Little change at the top

IF you took away the names of the leading law firms in Perth and focused on the numbers of lawyers, it would be hard to believe that the legal sector has participated in the dramatic changes in the Western Australian economy during the past decade.

At the beginning of 2001, the WA Business News ‘Book of Lists’ top 10 law firms between them had 930 legal practitioners, a term that includes partners at the top and law clerks at the bottom.

A decade later they had 966.

At partner level, there had been some change. In 2001 there were 216 partners across the top 10 firms, compared to 183 this year.

While this might suggest reasonable change in terms of the leverage applied across the market leaders – that is, the ratio between partners and their staff – a little local knowledge could even dispel that theory.

Perth’s leading firm, then and now, was in 2001 still going through the tail end of a merger process that started in 1997 with the amalgamation of east coast firm Freehill Hollingdale & Page, which had a small local office, with WA’s Parker & Parker to create a national partnership.

Parkers partners were, in effect, guaranteed their positions for the first few years. Clearly, in early 2001, the culling process had not been completed. If you snip 15 to 20 partners off Freehills’ 2001 ranking, the total numbers of the top 10 come closer to parity with 2011.

This is a striking similarity in an economy that has probably more than doubled in the same period.

Of course, not every story is in the numbers. The names have changed. Well, sort of.

Phillips Fox might have disappeared but much of the rump of that firm became Lavan Legal, which was created at about the mid-point of the period being reviewed.

Similarly, Deacons has since combined with UK-based Norton Rose.

That means 80 per cent of the top 10 remains much the same. The newcomers are Allens Arthur Robinson, which formerly had an alliance with Parkers and whose entry into the WA market was one catalyst for the Freehills merger.

HHG Legal has grown rapidly out of its Albany base to become a top 10 player by size. It has focused on the private client side of the legal market, often disregarded by national firms, which prefer the corporate sector.

HHG has edged out Corrs Chambers Westgarth, which just slips out of the 2011 top 10 with 14 partners but just 49 legal professionals, suggesting a leverage model more top heavy than most firms.

Analysis of the top firms shows that the average leverage (legal professionals per partner) across the top of the sector has changed over the decade to 5.8 from 4.4.

However, dialling that back to the sector top seven, which have all been in the top 10 for the past decade, and the leverage changes are less marked – rising from 4.5 to 5.1 in that period. For a number of firms the ratio has barely altered in that time, suggesting that they believe their model works. Furthermore, analysis of Book of Lists data from 2005 and 2008 shows that the ratios are similar to 2011, indicating much of the change took place in the first half of the past decade.

It is also worth noting, though, that the decade’s new entrants in the top 10 – HHG and AAR – are both more leveraged than their larger peers. It could be argued that is where the similarity between these two firms ends: AAR the national corporately focused major; HHG the regional operator aimed at the private market.

There is much debate in the legal world about the structures of leading firms in the future. Some firms are believed to be downsizing to eliminate unprofitable business units and make themselves more attractive as global merger partners.

It will be interesting to see if, in a decade’s time, there is a global player such as Clifford Chance or Allen & Overy on this list. Furthermore, it will also be intriguing to learn if their model is different from those with which they compete.