of these firms would be a powerful force.
“If they do merge, it would bring together the two strongest litigation teams on two continents,” he said.
A more pointed question asked by many lawyers is: who would come out on top?
Other UK firms that have been mentioned in merger discussions are ‘magic circle’ firms Linklaters and Freshfields.
How to respond?
Law firms in Perth are watching the evolving market with close interest but approaching the task in different ways.
Allens Arthur Robinson’s Perth practice leader, Andrew Pascoe, says the firm is not in a hurry to merge but has been in discussions.
“We’ve been having discussions with a range of firms,” he told WA Business News.
“We’re open to change but we will approach it in a cautious, deliberate and very considered manner.”
Mr Pascoe said Allens placed a high value on its own brand but would focus on what was best for its clients.
“They don’t want us to merge for the sake of it. They’re asking, how can we get access to the very best people?” he said.
Clayton Utz is still weighing up its options.
When asked to name his biggest challenge, Perth partner Peter Wiese replies candidly: “Working out whether we should be responding to what other firms are doing.
“You need to work out if you should do something and, if so, who you should do it with and how you should do it. They are all really difficult questions.”
Mr Wiese said Clayton Utz was having a lot of internal discussions around this topic.
“It is a major part of our planning,” he said.
He remains to be convinced a merger is the right path.
“Structurally, we don’t see the major Australian firms as being terribly attractive to the English or American firms,” he said.
“We are big firms and we have structures that aren’t necessarily compatible with theirs.
“For instance, big Australian firms tend to have a ‘lock-step’ remuneration structure. That is a fundamental commercial and cultural issue, it drives a lot of what we are about.”
Mr Wiese also remains curious about the motivation of the new firms, given their diverse approaches to the Australian market.
“What are the English firms really interested in?” he asks.
While some have taken over full-service Australian firms – Norton Rose took over Deacons and, more recently, Ashurst absorbed Blake Dawson – others like Clifford Chance and Allen & Overy have a much more-targeted approach.
Mr Pascoe is also struck by the lack of consistency.
“You look at the international firms that have come here and I don’t think you can find any two that have the same strategy,” he said.
“Each one has had its own unique approach.”
Recently merged King & Wood Mallesons certainly has a unique approach, blending a Chinese firm with a leading Australian firm but in a structure that allows the two to remain financially separate.
Perth partner-in-charge Michael Lundberg said this had avoided many of the issues faced in a normal merger.
“We haven’t been forced into an existing network, we’ve made a new one,” he said.
His colleague, Nicholas Creed, said the two firms wanted to “develop something ourselves that is distinctly Asian Australian”.
Norton’s track record
Norton Rose is one of the few international firms that has been in Australia long enough to get a track record, and Perth head of office Jenni Hill has no doubt of its success.
“We have been asked to tender, or have won jobs, that we previously may not have been asked to pitch for and certainly would not have got,” she told WA Business News.
”That’s largely a result of the international connection and the industry specialisation.
“And our ability to put together a cross-border team that has the right experience and skill set, in a way that Deacons just couldn’t.”
Ms Hill said a lot of planning had gone into the firm’s global strategy.
“One of the advantages we have is that our management team has been working on this for six years or so,” she said.
“The strategic imperative was to look at what our clients are doing and look at their capital flows.
“It means that we are uniquely placed because, rather than focusing simply on Asia, we have offices that no other Australian firm does. We have a strong presence in Africa, Canada, China and South America and that sets us apart.”
Ms Hill said another defining characteristic was the firm’s focus on six industry sectors, including mining commodities, energy, transport and financial institutions.
“So it’s not just a rebadging, it was us saying we are going to transform the business and be disciplined in our focus on those industries,” she said.
Rising competition
Mr Lundberg believes the market for legal services is getting both more segmented and more competitive.
“The competition for legal services is as tough as it’s ever been, particularly in Perth, where we’ve had all these new entrants,” he said.
“Is it affecting us and changing what we do? I think it’s going to heighten the competition and remind us not to be complacent.”
