Australia's large corporations are increasingly showing a willingness to look beyond the national firms for legal advice in an effort to rationalise costs. ALB investigates how mid-tier firms in Melbourne reap the benefits

Upon entering the office of Mark Leibler, name partner of Arnold Bloch Leibler, cigar smoke is the first thing that stimulates the senses. He is seated in a dark leather chair behind an office stacked with documents that are neatly organised into piles. Behind him are framed photos of memorable meetings with the likes of Bill Clinton, George W Bush and John Howard. "Now, how can I help you?" he asks with a smile that displays an unshakable confidence.

Leibler's confidence portrays the state of mind of an industry; mid-tier firms have seen solid growth in recent years as a result of an increased willingness amongst in-house lawyers in Australasia's largest corporations to take part of their work away from the top-tier firms and hand it out to a number of focused specialists.

Perhaps the best illustration of this development is ANZ Bank's expansion of its legal panel from nine to 32 firms in July last year. Former general counsel Tim L'Estrange, who recently took up the position of managing director Europe and America in the bank's London office, supported his decision by declaring: "All our work was done by top-tier law firms and, as a general proposition, that doesn't make a lot of sense."

Melbourne: home of giants
The move towards an increased use of mid-tier firms is apparent in Melbourne which houses a majority of large corporates, such as BHP Billiton, Telstra and NAB. "There's more willingness to use firms like us, because they get value for money and have better access to senior people," says Noel Batrouney, managing partner of Hall & Wilcox. He believes the change in attitude has been a gradual process, but that it has become clearly noticeable in the last two to three years.

Cost control is an important reason behind the development. "Clients have less patience with the traditional model of substantial annual price lifts by the larger firms," says David Laidlaw, chief executive of Maddocks. Besides, companies realise that not all legal work requires the attention of large external legal teams.

Mid-tier firms seem to be able to go about their business reasonably undisturbed by their larger colleagues, and Brian Ward, managing director of Brian Ward & Partners, believes this is because they aren't seen as a threat. "Some of the larger firms don't really seem to mind. They move to regulated work and don't see us as competitors."

He even goes as far as saying that his firm is occasionally invited by larger colleagues to act on a transaction. "Conflicts of interest are arising more frequently and we can profit from that," explains Ward.

Crossing Victorian borders
Mills Oakley is a good example of a mid-sized firm that has seen rapid growth in the last three years. According to CEO John Nerurker fee income has grown in this period by 250%. "We have an aggressive growth plan in place," he says. "We have the intention to position Mills Oakley as a genuine alternative to the top tier."

The Melbourne firm opened an office in Sydney in February 2006 and had to find premises three times the original size to accommodate the expansion. Recently it opened another office in Brisbane, appointing Peter Mills as partner.

The rapid expansion has not weighed heavily on profits, says Nerurker. "We were cash-flow positive five weeks after opening," he says of the firm's Sydney office. And he has high expectations: "In five years, our Sydney office could very well be larger than our Melbourne office."

Part of Mills Oakley's success is its approach to finding new partners, according to Nerurker. "The Sydney office has created its own culture; we didn't impose a Victorian culture."

He also claims that some partners in larger firms leave because they do not agree with the expansion strategy of these firms. Some have joined Mills Oakley because top-tier firms are channelling more money into their Asian offices, he says. "If you're a partner in your mid-50s you're unlikely to profit from those investments." However, they still have to charge high hourly fees to fund the Asian expansion, he argues.

Local growth
Although the rapid growth of Mills Oakley has in part come from crossing the state boundaries, Melbourne-only firms are also producing solid growth. "We only have the eight-month figures at the moment, but the growth of our fee income is between 10% and 15%," says Peter Kennedy, partner with Madgwicks. "That is acceptable without being outstanding. I say to my partners 10% is 'acceptable', 15% is 'good' and 20% is 'in your dreams'."

Madgwicks has a strong presence in the energy sector, especially in wind energy; it is thought that the company acts for the Danish producer of wind turbines, Vestas. The firm has also seen growth in property, especially in aged-care facilities.

"We expect to realise a growth in fee income in excess of 10% this year," says Anthony Maher, managing partner of Wisewoulds.

The partnership will move on 1 November to a larger base in a heritage building across the street. It will occupy the top four floors and has purchased the rights to call the monument 'the Wisewoulds building'.

"We think the ideal size of our firm would be 20-25 more people than our current 120 staff," says Maher. At this stage, Wisewoulds are not looking to grow its numbers much beyond that. "We're very comfortable with our current personnel and confident our size provides us with the best opportunity to deliver quality and diverse services to our clients," he says.

The firm has a strong emphasis on work-life balance and likes to maintain a certain level of informality on the floor. Maher sets the example by not wearing a tie and many employees wear jeans in the office. "We're very ambitious, but also want to have fun," says Maher. He has plans to build a bar and a golf practice area in the new office.

Hall & Wilcox does not want to spill the beans yet on this year's performance, but last financial year the firm realised a growth in fee income of no less than 17%. "We've seen strong growth over the last three to four years," says Batrouney.

The newcomers
The profitable Melbourne mid-tier sector still sees the addition of new players. Holman Fenwick Willan opened an office just over a year ago as a fully integrated part of the UK shipping law firm. The office - their only presence in Australia - has found a home on the 39th floor of Bourke Place in the city's CBD. The premises provide a view of the harbour and managing partner Gavin Vallely enthusiastically points out the different shipping companies and docks they use. "You see that blue ship there?" he asks. "That's one of Maersk's."

