Australasia’s largest firms had a good start to the 2007–08 financial year, but halfway through the year clouds started to gather when it became evident that the effects of the subprime mortgage crisis in the US would spread across the globe. Managing partners, however, have remained stoically optimistic and have the figures to back it up
“Capitalism without financial failure is not capitalism at all, but a kind of socialism for the rich,” wrote James Grant, editor of Grant’s Interest Rate Observer, in an opinion article in The New York Times at the end of 2007. He made the comment in an article that criticised the US Federal Reserve Bank’s policy of lowering interest rates to avoid deflation at all costs, which he felt contributed to the subprime crisis having such a severe impact on the US economy.
Grant argued that downturns in economic cycles are necessary to return to healthy borrowing and lending patterns, and thus to a healthy economy. Inevitable as it might be, it does mean that many economies across the globe are currently faced with the realities of reduced liquidity in the markets.
From the second half of the financial year 2007–08, Australasian law firms started to feel the effects of the global liquidity shortage in their banking and finance practices, and, to a lesser degree, in their M&A practices, where fewer deals have been taken to the table. “There certainly are a lot of corporate transactions that are waiting for the go-ahead once there is more stability in the market,” says David Fagan, chief executive partner of Clayton Utz. His colleague in New Zealand, CEO Gary McDiarmid of Russell McVeagh, agrees. “M&A work is very quiet; anyone that says differently is delusional.”
But as the economy slows down, the number of businesses that get into problems increases, which leads to more work for a firm’s insolvency and restructuring practice. Therefore, for many firms the change in the economic climate has meant a shift in the type of work. “If you have styled your firm around one type of work, you lose out in the shift that has taken place,” says Robert Milliner, chief executive partner of Mallesons Stephen Jaques. “For law firms on the sophisticated end of the market, a recession means more work because a lot of things need to be sorted out.”
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Australasia’s 30 largest firms
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Rank
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Firm
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Total lawyers/ partners
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Country of origin
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Managing partner/CEO
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Total lawyers
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Total partners
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No of offices Australia
|
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1
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Minter Ellison
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1031
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Australia
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Guy Templeton
|
764
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267
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10
|
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2
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Mallesons Stephen Jaques
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949
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Australia
|
Robert Milliner
|
770
|
179
|
5
|
|
3
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Clayton Utz
|
867
|
Australia
|
David Fagan
|
643
|
224
|
6
|
|
4
|
Freehills*
|
832
|
Australia
|
Gavin Bell
|
619
|
213
|
4
|
|
5
|
Allens Arthur Robinson
|
797
|
Australia
|
Michael Rose
|
627
|
170
|
4
|
|
6
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DLA Phillips Fox
|
779
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Australia
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Tony Crawford
|
619
|
160
|
8
|
|
7
|
Blake Dawson*
|
768
|
Australia
|
John Atkin
|
590
|
178
|
5
|
|
8
|
Corrs Chambers Westgarth
|
524
|
Australia
|
John Denton
|
408
|
116
|
5
|
|
9
|
Deacons
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472
|
Hong Kong
|
Don Boyd
|
262
|
210
|
5
|
|
10
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Australian Government Solicitor
|
391
|
Australia
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Rayne de Gruchy
|
391
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n/a
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8
|
|
11
|
Gadens
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368
|
Australia
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Ian Clarke
|
237
|
112
|
6
|
|
12
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Baker & McKenzie Australia
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315
|
US
|
Mark Chapple
|
209
|
84
|
2
|
|
13
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Sparke Helmore
|
298
|
Australia
|
John Davis
|
240
|
58
|
8
|
|
14
|
Middletons
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289
|
Australia
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Nick Nichola
|
230
|
59
|
2
|
|
15
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Russell McVeagh
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271
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New Zealand
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Gary McDiarmid
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227
|
44
|
2
|
|
16
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HWL Ebsworth Lawyers
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263
|
Australia
|
Juan Martinez
|
165
|
98
|
7
|
|
17
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Simpson Grierson
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245
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New Zealand
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Rob Fisher
|
197
|
48
|
2
|
|
18
|
Hunt & Hunt
|
229
|
Australia
|
Maureen Peatman
|
156
|
73
|
10
|
|
19
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Bell Gully
|
223
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New Zealand
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Roger Partridge
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180
|
43
|
2
|
|
20
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Chapman Tripp
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211
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New Zealand
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Andrew Poole, Mark Reese
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160
|
51
|
3
|
|
21
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Dibbs Abbott Stillman
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211
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Australia
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Alan McArthur, Duncan Hart
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141
|
70
|
5
|
|
22
|
Maddocks
|
196
|
Australia
|
David Rennick
|
146
|
50
|
2
|
|
23
|
Henry Davis York
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178
|
Australia
|
Sharon Cook
|
130
|
48
|
1
|
|
24
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McCullough Robertson
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170
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Australia
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Brett Heading
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135
|
35
|
1
|
|
25
|
Gilbert + Tobin
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160
|
Australia
|
Danny Gilbert
|
108
|
52
|
1
|
|
26
|
Holding Redlich
|
156
|
Australia
|
Chris Lovell
|
112
|
44
|
3
|
|
27
|
Kensington Swan
|
153
|
New Zealand
|
Chris Heilbronn
|
111
|
39
|
2
|
|
28
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Buddle Findlay
|
144
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New Zealand
|
Peter Chemis
|
107
|
37
|
3
|
|
29
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Moray & Agnew
|
144
|
Australia
|
Michael Pitt
|
91
|
53
|
5
|
|
30
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Piper Alderman
|
143
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Australia
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Gordon Grieve
|
92
|
51
|
4
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* Freehills, Blake Dawson: FTEs submitted
Note: This table does not purport to be exhaustive. Figures are provided by the firms themselves and are accurate to June 2008. Where firms are unable to supply figures, websites have been used
Firms and figures
Mallesons is one of the Big Six firms that have done well, reporting revenue growth of 10.7%. The firm is closely followed by Clayton Utz, which reported an increase of 9% in revenues, but top gong goes to Blake Dawson which realised an increase of 11.9%.
