Law firms change their tune to survive pandemic
Major law firms are withstanding the economic shocks better than expected as they embrace a permanent change to working arrangements.
Major law firms are so far withstanding the economic shocks better than expected as they embrace a permanent change to working arrangements.
Lawyer numbers at the nation’s top firms grew a healthy 7 per cent in the six months to June 30, according to The Australian’s partnership survey conducted by ECP Legal. Graduate intakes increased about 7.6 per cent, translating to about 1159 jobs.
Partnership numbers at the 45 firms surveyed grew about 4 per cent. However, the largest firms shrank their partnerships about 1 per cent, continuing what has been a decade-long trend for many of them to fewer Australian partners.
International firm Clyde and Co, KPMG Law and mid-tier firms Holding Redlich, Arnold Bloch Leibler and Russell Kennedy all grew their non-partner fee earner numbers by more than 15 per cent in the first half of the year. The largest graduate intakes were at HWL Ebsworth (120), followed by Ashurst (104) then Allens (96).
Strong demand in areas such as employment law, leasing, insolvency, restructuring, capital raising, insurance, government work and dispute resolution has offset a dip in transactions.
Managing partners and CEOs have told The Australian they hope to avoid redundancies but are bracing for tougher conditions in the second and third quarters of the financial year.
About 10 top-tier firms and 16 mid-tier firms formed informal groups in March to help each other respond to the unfolding crisis. Law firms such as Ashurst and KPMG Law, which asked lawyers to take pay cuts or reduce their working weeks during the lockdown, expect to return to normal arrangements sooner than expected.
Ashurst’s global managing partner Paul Jenkins said the firm had not been immune to the global shocks but was still “reasonably busy”. The firm grew its lawyer numbers 15 per cent in the first half of the year, while its partner numbers were unchanged.
“If you look at where we were this year versus the previous year, it is stable … rather than seeing any growth, which we would’ve been anticipating absent the pandemic,” he said.
Staff had dropped their hours and pay 20 per cent other than in busy areas, as part of Ashurst’s “Stronger Together” program, he said.
“That was one of our learnings from the GFC — to react quickly and put in place something that is going to put you in the best possible position,” Mr Jenkins said.
“Now we’re starting to look at coming out of it.”
Mr Jenkins usually divides his time between Sydney and London but has been in Sydney since the pandemic hit. The firm, like some of its rivals, has diversified from pure legal services. It launched Ashurst Consulting in Australia this year, offering risk and board advisory services. This had been “particularly successful”, Mr Jenkins said, and the firm intended to expand it to Britain and other advice areas.
KPMG Law — the legal arm of the accounting and consulting giant — had plans for rapid expansion before COVID-19 hit. It grew its fee earner numbers 29 per cent in six months, from 85 to 109 lawyers.
Its Australian head, Kate Marshall, said KPMG Law had not shelved its ambitious growth plans and was still talking to lateral recruits, but would proceed more cautiously for the next 12 to 18 months.
The firm asked staff in April to take a 20 per cent pay cut for four months and made some redundancies. Ms Marshall said the legal arm was not spared those measures but had already paid some money back to employees.
She said it had been a strong six months before COVID hit. Its approach of delivering advisory services with a legal lens meant it was well placed to withstand tougher conditions and to help clients with cyber threats, capital requirements, more creative approaches to leasing and other issues thrown up by the crisis for which there was “no clear play book”.
KPMG Law is not the only firm that has tempered its growth plans.
Gadens’ Melbourne and Sydney chief executive Mark Pistilli had planned to roughly triple its Sydney team, which has 14 partners. The firm would still be opportunistic about hiring partners in areas such as banking and finance, insolvency, restructuring and litigation, but for now had effectively frozen lateral recruitment for lawyers below that level, he said.
Mr Pistilli, who stepped into the role on March 2, said revenue dropped substantially in April, recovered about half of that in May and slightly more in June.
He said the firm closely examined its global financial crisis numbers in March, and realised it needed to be more nimble this time. It has moved lawyers to areas such as restructuring and insolvency from corporate transactions, and provided training where needed.
There has been a changing of the guard at several other major firms.
Clayton Utz chief executive partner Bruce Cooper took over from outgoing chief Rob Cutler in May. The firm grew its partnership 3 per cent and fee earner numbers 4 per cent over six months.
Mr Cooper said clients wanted more value for less cost — exacerbating a pre-COVID trend.
Norton Rose Fulbright’s new Australian managing partner Alison Deitz has also had a baptism of fire.
