#Auslaw issues

How well are we doing at exporting #Auslaw?

Finally, some years after the Australian Government first announced and then consigned to the dustbin its ‘Australia in the Asian Century‘ whitepaper, a fair amount is being written around the issue of exporting Australian professional – read, ‘legal‘ – services, including:

The Australian – ‘Service exports to Asia a $163bn opportunity‘ (subscription required),
The Australian – ‘Free trade opportunity knocks for services providers‘ (subscription required),
The College of Law website – ‘#AusLaw: Australian Legal Exports are Trending Globally‘ – from which the title of this blog post is derived, and
The Conversation – ‘Australia’s five pillar economy: services‘.

While it is undoubtable that the export of Australian legal and professional services is a trending issue on an upward trajectory, it is still probably a little early to say (as the College of Law post does) that “Australia is now trending on a global scale” (vis-à-vis the export of our professional services) – although, to be fair, the export of Australian lawyers (to which the College of Law would have a particular interest), particularly to the UK and New York, has been ongoing since the early 1980s and continues to this day.

Moreover, given that the Australian International Disputes Centre (AIDC) was established way back in 2010 (with the assistance of the Australian Government and the Government of the State of New South Wales) and still lags behind both the Singapore International Arbitration Centre and the Hong Kong International Arbitration Centre, the export of #Auslaw has undoubtedly been a slow burn.

So while I for one applaud the latest chatter around an impetus to export #Auslaw, I hope that this time we are serious and take the time to have a robust conversation about whether or not we wish to seriously promote (and lobby) the export of #Auslaw overseas. And, assuming we decide we do wish to progress with the export of #Auslaw overseas, we put in place concrete national plans to move this initiative forward rather than taking the lacklustre state-based approach we have to date.

National survey finds that there are 66,211 practising solicitors in Australia

The ‘2014 Law Society National Profile of Solicitors in Australia’ report was released this morning on the NSW Law Society website.

The first time this report has been updated since 2011, key findings include:

there are now 66,211 Practising Solicitors in Australia – a 12% increase since 2011.
of all practising solicitors in Australia:
- 34,10 (51.5%) were male, and
- 32,110 (48.5%) were female.

This represents a significant increase in the proportion of female solicitors since 2011 – when the percentage number ratios were 54.6% male to 43.4% female.

while the mean age of Australian solicitors has remained roughly the same at 41.9 years – compared to 42.0 years in 2011, interestingly the largest proportional growth age bracket is occurring in the over 65 years age group (with a 38% increase in this group since 2011).
as at October 2014, the majority of practising solicitors in Australia were private practitioners – 70.2%; with the percentage numbers in other major sectors of the profession in Australia remaining fairly static since 2011 – 15.8% were corporate solicitors and 9.6% worked in the government sector.

Most interestingly, while overall the Australian legal market remains represented by small practices – 2,155 firms (17.3% of the total) had 2 to 4 partner and 514 firms (4.1% of the total) had 5 to 10 partners:

there are now 77 law firms across Australia where the number of partners exceed 40 – representing a 300% increase from 2011, and
there are now 74 law firms across Australia where the number of partners range from 21 to 39 – representing a 111% increase from 2011.

In addition to potentially showing significant consolidation in the Australian legal market over the past three years (the overall percentage representative number of sole practitioners is actually down roughly 3% in 2014 from 2011), these numbers would appear to indicate that the slow death of large law firms, and the professional more generally, is being greatly over exaggerated in the Australian legal press.

Indeed, one could argue that now more than ever the market in Australia is highly competitive and that it is becoming increasingly important that you and your firm be able to communicate what differentiates you from the crowd.

If you haven’t already, I’d like to recommend that you take a look at the report – it contains some very interesting statistics; including, for the first time, statistics on the representation of Aboriginal and Torres Strait Islanders.

CommBank Legal Market Pulse report – Q3 2014/15

The third quarter (Q3) FY2015 edition of the CommBank Australian Legal Market Pulse Report (Report), with research conducted by Beaton Research + Consulting, has just been published.

As usual, the Report provides useful insights into the latest thinking of Australian law firm managing partners/leadership, as well as the trends and developments impacting on the Australian private practice legal industry sector.

