Legal Partnership Survey: Changing of the guard at law firms and a quiet revolution

Generational change is driving a lot of activity at the law firms in The Australian Legal Partnership Survey.

A younger generation of lawyers is pursuing some different priorities as they build their careers.

Much like the “teal slide” in the federal election, a quiet revolution has been taking place in law firms. We are now seeing the effects of the baby boomer partners (predominantly pale and male) retiring and the new generation moving up and taking over client and staff relationships. 

The changing of the guard is not without challenges. Members of the new generation come with increasing diversity and 21st century values and do not necessarily see partnership as their career goal or indeed see their career as their life’s major purpose the way it was when the baby boomers took up partnership. Lawyers now have many choices for careers locally and offshore.

These challenges have combined to dampen growth in the most buoyant and profitable period for law firms in the past 10 years.

Although there was plenty of movement and upward mobility in the market during the survey period (January 2, 2022, to July 1, 2022) the overall sector growth was negligible: 247 partners were appointed by the 50 firms participating in the survey but the weighted average growth for the six months was only 0.08 per cent. For fee earners, growth was only 0.19 per cent for the six-months comparison. Graduate figures rose an average of 2.47 per cent across the sector this year to last year, which is also lower than expected. Coming out of the worst of the pandemic with strong balance sheets and a tight talent market for fee earners, it was expected firms would significantly increase graduate hiring.

Clearly there was an almost equivalent exodus of partners and fee earners in the period. Anecdotally, the pandemic spurred a number of senior partners into retirement and others to leave law firms to take up positions on boards or not-for-profits or as chief executive officers, and we expect this trend to continue apace.

There were several firms where a bottleneck of similar-aged senior partners will retire within the next five years. The movement out is creating exceptional opportunities for a new generation to move up, but also there are gaps in experience showing up and not always the right level of talent to fill them.

Some of these partners have been at the top of their field for over 25 years and their experience is not easily replicated. Some gaps can be explained by the GFC, a period when few were promoted and there is still an experience gap in transactional teams representative of the era.

The next generation rising into partnership is markedly more diverse. The full report with tables on gender balance through the profession will appear later in the week. As a heads up, the dial has moved well forward spurred on by the impetus of generational change and the success of pandemic work-from-home conditions that finally killed presenteeism as a factor in advancement.

Firms have reported women’s representation in partnership (FTE) as almost 32 per cent overall for the period. Certain firms have far exceeded the average, including international firm Kennedys hitting equilibrium at 50 per cent, Lander & Rogers reporting 45 per cent women in partnership, and Ashurst and Moray & Agnew reporting almost 40 per cent of their partners as women. Female fee earners outnumber males nearly 60 per cent to 40 per cent, and graduate numbers are 61.6 per cent women.

We have not yet added a column to the mix, but it is important to note Clayton Utz has also reported a “gender not specified” partner and two graduates in its ranks, signalling a move towards further community representative diversity in law firms.

The new generation of fee earners is also less interested in the responsibility of partnership and highly aware of its value in the market globally and outside of practice. Over the past 10 years, in-house legal teams have grown and opportunities for lawyers to move to London, New York and San Francisco have increased, along with the remuneration many multiples above the Australian law firm salaries.

The pandemic also focused senior associate lawyers more on family and community and many do not find the life of a partner enables sufficient balance, putting extra pressure on succession.

New practice areas are becoming important, along with the changing values and policy imperatives reflected in the recent election results. For instance, firms are needing to pivot to provide clients with energy transition and environment, social and governance (ESG) support services. Technology is increasingly important and underpins the rise of multi­disciplinary practices such as PwC Legal and KPMG Law. The issue for firms here is finding talent and expertise as these practice areas and applications are new, so there is a limited pool of appropriate ­talent at all levels.

The partner to fee-earner ratios reported are not as terrible as expected for most firms. Figures of 5.9, 5.6, 5.2 and 5 respectively from Herbert Smith Freehills, Allens, Gilbert + Tobin and Wotton + Kearney highlight the value of strong branding and talent acquisition teams. The effects on mid-tier domestic firms of targeting by top tier and in-house are clear, with firms like Hamilton Locke, Macpherson Kelley, Russell Kennedy and Piper Alderman falling below two per partner.

As generational change gathers pace, firms that can navigate the challenges posed by the new legal marketplace with the diversity, changing practice areas and values will reap the rewards in the highly competitive market for partner and fee-earner talent and achieve the growth that proved elusive this survey period.

Shaaron Dalton is managing partner of Eaton Strategy + Search