Law Society Gazette

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

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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:

  1. 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
  2. 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.