Interesting outtakes from the latest edition of the Report include:

although short-term (next 12 months) economic confidence is fairly dire, the long-term (24 months+) outlook is very positive.
surprisingly, given the lack of confidence in short-term economic conditions, every single top-tier surveyed firm is forecasting higher revenue in the next six months. As Marc Totaro’s introduction covers, top-tier firms expect this [next six months] revenue growth to come from Europe, Asia and Sydney; but this paints a little too rosy a picture to me.
both top-tier (67%) and mid-tier (47%) firms anticipate seeing revenue growth coming from their employment teams.
insurance (60%) related work gets the nod as the expected highest revenue growth area for mid-tier firms. While the Report doesn’t elaborate on whether this is claims related or commercial work, the recent re-jig in the market – with insurance teams moving from the top end of town firms to mid-tier firms – must certainly account for some of this positivity. This is probably also reflected in the fact that top-tier firms surveyed forecast a fall in their insurance practice revenue over the next six months.
excepted revenue growth within taxation (50%) ranked higher than I would have guessed among top-tier firms; but maybe this is more reflective of the time of year (Q3).
one possible hidden indicator in the Report: mid-tier firms seem more optimistic about getting their hands on “construction, engineering and major infrastructure” (50%) work than top-tier firms – who don’t rank this area in their top 3 revenue growth practices. On the flip-side, clearly the recent M&A work in “IT, telecoms and media” (think 9 Network and iiNet) has been going to the top-end of town with 67% of top-tier firms expecting this practice area to be one of their highest growth areas.
top-tier firms forecast revenue growth in UK/Europe, Asia, Brisbane, Canberra, Melbourne and Sydney, but revenue in both Adelaide and Perth are predicted to contract.

The Report also provides forecasts on expected realisation rates (and if you thought these couldn’t possibly get any worse, think again), expenses* and outsourcing.

But, saving the best to last, probably the biggest shock the Report contains is the forecasted change in staffing; and, in particular, the bloodbath that is anticipated to take place within the partnership ranks of top-tier firms. And to be clear, a 33% and 67% forecasted decline in net proportion of equity and salaried partners respectively can only be described as a “bloodbath”!

As usual, I suggest you download and read the Report – it’ll make for an interesting weekend read.

* on a personal note, I see there is a forecasted 17% reduction in “Marketing and Business Development” expense by top-tier firms in the next six months. I can only hope that doesn’t come about.

Report: A snapshot of Asian Australian diversity in the Australian legal profession

Last night – Tuesday 14 April 2015 – saw the publication of “The Australian Legal Profession: A snapshot of Asian Australian diversity in 2015” (Report) an inaugural report prepared by the Asian Australian Lawyers Association.

At 8 pages, the Report is exactly what it says it is – a snapshot. Moreover, its a snapshot of the profession and doesn’t include information about the number of Asian Australians there are studying law at university (nor for that matter does it include in-house lawyer numbers).

Having said all that, in my opinion the infographic on page 4 of the Report tells a more compelling story than any 1,000 page report into diversity could.

Asking the question:

Is there a “bamboo ceiling”

the infographic details that:

While Asian Australians make up 9.6% of Australia’s population, Asian Australians account for a mere 3.1% of law firm partners (incredibly these numbers are actually worse for barristers and the judiciary). If that were not bad enough, 50 (yes, 50) “medium” (10-40 partners) and “large” (>40 partners) law firms in Australia have no (as in zero or “0”) Asian Australians in their partnership.

To be clear, this isn’t limited to female Asian Australian partners, but Asian Australians period.

While, by its own admission, limited by the nature of the subject matter – and there being relatively basic public material available -, thus great care needing to be taken in interpreting the data, I’m left asking: “how can this be?”.

And it is worth restating:

out of 97 ‘National’ and ‘International’ law firms in Australia, with collectively 4,100 partners, a mere 125 are identified as being Asian Australians.

In an era where almost every medium to large law firm in Australia is on record as [strategically] actively seeking work from the Asia Pacific Region, the findings in this Report are nothing short of bewildering and staggering.

However, as disappointing as the findings are, publication of the Report is nevertheless important if, as is hoped, it forms the start of “a constructive dialogue for the legal profession in Australia.” A dialogue that is clearly well overdue.

My only hope is that any future report extend the survey findings to include a breakdown of male and female Asian Australian law firm partners. Because, if anecdotal evidence from my own life is anything to go by, female Asian Australian law firm partners are a very rare breed indeed.

*Disclosure: As the proud husband of an Asian Australian lawyer and the father of an Asian Australian daughter, I have more than a vested interest in the subject matter of this post.

Pinsent Masons joins the #Auslaw party!

