#Auslaw issues

Foreign exchange woes hurt Australian arm of K&L Gates

Back in March 2013 I wrote a blog post on how foreign currency fluctuations were likely going to hurt international law firms with a presence in Australia, over the following 12-18 months, unless the firms hedged against this exposure.

Not wishing to be one who says “told you so”, but a report in today’s Australian newspaper (‘Exchange movements take their toll on global law firm K & L Gates‘ [subscription required to read whole article]) affords me the luxury of being able to say exactly that.

According to the article,

“[K&L Gates] global revenue increased by 9.3 per cent last year due to the merger with Australia’s Middletons…”

but,

“…things would have been much better had the US dollar not appreciated by 6.8 per cent relative to the Australian dollar…”

As the Australian sets out, it is largely thanks to the extraordinary level of financial transparency on the part of K&L Gates that we are able to ascertain the effect that currency fluctuations have had on the firm, and the firm should be highly commended for this.

That said, it is highly unlikely that K&L Gates will be the only international law firm with a presence in Australia that will be affected by this. Even firms who have to report in British Pounds or Euros, as opposed to US dollars, will likely have felt this effect on their balance sheets. The only real question is the level of effect it has had.

And the warning I put out there to the Australian partners of international firms largely remains in tact:

in order to keep your fellow partners happy in London, New York or Chicago, your Australian-based revenue will need to increase by approximately 10 to 20 per cent over the next 12 months for you just to standstill.

So before you agree to any increased revenue target budget, keep in mind the compound effect foreign currency movement are likely to have on your commitment.

Alternatively, you could get a commitment from your offshore partners that they refer work into you on which you can charge offshore currency rates – say US dollars; in which case, you could get away with working about 10 per cent less over the next 12 months.

And who said being a law firm partner was easy!

RWS_01

Which ‘top’ Australian law firms are struggling to enter Asia?

The headline of the lead-off item in Friday’s (8/8/2014) Global Legal Post was:

“Top Australian firms struggle to enter Asia”

Pretty strong stuff, made all the more so by the first line of the post, which reads:

“BigLaw Australia has been ‘bitterly disappointed’ at its limited success in entering Asian markets, according to business consultant Dr George Beaton.”

The post left me wondering:

which ‘top’ Australian law firms are they referring to?, and
is it fair to say that “BigLaw Australia” has been ‘bitterly disappointed’ at its limited success in entering the Asian markets?

So, over the weekend I decided to take a look at this more closely. And, for the purposes of the remainder of this post I have limited my research to:

independent ‘Australian’ law firms (i.e., not international firms with an Australian presence),
with a presence on the ground in Asia (i.e., not looking at firms’ informal or formal referral arrangements – such as Advoc Asia, Lex Mundi or PRAC, which will likely be the subject of a future post).

Also, in undertaking this I have used the most recent ‘Top 10 Independent Australian Law Firms by Revenue’ list I could find – in this case, complied by the excellent Yun Kriegler (aka @TheLawyerAsia) in her 30 June 2014 analysts post for The Lawyer ‘Australia: medium pace’.

So, here goes:

Top 10 Independent Australian Law Firm by revenue	Offices in Asia
1. Clayton Utz*	None
2. Allens**	Beijing, Hanoi, Ho Chi Minh City, Hong Kong, Jakarta, Port Moresby, Singapore, Ulaanbaatar
3. Minter Ellison***	Beijing, Hong Kong, Shanghai, Ulaanbaatar
4. Corrs Chambers Westgarth	None
5. Gadens	Singapore, Port Moresby
6. Gilbert & Tobin	None
7. HWL Ebsworth	None
8. Maddocks	None
9. Sparke Helmore	None
10. McCullough Robertson	None

* Clayton Utz hit the headlines earlier this year for scratching it’s HK association with Haley & Co. but I’m not sure this one incident is enough to warrant a headline like that above.

** Given Allens tie-up with Linklaters, it’s questionable how ‘independent’ the firm remains.

*** as far as I can see, Minter Ellison’s Asian offices are not financial integrated with the Australian operations.

——-

So,

7 out of the Top 10 Independent Australian Law Firms by revenue have no on the ground presence in Asia at all,
for 2 out of the 3 that do have on the ground presence in Asia, it is questionable how financially linked their Asian offices are to the Australian operations, and
out of the 7 that currently have no on the ground presence, only Clayton Utz looks like it has attempted to create any on the ground presence in the past few years.

Which essentially leaves Gadens, listed at #5 on the list, as the only independent Australian law firm with any on the ground representation in mainland Asia itself (Singapore, where it doesn’t appear to have a local Qualifying Foreign Law Practice (QFLP) licence).

Overall then I think it is fair to say that that top Australian laws firms have not struggled to enter Asia – because they are simply not there in the first place and many of them have not even made an attempt to be there!

Is it also fair to say then that:

“BigLaw Australia has been ‘bitterly disappointed’ at its limited success in entering Asian markets”?