Ms Deitz, who took over this week, shepherded Sydney staff out of the door in mid-March as cleaners arrived in Hazmat suits and returned to switch the lights back on last month. The first thing she did was to arrange for all of the dead pot plants to be replaced.
She said staff in teams that were not busy had agreed to cut their hours and pay by up to 20 per cent (the average was 12 to 15 per cent) for three months as a “bridge to allow the firm to get to the other side”.
“We hope that we’re at the other side,” she said.
The firm had a strong flow of work for the next three months, which was as far ahead as it was planning at this stage, she said. It was using the crisis as an opportunity for structural change — such as centralising its resource management so lawyers could be deployed more easily across the country, and cross-training them to work in different groups.
“They’re some of the lessons that we have learnt from our offshore colleagues,” she said.
Herbert Smith Freehills executive partner, East, Andrew Pike, said the business had held up reasonably well, but there was a high degree of uncertainty beyond the next three months. Even in areas such as M&A there had been continuing work, he said.
“A lot of clients are looking through the pandemic and seeing this as a point in time issue … There also is a fair group of clients who are seeing this as an opportunity to improve their positions, so we’re seeing a bit of opportunistic M&A,” he said.
Less than 15 per cent of lawyers have returned to the office at many firms.
All of those interviewed by The Australian said they expected a permanent shift towards working from home — the pandemic had proven lawyers were just as productive there and even partners who had previously opposed it now wished to continue the arrangements for themselves some of the time.
This could cause ructions in the prime commercial real estate market as several law firm heads said they would potentially look to shrink their offices in future.
Ashurt’s Mr Jenkins said: “I expect across the world we will reduce our office space over the next few years to some degree,” he said. “That will obviously take time but I think most organisations are thinking about that and what amount of space they will need in that new normal.”
He said people would have more flexibility in future, and it would not hurt productivity. However, face time was still needed for training and to build relationships with colleagues and clients — it was a matter of finding the right balance, he said.
Herbert Smith Freehills’s Mr Pike said he believed “rumours of the death of the office had been greatly exaggerated”. But in the medium term, its real estate would be managed more “actively”, he said.
KPMG’s Ms Marshall said productivity had actually increased with lawyers working from home, proving it was a fallacy they would work less.
“We have proven that and I’m loving the fact that geography doesn’t matter any more,” she said. This meant the firm could assemble the best team for clients, without regard to location.
“That’s a huge step forward,” she said.
New partner zooms in on home life
For the first time, new law firm partner Kiri Jervis has seen her clients’ pets and they have been introduced to her kids.
The distancing requirements have brought the 43-year-old employment lawyer oddly closer to her clients — Zoom calls providing a window into each other’s lives.
“It’s not that you’re crossing boundaries between work life and home life, but it gives you a better sense of who they are as people … and vice versa. It can forge stronger relationships,” Ms Jeris said.
It has nevertheless been a strange time to join the partnership of a global law firm.
“I did miss out on the obligatory drinks with colleagues,” she said.
Ms Jervis joined Clyde & Co four years ago, as it rapidly expanded its presence in Australia. The firm grew its local partnership 17 per cent in the six months to June 30 — outstripping the market average of 4 per cent, according to The Australian’s partnership survey conducted by ECP Legal.
It also stacked on an extra 57 lawyers over the past six months to achieve growth of 50 per cent, making it the fastest-growing firm of the 45 included in the survey.
The firm’s focus on regulatory risk, insurance law and litigation has made it well-placed to capitalise on the economic upheaval.
It has been representing cruise giant Carnival at the inquiry into the ill-fated Ruby Princess and advising leading insurers on business interruption claims and other issues thrown up by the pandemic.
Managing partner Michael Tooma said the firm expected to continue its run of double-digit growth this year that it had achieved every year since opening in Australia in 2012.
“We continue to experience month-to-month growth in terms of both revenue and new instructions, and generally we are optimistic about the balance of the year despite the turmoil that is going on in the economy,” he said.
Ms Jervis returned to full-time work when she was elevated to the partnership on May 1. She had worked three or four days a week after having children (they are now 10 and 7); now she intends to continue working flexibly by working from home some of the time.
She said the lockdown had proved how resilient and adaptive lawyers were as a profession.
“It’s shown us and others that you can work flexibly,” she said.
“It’s something I’ve always believed in very strongly and have done for over 10 years. But there has been a real change in the dynamic, where it’s now accepted that you’re still capable of working at a high level while working flexibly and I think that’s a really positive thing, not only for our profession but for everyone.”