Some 15 months (December 2013) after Pinsent Masons initially appointed Maddocks ex-chief executive David Rennick to lead the firm’s review of growth opportunities in Australia, and three months after the vote to appoint John Cleland as new global managing partner that appears to have confirmed the firm’s stated international growth strategy , Pinsent Masons has, today, announced that it will launch a 5 partner led local Australian practice in May of this year with offices in Sydney and Melbourne that will initially focus on infrastructure related work.

Given the firm’s overall strength in infrastructure related work in Asia – partner-in-charge of Asia Ian Laing has significant PPP and PFI experience – a strategic focus in this area would appear to be sensible.

That said, Pinsent Masons decision to open here (with an as yet undeclared number of lawyers and support staff) does nothing to deter from the fact that the legal market in Australia is a very competitive and crowded one, a trend that is likely only going to increase with the growing interest of international brands – so the very best of luck to this firm going forward and welcome to the Auslaw party!

Aussie university legal education more relevant regionally than their British counter-parties

… or so says the Singapore Bar.

Following the delisting last week of eight British universities from the Singapore Bar’s approved list of institutions for admissions, questions have naturally been asked why law graduates from Australian universities were not getting the same treatment (where some universities have been “down graded” but not delisted).

Very sensibly, the answer appears to be around regional issues rather than historic ties; namely, the Singapore Bar is of the opinion that as a result of Britain’s membership in the European Union (EU), its universities are required to include EU law as compulsory modules in the awarding of LLB undergraduate degrees – and this, so says the Singapore Bar, has little relevance in the practice of a modern Singapore practice.

Moreover, UK unis don’t require compulsory modules in company law – a major negative.

All of which leads to the following damaging comment:

There is more commonality between Singapore law and Australian law, than between Singapore law and British law, even for statute law.

And so the only question remaining is how many Australian universities took note of the following quote from the report:

Thus, for parents and students who may not be confident of entry into the local law schools, it may not be a bad idea for them to consider the Temasek Polytechnic/Australian university route instead.

or indeed, have followed this story at all?

Q2 2014/15 CommBank Legal Market Pulse report

The CommBank Legal Market Pulse report for Quarter 2 2014/15, conducted by Beaton Research + Consulting, has been published. Providing useful insights into the latest trends and developments impacting on the Australian legal industry, this report has rapidly cemented itself as a staple among serious legal business developers in Australia.

Interesting outtakes from the latest report include:

unsurprisingly, given the continuing political uncertainty and falling commodity prices, many law firm leader believe there may well be a downturn in the broader economy over the next 12 months.
one in three firms are looking to expand geographically by opening new offices, with an emphasis on Perth, Brisbane and Canberra being the locations of choice. This is an interesting development as it had been the stated strategy of many firms in Australia for a long time not to expand outside of their geographic stronghold base. For example, for a long time HDY were only ever going to be a Sydney firm serving national clients. Now they have an office in Brisbane. Likewise for G&T (new offices in Melbourne and Perth). What I would be interested to find out though is how much of this expansion is self-driven and how much of it is been driven by major clients looking to rationalise the number of law firms they use? If that question was asked, I suspect we may find that this trend is more client-driven than firm-driven.
Asia at 89%, UK/EU at 67% and Brisbane at 52% are seen as being the geographic areas with the highest revenue growth expectations. Sorry but I find this nothing short of astonishing. Have any of these respondent law firms looked at how crowded the Brisbane and Asian legal markets are? And wasn’t it only a few months ago that PwC were reporting that return on equity for Asian law practices was the lowest globally (at somewhere in the 20% range). [that said, Clifford Chance did recently announce a desire to increase revenue in Asia by 25%]
expected changes in realised rates is a 1% (+) increase. Pathetic! Might I suggest the firms concerned consider not increasing their rates by 5-10% this year and instead concentrate on trying to get more than 80c in the $ in realised billing rates.
negotiating price with clients, at 81%, is seen as the biggest business challenge facing law firms. Here, I would hazard a guess that negotiating the price we want from our clients is probably the real business challenge as it would seem that price negotiations in law firms is a one way conversation at the moment.
the practice area with the highest revenue growth expectations is Government (at 55%). With the announced forthcoming closure of the Australian Government Solicitor potentially putting up for grabs around $111.3 million in revenue for private practice law firms, perceived growth in this sector shouldn’t be too surprising. What does remain to be seen is how much of this pie firms other than Clayton Utz (at 11% for 2013-14) can get their hands on.
54% of law firms surveyed believe revenue from “non-legal services” will increase over the next 2 years. While I was unable to find a definition of “non-legal services”, the relatively low (at 54%) number of law firm leaders who saw growth in revenue in this area does surprise me. This is especially so if services such as the recently launched Orbit by Corrs Chambers Westgarth is seeing as constituting “non legal services” (in that it is not core legal advisory work).
and finally, 70% of law firms see “recruiting partners and staff from competitors in the new location” as being the most likely method of geographic expansion, while only 30% saw this geographic expansion occurring as a result of a “merger with an existing firm” – so be on the lookout for 2015 being a very business year for lateral hires!