The firm’s response has included bringing in new partners, including interstate transfers and lateral hires, to bolster the Perth office.
“We’re providing more partners in the areas that our clients need them,” Mr Lundberg said.
Mr Wiese agreed the market was very competitive but said the main competition was from the established firms.
“We will have to wait and see if the branding exercise these firms are going through is truly important in this market,” he said.
“In terms of head to head competition, we would see Freehills as our biggest competitor and our most successful competitor.”
One of the defining traits of Freehills’ Perth practice is its success in servicing both major national and international clients as well as domestic WA clients.
Most of Freehills competitors seek the same kind of client profile.
Mr Wiese believes Clayton Utz has done better than most.
“We have retained our domestic practice because we are not driven so much from the east,” he said.
King & Wood Mallesons also emphasises the importance of its domestic clients.
“We don’t see ourselves as only operating in the international space and I think that differentiates us from the English firms,” partner Mr Creed said.
Allens is well known for its blue-chip client base, including Rio Tinto, but is also keen to extend its work beyond large multinational companies.
“There is a misconception that is all we do,” Mr Pascoe said. “Part of our strategy is to broaden our reach into the domestic resources companies.”
Resources focus
The energy and resources sector is the big attraction for international firms coming to Australia and it is also keeping Perth firms very busy.
The state of the local market is reflected in staffing levels, collated in the Book of Lists.
The number of partners at Perth’s 20 largest law firms totals 291, the most it has ever been (see graph).
The total number of legal professionals dropped during the GFC but has since risen to 1490, also the highest ever.
In contrast, the total number of staff at Perth’s 20 largest firms has not quite recovered to pre-GFC levels, suggesting the lawyers are working harder and smarter.
Mr Lundberg said King & Wood Mallesons, which currently has 17 partners, was planning for significant growth.
“We expect to have a 21-partner group by 2015,” he said
To support growth, the firm took on 14 graduates this year, making it the largest intake the firm has ever had.
Allens, with 12 partners, is also looking to expand.
“We feel we’ve got a lot of room to grow and take advantage of the opportunities in WA,” Mr Pascoe said.
The resources sector, both hard-rock mining and oil and gas, is the main driver for all major law firms in Perth.
Other practice areas, such as corporate, environment, native title and climate change, are harnessed to support the resources focus.
“They are critical to the execution of our broader strategy,” Mr Pascoe said.
Even litigation is tied back to the resources sector.
“There is a lot of resources-sector litigation work because there are so many large-scale projects and joint ventures, and disputes often arise on such matters,” Mr Lundberg said.
For most Perth law firms, resources work has an increasingly international flavour, as their clients develop projects in Africa, Latin America and Asia.
“Our partners are spending more time following clients into these regions to help them get projects going,” Mr Pascoe said.
Mr Creed said Perth also attracted offshore clients.
“Clients come to us from places like Indonesia and the Philippines because we have that mining expertise,” he said.
The war for talent
If competition for legal services is intense, the competition for good talent is equally so, though this is not seen as a new development.
“I’ve been here for 10 years and it’s been a constant battle to recruit and retain good talent,” Mr Pascoe said.
He believes the entry of international firms has not changed the equation because they had been recruiting in Perth before opening local offices.
However, there has been more competition from resources companies building up their in-house legal teams.
Interpeople’s Mr Bates said law firms had become much more involved in longer-term workforce planning.
“Another interesting trend is the increased willingness of law firms to look overseas for experienced lawyers,” he said.
Interpeople has opened a London office to tap into this trend.
Mr Creed believes Perth is becoming a more attractive destination for interstate and international lawyers. “It’s always a war for talent, but it’s become easier as Perth has become a more international and globally relevant place,” he said.
Once people are in the industry, Mr Wiese said they needed to understand what was ahead of them.
“Junior partners need to understand how critical their role is in building a market for the future and not just relying on work coming through the door,” he said. “That’s a consequence of competition. It’s an extremely competitive industry compared to even 10 years ago, there is a completely different mindset now.”