The office comprises a large number of Melbourne locals who have been active in the shipping sector for many years. The sector is still largely dominated by large insurance companies in London, known as protection & indemnity clubs, and the relationships of Vallely and his colleagues with these clubs ensured a fruitful approach for HFW.

Vallely has ambitious plans for the firm. "Our objective is to double in size in the next two to three years," he says. The office now has five partners and nine fee-earners and they will shortly be joined by a HFW partner from Hong Kong.

Still fresh is the addition of Brisbane IP and trademark firm Fisher Adams Kelly to the local landscape; the firm opened an office in the suburb of Carlton in March this year. Partner Andrew Cale, who has been with the firm in Queensland for seven years, was set to move to the new premises in April.

"We're the largest IP/trademark firm in Queensland and have grown substantially in the last 10 years," explains Cale. "The firm wants to keep growing and therefore we have to expand in other regions."

Melbourne was a more logical decision than, for instance, Sydney, because the firm has several existing clients in Victoria. It also believes the Melbourne market is easier to penetrate for a firm of their size.

The Fisher Adams Kelly office will initially have two operators: Cale and physics specialist Boris Cetinich, originally a Melbournian. The intention is that they will later be joined by life sciences and bio-tech expert Mark Egerton. They will target IP work coming out of biosciences, electronics and information technology.

Melbourne is known as a conservative market in which relationships are a firm's most valuable asset and many doubt the success of the undertaking without the help of long-term local partners. Cale admits it will be difficult to break into the market, but points to a number of existing clients; he is also confident that their client approach will bring them success.

Dibbs Abbott Stillman is not so much a new player, but a new name. The firm was created in mid-2005 when the Melbourne office of Dibbs Barker Gosling merged with local firm Abbott Stillman & Wilson. However, the individual national offices are not integrated; Dibbs makes use of a federation model.

Jo Mithen started five months ago as the managing director of the Melbourne office and says it is too early to give an indication of the firm's growth this year. "Eighteen months ago we established the national alliance, so for future growth we're looking to leverage off this alliance," she explains.

Eyeing Sydney
Mid-sized firms have found their renaissance in the heightened interest of large corporations, but despite the fact that Melbourne houses the majority of large corporations, law firms still do not regard Victoria as the place to be for rapid growth. Dusting off their crystal balls, many look to Sydney for the best future expansion opportunities. Mark Leibler puts it this way: "It hurts me to say this as a Melbournian, but while Melbourne is still expanding, the bigger expanding market is in Sydney."

Arnold Bloch Leibler sought renewed attention for its Sydney presence by having treasurer Peter Costello officially open the office. However, the firm has been open for business since early 2002.

Leibler does not have any radical plans in mind for the firm's future. "We only want to practise in areas that we're good in," he says. "We might become more involved in the trade practices area or the workplace relations area, but the core will always be our focus on high-net-worth individuals."

And geographically Leibler has no plans to expand beyond the two current offices. "If you're in Melbourne and in Sydney, you don't need to be anywhere else."

The Melbournians
Arnold Bloch Leibler
Numbers: 28 partners and 57 fee-earners
Managing partner, Melbourne: Henry Lanzer

Brain Ward & Partners
Numbers: 15 lawyers including four directors; the firm has an incorporated structure
CEO: Brian Ward

Dibbs Abbott Stillman
Numbers: 20 partners and a total of 150 staff
General manager, Melbourne: Jo Mithen

Hall & Wilcox
Numbers: 20 partner and 62 fee-earners
Managing partner: Noel Batrouney

Holman Fenwick & Willan
Numbers: Five partners and nine fee-earners
Managing partner: Gavin Vallely

Maddocks
Numbers: 34 partners and 80 fee-earners
CEO: David Laidlaw

Madgwicks
Numbers: Nine partners and 28 fee-earners
Managing partner: Peter Kennedy

Mills Oakley
Numbers: 18 partners (including four in Sydney) and 70 fee-earners
CEO: John Nerurker

Wisewoulds
Numbers: 15 partners and 41 fee-earners
Managing partner: Anthony Maher

Joining forces
On the merger front, Melbourne has seen Aitken Walker & Strachan (AW&S) take on board the practice of Hume Lawyers since 2 April 2007. The partner number at the firm has gone up to eight, while it has seen a growth in fee-earners to 34.

Melbourne grapples with retention
Melbourne, like most cities in Australia, feels the pressure caused by overseas interest in its top-notch lawyers. "Overseas recruitment has been incredibly buoyant and has taken an increasing number of lawyers out of the local market, particularly over the last 18 months," says Doron Paluch of legal recruitment agency Burgess Paluch. Besides London, Hong Kong remains a popular destination for lawyers now that language requirements have been somewhat eased.

In the current market, some firms grant employees who are working overseas a leave of absence for up to two years in the hope they will return to the firm. Paluch says these strategies are not necessarily successful as those who return often look for further opportunities at a different firm.

One way of retaining lawyers is to offer them the best working environment possible. CEO of Maddocks, David Laidlaw, says the flat structure of his organisation helps to keep retention up. "We're 8% below the average turnover figures for law firms, so we must be doing something right," he says.

Although the international demand for lawyers is booming, the expectation is that the peak of this boom will soon be over. "It's probably got another six months to go," says Jacinta Fish, director of legal recruitment specialist Jacinta Fish Legal. "With the world becoming smaller, what you'll see is the flow of lawyers going overseas will even out.

"I don't expect to see the sort of numbers we saw in 2000 any time soon."