If you haven’t already done so, can I suggest you download a copy of the report. It really is an interest read.

Brief comment on LSG Article – “Australia: extracting value”

The [UK] Law Society Gazette’s published feature this week is an overview of developments in the Australian legal market following the recent entry by ‘northern hemisphere’ firms (Clifford Chance, Linklaters, Norton Rose, Herbert Smith, Bird & Bird, to name a few) by freelance writer Marialuisa Taddia (‘Australia: extracting value’).

While a useful high level overview of the market in Australia, those who live the market day-in, day-out are unlikely to learn anything of significance from the feature.

That said, one comment that did draw my attention, and which I thought was both worthy of sharing with you and commenting on, is by Juan Martinez – Managing Partner of HWL Ebsworth – who is quoted as saying that:

“We [HWL Ebsworth] don’t believe that the overall legal spend within Australia will grow in any material regard in the short to medium term,’

and going on to say:

‘Clients are becoming more cost-oriented, and procurement teams within our clients are becoming much more heavily involved in the selection of law firms. Accordingly, the only way that Australian firms will be able to grow revenues is by increasing their market share.’

What I found particularly interesting about Martinez’s comment was this:

“Accordingly, the only way that Australian firms will be able to grow revenues is by increasing their market share.” [underlined for purposes of my emphasis]

as this succinctly sets out the strategy HWL Ebsworth have had towards the lateral hiring of partners in recent years.

But, crucially, so far as I am concerned, the problem with Martinez’s comment is that:

as evidenced by Corrs Chambers Westgarth recent decision to establish outsourcing provider ‘Orbit’; it – namely increasing market share in Australia – is not the only way that Australian law firms will be able to grow revenue in 2015 if they are willing to look outside the box and consider other ways to monetize their services to clients (another example might be subscription newsletters?); and
although Martinez and HWL Ebsworth may well run a very tight ship on the cost side of the financial equation (and there would be nothing wrong with that as it would be prudent business practice to do so), revenue itself is not an indicator of profit and so growing revenue via increased market share (especially if this is being achieved through the means of lateral hires and new office openings) does not, in and of itself, equate to either a good or sensible approach to growth unless it is underpinning a wider strategic profitable purpose – for example, growth of client wallet from existing clients as opposed to growth of revenue from new clients where there may be an inbuilt acquisition.

Others, of course, are free to disagree with my view.

International trade of Australian legal and related services is now a billion-dollar industry

Last Monday (15 December 2014) saw the publication of the Law Council of Australia‘s ‘Fourth Legal and Related Services Export Survey‘.

Key findings from the Report – which relate to the FY2010-11 period – are fascinating, not least of which is that total income from exports and international activity of Australian legal services was $932.8 million.

Other stand-out findings include:

‘Asia’ remains Australia’s largest “regional” export market.
‘Asia’, as a region, contributed $320.5 million in total exports.
‘Asia’, as a region, is the only global region to have experienced continuous growth since FY2004-05.
Interestingly, the export of legal services to China and Hong Kong grew slower than the average growth rate (at 31.6%) – which is probably reflective of how mature this market is.
Export of legal services to China/HK amounted to $124.1 million – dropping from second largest export market to fourth. It is worth noting, however, that the China and Hong Kong market – in dollar ($) terms – still represented the largest by country in the Asia region.
Indonesia saw the biggest per cent increase in exports, up a whopping 115.2% (although the dollar sum is still fairly low at $8.1 million – and it remains to be seen in future reports if this was a transactional glitch or part of a growing trend).
Singapore saw 80% grow from $32.5 million to $73.1 million.
South East Asia (excluding Indonesia and Singapore – termed “Other South East Asia” in the Report) contributed $35.5 million to exports. Given what I blogged on Friday, SE Asia would now have to be considered one of the real growth prospects for Australian legal services going forward and this is indeed reflected in the Report which states that “South-East Asia has grown much more strongly than North Asia since FY2008-09 as a destination for exports of Australian legal and related services“.
Somewhat surprisingly to me; at $272.9 million, North America and Canada are the largest “single” export market for Australian legal and related services.

