Lawyers turn their back on traditional firm model

Lawyers no longer buy into the long hours, difficult personalities and hierarchical apprenticeship model that has enabled the industry to grow over the past 40 years.

Lawyers no longer buy into the long hours, difficult personalities and hierarchical apprenticeship model that has enabled the industry to grow over the past 40 years.

The data in the most recent Australian Legal Partnership Survey period (January 2 to July 1, 2023) looks very positive on face value. There was a significant increase in partners and fee earners over both the six months and 12 months comparison data.

Top tier firms (Allens, King & Wood Mallesons, Herbert Smith Freehills, Clayton Utz, Ashurst, Minter Ellison and Corrs Chambers Westgarth) have not done as well in the growth trajectory as domestic and international firms and need to take note.

They are losing ground to domestic and international firms, mainly due to unsustainable working practices and insufficient pay and incentives.

The disconnect between the working model of these firms and what drives their fee-earning staff is causing a threat to their ability to sustain the business model.

Perhaps technology will assist them to pivot longer term, but in the short to medium term it will be costly for them.

The first six months of 2023 saw strong growth in partner and fee earner numbers (3.7 per cent and 3.2 per cent, respectively, among the 52 firms that responded to the survey). In the 12 months comparison, growth in both partner and fee earner ranks exceeded 6 per cent.

Graduate numbers were compared on an annual basis to the previous year with a drop of 6 per cent recorded overall, the only sign of uncertainty on the horizon in the period.

Domestic firms recorded the strongest growth with 4.88 per cent over 6 months and 7.58 per cent in 12 months.

International firms saw 3 per cent partner growth for the six months and top tiers increased only 2.5 per cent.

Shaaron Dalton is strategic adviser at Eaton Strategy + Search.

There was a slight drop overall in partner-to-fee-earner ratios in total compared with last survey. Top tier firms have mainly steady with their ratios this survey, recording figures of between 3.9 per cent (Ashurst) and 5.79 per cent (Allens). Corrs Chambers Westgarth dropped from 5.65 to 4.67 per cent being the only significant difference either way.

Firms that grew fee earners significantly in the six month to 1 July 2023 were mainly domestic firms – Hamilton Locke (23 per cent), Moray & Agnew (18.7 per cent), JWS (16.57 per cent) and Barry Nilsson (15.57 per cent). Internationals, Pinsent Masons (19.44 per cent) and KPMG Law (17.86 per cent) also showed large fee-earner increases.

The overall growth results from several factors. On the partner level, increased workflow and profits from the Covid period meant good promotion pipelines.

There was also a steady flow of lateral hiring with firms filling gaps in expertise and succession planning. At fee-earner level, post-pandemic itch and the shrinkage of opportunities offshore were both at play in domestic market movement.

The partner trend will likely continue and pick up pace as firms and high performing partners jostle for position, profits and market share.

With the return of the global market for talent predicted for the next survey period, Australian firms will struggle to compete financially with higher salary and lower tax opportunities offshore. Post-pandemic itch has been replaced with disillusionment from low pay increases in the EOFY reviews that did not keep pace with inflation.

Lawyers in Australia no longer buy into long hours, difficult personalities and hierarchical apprenticeship model that have enabled the legal partnership model to experience exponential growth over the past 40 years. Promises of partnership in 10 to 15 years mean nothing to Gen Z who are used to instant gratification.

Young Millennial and Gen Z lawyers will not wait. They do not need to. They will move for more money or conditions that match the money they are receiving where other priorities of a sense of purpose, life experiences, autonomy and flexibility can be met.

There are a few firms that are offering innovative reward and engagement models that are addressing the issue and it seems to be working for them:

● Hamilton Locke’s focus on people experience (Px) and the ESOP (employee stock ownership plan) for all employees (not just fee-earners) changes the relationship to one of shared purpose and ownership. The Da Vinci program, open to partners and staff, enables life-enhancing experience and opportunity.

● JWS is launching a share scheme for senior associates that shows their commitment to sharing the rewards of shared effort.

● Gadens partnership has made a big statement in the support of family life of their partners and staff with their 30 weeks parental leave scheme.

● Some international firms have bonus schemes that are significant (high five and into six figures) that properly reward high performance and long hours (not the $10,000 to $30,000 that is typical in domestic top tier).

Top tier firms must rise to the challenge of making attractive, sustainable workplaces for the new generations of associates and senior associate or risk losing profits and market share to international and local competitors.

Shaaron Dalton is strategic adviser at Eaton Strategy + Search