Although Minter Ellison is the largest law firm by total lawyer and partner numbers, it came in as the fourth largest firm by revenues. Last year it was in third place but had to step down in favour of Clayton Utz, whose consistently solid performance has placed it in the top three this year.
Other remarkable performers were Gilbert + Tobin, which revealed a revenue increase of 14.9%, and Baker & McKenzie, which posted top line revenue growth of 13.2%. Meanwhile, in the mid-sized segment of the market, Holding Redlich (+20.4%) and Maddocks (+17.1%) stood out.
On the other side of the spectrum we find the Australian Government Solicitor, which saw income increasing by just 1.8%, while Thomson Playford achieved only 1.1% growth. The worst performer in the ALB revenues table, however, is TressCox, which reported a meagre 0.5% increase in revenues.
New Zealand’s secrets
Many firms in New Zealand have a financial year that corresponds with the calendar year and, therefore, they are halfway through their financial year. In 2007, Bell Gully broke through the NZ$100m mark, says the firm’s CEO, Stephen Macliver. “We have comfortably exceeded 100 million dollars for the first year ever. It was a significant double-digit uplift on 2006.”
Macliver did not want to specify by how much the firm has broken the mark, but in the New Zealand tradition his remarks are already generous. While in many countries law firms are moving towards more transparency, with the UK leading the way by publishing profits per partner, most firms in New Zealand don’t reveal any financial details and, instead, claim every year to have realised another record year of growth. The reason for this shyness seems to have been lost in the catacombs of tradition. “There hasn’t been a history of, or demand for, disclosure of this specific financial information,” offers Macliver.
International expansion
For future revenue growth, many law firms rely on expanding the share of work that comes in from outside national boundaries. Mallesons’ Robert Milliner expects the highest growth to come from the Asia region. “Growth in Australia will be moderate, as opposed to high growth in Asia,” he says. But despite the opportunities there, he is not looking for hasty expansion. “It’s not a question of having dots on a map; we want to build solid offices and do things that we do really well. Our priority is to build up the Beijing and Shanghai offices to the same level as our Hong Kong office.”
Australian law firms have taken different views on the best way to reel in international advisory work. On one hand there are firms such as Mallesons and Minters that which have set up extensive networks of offices in the Asia-Pacific region. On the other hand there are firms that favour law firm alliances, such as Clayton Utz which is the Lex Mundi member for Australia. Interestingly, it doesn’t seem to matter which approach is taken as the share of revenue coming from cross-border work is roughly the same. All of the firms mentioned above estimate that the percentage of revenue coming from offshore activities amounts to 10%.
“Each firm has their own strategy that they are pursuing and different people have different views on what works best,” says David Fagan. “For us, the approach we’ve taken is quite successful. We’ve committed a lot to our regional offices. For example, our Perth office will grow this year by about 18% to A$45m in revenues. In the last three years, our Brisbane office has doubled in size and this year we expect the office to contribute about A$80m. There are not many firms in our area that have significant offices in Perth and Brisbane.”
Clayton Utz might not have offices in Asia, but it does have partners on the ground there, sometimes for extended periods of time. “We have had a number of lawyers and partners based in Taipei for the last five years, working on the Taiwan high-speed rail project. We have a large power project in Vietnam and we’ve been running litigation in Kazakhstan; it ranges all across the globe.” Fagan says the decision not to set up offices in these jurisdictions is largely explained by cost control. “You can have an offshore office that wouldn’t even contribute A$50m and you pay a lot of costs to service that office.”
For many law firms 2007–08 has been another good year in terms of revenue growth and this seems to justify the unabated optimism of law firm managing partners. But there is a catch to continued good conditions, warns James Grant in his before-mentioned opinion piece. “People get carried away, prices go too high and economic resources go where they shouldn’t.” Let’s hope that the legal industry is the proverbial exception to the rule.
David Fagan – Clayton Utz
Clayton Utz is set to post revenue growth of 9% this financial year, an increase to A$470m and another strong result after last year’s 11% increase. “It’s a year of two halves,” says David Fagan, chief executive partner of Clayton Utz. “Up to December, it was a very buoyant corporate and banking market, while beyond December it was a very buoyant litigation market.”
It’s clear that the economic climate has changed since December, but Fagan says it’s not all down to the liquidity crisis stemming from the subprime mortgage industry collapse in the US. “The subprime crisis, the packing up mortgages with very problematic credit quality, we’ve not had that here. In the US one in every five houses has had a foreclosure notice, in Australia that’s 0.2%. We’ve not had that asset problem and, correspondingly, I don’t think we’re going to have the litigation they had over subprime issues.”
Fagan does acknowledge that some of the fallout of the subprime crisis has trickled into the Australian market and he says Clayton Utz is advising Lehman Brothers on products that the financial services company sold into the Australian market. But the large corporate collapses that Australia has seen in recent months are not tied to the US-originated crisis, he argues. “The work that is related to Allco, Centro and MFS, that is more about their business models than the credit crunch.”
The slowdown in the Australian market is a result of the culmination of factors, including a rising oil price, record low consumer confidence and fewer corporate sales, and there is no telling when the climate will improve. The firm is, therefore, budgeting for more subdued growth next year, says Fagan. “There is uncertainty in what the next 12 mon