Another interesting number in the Report, given that FY2010-11 still represented a fairly youthful period for international firms in Australia (and its worth noting that K&L Gates didn’t open its doors in Australia till 2013) is that $150.3 million of the overall $932.8 million is represented by “billings from overseas offices of Australian practices“. Moreover, the value of fly-in/fly-out legal services actually fell during this period (from $52.9 million to $39 million).

One surprise in the Report was the relatively low dollar value of “Arbitration” related work (at $3.6 million); but this could be accounted for by the fact that this period (FY2010-11) pre-dates [2011] the Australian Government confirming the Australian Centre for International Commercial Arbitration (ACICA) as the sole default appointing authority competent to perform the arbitrator appointment functions under the amended International Arbitration Act 1974 (Cth) and concerted efforts by both the Commonwealth and New South Wales Governments to make Sydney a leading arbitration centre globally.

And for those of you who have ever wondered why so many international law firms have entered the Australian market in recent years I will end this post with a crunching number to mull over:

“The 10 largest national law firms exported $609m (65.3% of total market) of legal and related services in FY2010-11”

Does my law firm need an Asian strategy?

I go to a lot of meetings at which the state of the Asian* legal market is discussed during the course of a year. At a lot of these meetings, it is taken as a given that the relevant/respective law firm “needs” to either be in Asia, have an Asian strategy, or both. But, as is the case with a lot of prospect mining in this industry, short consideration seems to be given to the pitfalls of getting involved, and the most important strategic question of the lot:

“Why?”

as in:

“Why do we (as a firm) even want to be involved in the cutthroat market of Asia?”

is all but glossed over.

Keep in mind that most law firms won’t make money in their first few years of involvement in the region (and I should know, I have first-hand experience helping with the success of a start-up law firm that later became part of Clifford Chance). Indeed, some firms have been active in Asia for over a decade and still haven’t made any real money (and now exist on the principal that they have “a lot invested in the region”). And with a number of firms saying they want to grow revenue by 30 or so per cent year-on-year, if you do decide to get involved in the region then your firm’s commitment can easily and quickly translate into millions of dollars.

With all of this in mind then, it is important that your strategic reasons for being involved are more than simply a partner’s desire to live somewhere a little more exotic than cold, windy [insert name of city] or because you heard on your train ride to work this morning that XYZ company may give you a job in Rangoon at some unspecified time in the future.

More specific questions your firm needs to be asking include:

does the firm have short-term, medium-term and long-term strategic goals in place that will help measure whether your foray into the market has been a success?
has the firm identified which of your existing client base is active in the region?
do any of your firm’s clients have strategic growth plans for the Asian market?
are your firm’s potential clients in the region growth prospects, or are they mature players whose account you need to keep?
is your firm pursuing an aggressive acquisition policy or more conservative rear-guard protectionist policy?
how are looking to grow in Asia – lateral hires in the markets we want to be in (preferred method for South East Asia)? Or are we relocating partners from elsewhere into the jurisdiction (favoured method in Korea for example)?
what performance related metrics has the firm put in place to encourage its partners to be actively involved in the strategy (for example, is there cross-referral profit points?)?
what local issues will the firm need to include? – For example, how many law firms send lawyers to Asia without sending them on a cultural awareness or language program (in the same way as government departments do)? Why is that I wonder?
what are your competition currently doing/likely to do in the near future in the region? Importantly, do they have a chequebook that is likely to cause me considerable pain?

These are just some of the issues your firm should be thinking through if it wants to get involved in the potentially lucrative Asian market.

And the pot of gold at the end of the rainbow?

The Asia-Pacific legal services market had total revenues of $80.4bn in 2013
The Asia-Pacific legal services market enjoyed compound annual growth rate (CAGR) of 5.9% between 2009 and 2013
The Asia-Pacific legal services market is forecast to enjoy an compound annual growth rate (CAGR) of 7% for the five-year period 2013 – 2018
The monetary value of the Asia-Pacific legal services market is forecast to be $112.9bn by the end of 2018

Unsurprisingly then, you won’t be alone. There were approximately half a million active lawyers in the Asia-Pacific legal services market 2013.

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* It is critical, when looking at your “Asian” strategy, that you think of the whole of Asia – Indonesia; Korea; Myanmar; Malaysia; Philippines; Singapore; Thailand; Taiwan; Vietnam; as well as China. In other words, Asia is more than just China. If China is your market strategy, that’s fine but don’t call it an “Asian” strategy, call it a “China” strategy. Likewise, if ASEAN is your target market, call it an ASEAN strategy, not Asian.