I’m not sure, because when you look at the published strategy of leading independent Australian law firms there appears to be three different approaches being adopted:

First, firms who are aligning with referral groups, such as Lex Mundi mentioned above,
Second, firms who are working off informal referral arrangements with firms operating in the Region, and
Third, firms who have decided to stay 100% Australian and are not looking at Asia in any great way for future development.

And so the honest answer is that this will take further analysis.

Now, if we were looking at how happy global firms with an Australian presence were with their Asian operations, then this would be a completely different post!

RWS_01

‘Mark Brandon: UK law is focusing too much on the wrong things’ – A response from Australasia

Over the last weekend I (@RWS_01) got into a tweet exchange with the author of a recent good analysis post on the thelawyer.com – ‘UK law is focusing too much on the wrong things‘ – Mark Brandon (@MotiveLegal). As part of the exchange, I promised Mark a response to his article.

First off, as it has been some time since I worked directly in UK law, my reply to Mark’s post should be read from an Australasian perspective.

Second, in my reply I have used the same numbering and headings as Mark used in his original post.

So, here goes.

1. The mega-consolidators will struggle

I partially agree with Mark on this one.

If, as I think Mark suggests, law firms are merging simply to ‘purchase’ market share, then I generally agree with him. Likewise, if by ‘conglomerate’, Mark means ‘full service’, then I would also agree.

However, as someone who lives and works in an environment (#Auslaw) where there are roughly:

30 law firms,
who earn in excess of A$50 million per year in revenue,
with a population of approximately 23 million people,

then I have to say that the trend of consolidation seen in the sector over the past two to three years here will, and needs to, continue.

Will some of these mergers/consolidations result in regional (Asia-wide) mega-firms? Yes, I believe they will [and indeed, with the likes of King & Wood Mallesons, have].

Will these firms struggle? Some yes (most likely those who, as Mark suggests, have consolidated solely to purchase market share), but those who have the right strategy and culture in place, ie where the consolidation is done in consultation with clients, resulting in a more efficient and better service to the client – rather than solely for the financial benefit of the partners of the firms involved, will likely thrive.

Finally, I have to say that I disagree with Mark’s comment that:

“When it comes to law firms, there is such a thing as ‘too big’.”

2. Vereins are over (more…)

5 steps to take when your client becomes your biggest competitor

One of the more interesting take-outs from an article (‘The Rise of in-house counsel: What does this mean for law firms?‘) published on the Australasian Lawyer website today – on the rise of in-house counsel numbers in #Auslaw – is the following comment by Katherine Sampson – managing director of Mahlab Recruitment:

“It’s not necessarily that they’re [in-house] going to a competitor firm, but they are going in house…”

To me this statement rings alarm bells and reads:

“your client has just become your biggest competitor!”

So, what steps should you be taking when your client has also just become your biggest competitor for that work?

Here are 5 things you should be putting in place immediately:

(more…)

Demand for legal services in Australia is flat – so what can I do about it?

Yesterday’s [4 July 2014] Australian newspaper Legal Affairs section published an article – “Top-tier firms axe hundreds of jobs” (subscription required if you wish to read the full article) – that opened with the following paragraph:

THE nation’s biggest law firms are in the midst of an employment shake-out with hundreds of jobs disappearing as the firms slash costs in the face of flat demand and intense competition.

The point of this post is not to opine on whether or not demand for legal services in Australia is truly flat, nor whether indeed demand among, so-called, ‘top-tier’ firms is intense, which I’ll leave for another day, but rather to comment on whether or not such flat demand, and indeed intense competition, should lead to the loss of hundred of jobs.

First off, anyone who has a memory even slightly longer than a gold fish, will recall that most (if not all) international firms (of whom most make up this so-called ‘top-tier’ level here in Australia) who entered the Australian market post the GFC cited “flat demand” in their domestic jurisdictions, and the need to grow revenue from other jurisdictions, as a strategic reason for doing such.

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Leverage and the 10-20-30-40 Rule

Today’s Australian Financial Review Legal Affairs section has an interested article – ‘Junior lawyers bring in the money‘ – reporting what we all already essentially know: that law firms make their money from their junior lawyers.

What spiked my interest in the article was despite reporting the fact that “the conventional profit-driven pyramid model is still the dominant method adopted by most of Australia’s top-tier law firms” the percentages where the work is done has changed over time.

Early in my career we followed what was known as the 10-20-30-40 Rule, whereby [roughly]:

10% of a matter’s work was done at partner level,
20% of a matter’s work was done at senior associate level (there was no special counsel level in those days, but they would be included today),
30% of a matter’s work was done at associate and senior lawyer level (in times when there was a difference between an ‘associate’ and ‘lawyer’), and
40% of a matter’s work was done by the junior lawyers / trainees / graduates / paralegals (i.e., everyone else).

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