Australian
Law Firms
Invitation
to Internationalise
The author – Dr Stephen Moss, Chairman of Eaton Square,
is an international law firm advisor and strategic consultant. He has worked
with a number of Australian, UK, US and Asian based law firms on their
international strategy and introduced a number of mergers over his 25 year
track record in the legal services sector.
One thing is for certain: the legal services sector is in
the early stages of a seismic shift. Law firms that do nothing in the face of
this changing landscape, do so at their peril.
Let me describe the context of the changing international
face of this industry. First I will address the emerging segmentation of the
top end of the law firm market, then I will talk about some of the other forces
that are at play in this industry, forces that will change the sector forever.
There are two main segments emerging internationally, the
Global Elite and the International Business Law Firms. The Global Elite are
transaction focussed firms looking
to the Fortune Global 250 and comparable companies as their core client group.
Allen & Overy and Clifford Chance have entered the Australian market and
Linklaters will likely enter the market within the next 12 to 24 months. The
other segment is the International Business Law Firms who are focused on
building a capability in locations where the Global 500 have their headquarters,
hence their interest in all major and secondary jurisdictions globally. DLA
Piper and Norton Rose are examples of these firms. There are several more US
based international firms launching into this space, including Squire Sanders
who merged recently with the Minter Ellison Perth practice. To give a feel for
the market activity, there were 16 cross Atlantic mergers consummated in Q1
2011 alone with another 22 being openly discussed. These numbers do not account
for the more confidential discussions that are taking place. It is common
knowledge that each of the top 10 Australian firms have at least considered the
international situation they are facing. A number of these firms are actively
working on an international merger/combination strategy.
Other dynamics in the sector include:
- Larger Australian firms
have “no-where to go”, they have too many partners and “full service” is
no longer a valid strategy
- Australian firms choosing
an Asia only strategy face the very real danger of becoming an
undifferentiated generalist with attendant pressure on rates and margins
- New international entrants
are taking niche positions in selected countries
- Mergers of mid-tier firms
to target corporate base-load work are being considered
- New risk sharing pricing
and delivery models – pushed by clients
- Pressure on rates and
margins are growing from procurement processes – clients are less tolerant
of open ended fee arrangements
- New models of service
delivery are emerging, e.g. LPO and Advent Lawyers in Australian and Asia
and Axiom Legal in the US
- More buying decisions are
being made offshore
- There is an oversupply of
commodity lawyers both locally and globally, and
- There is significant
competition for top-end partners and talent.
I believe the “war for talent” in the industry is here to
stay. Whilst
at lateral levels candidates' decisions are largely based on reputation, work
and clients of the partner and practice area, the brand also impacts on the
quality of the lawyers who firms will be able to attract in the first instance.
The impact of the brand is most significant at graduate level where candidates
have yet to identify with individual partners or practice areas and therefore
focus almost solely on the brand in determining where to apply and where to
accept a job offer. Being within a large international brand will almost
certainly help firms to continue to attract the best and brightest to their
firm.
A major issue for Australian Managing
Partners and their firms in the future is the percentage of market share their
firm can retain in client spend and whether the overall growth in the market
will compensate for their loss of share. Firms operating in Asia as a major
focus will likely feel the pressure less, but they will also need to keep aware
of the changing commercial and competitive landscape they now work in. The commercial certainties to which law firms
have been used have gone: the rules of engagement are being re-written by
competition and a shifting international marketplace; clearly the relentless
pursuit of chargeable time and profit per partner is at risk, especially for
those firms unable to embrace change!
There is much to be won and lost in
this new legal services landscape. Firms
that embrace change, become more corporate and strategically disciplined and
remember that their clients are their reason for being, cross sell and remember
their fellow/sororal partners and move with the inevitable globalization of
their industry will likely be the winners.
I have heard a couple of firms describing the choice to go
with an international strategy as a “leap of faith,” I rather tend to see it as
the opportunity to take a “quantum leap”. The strategic drivers are aligned; business
is becoming more aligned to Asia, a natural fit with international firms
looking to Asia and a potential accelerator to strategic imperatives as a
business. There are clearly risks but I believe that Australian law
firms and groups of partners will continue to be of great interest to a number
international firms considering their Asia strategies.