In the competitive corporate legal market, a few small boutique firms have dared to take on big law... and won. Claire Chaffey reports

The first was Perth-based firm Cochrane Lishman, launched on 1 January 2006 by prominent Mallesons Stephen Jaques partners Ian Cochrane and Michael Lishman. Cochrane had been the head of mergers and acquisitions in Mallesons' Perth office, while Lishman was the firm's managing partner of operations for both Australia and abroad. Both had achieved resounding success.

The second was Sydney-based firm Chang, Pistilli & Simmons (CP&S), which was established on 1 July 2006 by Atanaskovic Hartnell breakaways Mark Pistilli, Diana Chang and Danny Simmons. Again, the three partners were at the top of their fields in M&A, corporate advisory and complex litigation.

When they opened, both firms had fewer than four partners and their creation was due to a belief among their founders that things could be better, both commercially and personally. The two firms also had a sense that the Australian legal market was changing, and they saw this as an opportunity to focus on corporate work for high-end clients.

Five years later, both firms have evolved and grown. Cochrane Lishman is now known as Cochrane Lishman Carson Luscombe (CLCL), thanks to the 2009 addition of former top-tier partners John Carson and Ben Luscombe, and CP&S has added four partners to the mix. The firms have consistently appeared in the upper rankings of the M&A league tables and their partners regularly appear on Australia's best-lawyer lists. They are highly respected by both peers and clients.

However, on 1 May 2011, CLCL and CP&S will be swallowed into the fold of global giant Clifford Chance, the second Magic Circle firm to break into the Australian market. Effectively, the merger will bring to an end an era in which the two small firms fought gallantly and successfully in the high-end corporate space, and will begin the next chapter in the story of Australia's evolving and globalising legal services market.

While several other notable small corporate firms remain, and will continue to shake up the top-tier competition, the Clifford Chance merger - and the fact there will soon be two less boutique firms in the market - throws up new opportunities for those brave enough to attempt to replicate what CP&S and CLCL have achieved. It is also a clear indication of the talent, power and influence within some of Australia's smallest corporate law firms.

The call to go small

For Lishman and Cochrane, giving up secure and prestigious positions at Mallesons to take a gamble on a virgin boutique was not a decision taken lightly. However, they found themselves faced with a number of compelling factors that inspired them to do just that.

"We felt two things," says Lishman. "One was that in Western Australia, with the nationalisation of firms, there was an unmet demand by clients ... we saw an opportunity. We were also concerned that the large Australian firms had placed very substantial revenue obligations on their partners and, consequently, very high leverage in what was a very competitive market.

"We had to work really hard and we didn't feel that the firm necessarily saw its partners as the key driver of value. We thought we could have a happier life in a boutique environment."

Michael Ryan, a partner at Sydney-based corporate boutique firm Addisons, gives similar reasons for leaving a global firm to team up with a small group of partners focusing on high-end corporate work. And once he made the move, there was no looking back.

"Having felt that we were working hard but not being rewarded appropriately, the change to a smaller firm was like a breath of fresh air," says Ryan.

"I have found the lifestyle in a small firm a lot easier. You work just as hard, but there is less bureaucracy. There is camaraderie in a small firm that I am enjoying. It is actually a nice place to come in the door on a Monday morning. You know everyone you work with and you respect them."

For Mark Pistilli, CP&S's managing partner, breaking away from a larger firm was more a matter of pursuing opportunity than lifestyle, and he says the M&A boom Australia was enjoying at the time was the primary factor in convincing him and his colleagues to leave.

"We wanted to create a specialist M&A boutique firm which focused solely on the kind of M&A that was happening in the market at that time. That is what really drove us," he says.

"The market was dominated by a few very large firms who were very good, but there just weren't enough of them. When a client was looking to buy a service at the top end, they had a limited choice, and once those players were taken up, which they very quickly were during the M&A boom, they looked for a credible alternative. There weren't many places for them to go. We tried to fill that gap in the market."

Formula for success

A common thread tying many of the more successful small corporate firms together is the fact that they were established by well-known partners of well-known firms who, when they made the decision to downsize, took their clients with them.

"Most of Addisons' partners came from large firms and brought with them significant clients and reputations," says Ryan. "It gave us a base to work from and it helps that we can point out to a prospective client the experience within the firm and its client list."

According to Ryan, convincing his clients to follow him to a small firm was not difficult, though he did, on occasion, have to reassure them that the firm's capabilities would be sufficient. "None of the clients minded us moving to a smaller firm, and we didn't lose a single client because of that," he says.

"Some did ask whether we would be able to handle their transactions, and we assured them that we could. Very few transactions require a lot of people. As long as clients have someone sitting next to them who is smart and experienced, someone they trust, the size of the firm doesn't really matter."

Arguably, hugely successful small firms such as Perth-based Blakiston & Crabb and Price Sierakowski have proven that large firm experience is not critical to a small firm's success in the top-end market. But it certainly helps.

"You have to have several strings to your bow to attract top-end work," says Lishman. "You either have to have a really excellent expertise and heavy industry focus, such as leading mining law firm Blakiston & Crabb, with very good networks and relationships, or be a lead partner of a large firm."

Fortune favours the brave

As it stands, very few firms the size and calibre of CP&S and CLCL exist in the Australian legal market and, given their success and reputation in a sector traditionally reserved for top-tier firms, the question arises as to why more breakaway firms have not emerged.

For Pistilli, the reasoning behind it is simple. "The problem with lawyers is that they are very conservative and comfortable. There are a lot of very good lawyers in Australia and a lot of them would be very good at running firms. It's just that they have never done it," he says.

"It's quite a hurdle to go out and do it, and if you look at the people who have done it, they have managed firms before, and that makes it easier. Lawyers who haven't [managed firms before] are conservative, so they won't try, but it doesn't mean they couldn't do it."

For Cochrane, the fact that more lawyers have not attempted to establish a firm like CLCL has been unexpected. "Frankly, we have been surprised that more people haven't done it," he says. "It has got its risks, but once you achieve it, it is so much better than working in the Australian top-tier environment."

Lishman agrees, though can see numerous reasons behind an apparent reluctance to branch out. "There are a couple of reasons why everybody doesn't do it," he says. "You have got to find the right person to be in partnership with. Ian and I have similar values, similar skill-sets, different personalities - but we compliment each other - and a high level of trust. You also have to be in quite similar financial circumstances, because to go out on your own you have to take a risk that you might fall flat on your face and no-one will give you any work.

"To jump out of the security of a top-tier Australian firm you've got to either be incredibly confident or be financially confident to the point where you won't stress if it doesn't work. So for a lot of people, particularly earlier in their careers, it would be a big jump."

A bright future

According to Lishman, small law firms are destined to be significant players in the legal services market of the future, particularly as more global firms creep into Australia and firms in the mid tier edge closer to their top-tier rivals.

"I think there is a great future for small firms," he says. "Now, a lot of mid-tier firms are bulking up, they're getting bigger. So there are more 100-plus partner firms and you now have four established global brands with substantial operations in Australia. That is a very significant change."

As such, says Lishman, the primary issue now facing large firms is whether they will lose work at both ends of the spectrum as a result of that change.

"Are they going to lose top-end work because it has an international component? Are they going to lose work at the other end because firms like CLCL have shown that if a client has got a good quality M&A deal, they actually don't need to go to a large firm?" he says.

"There are more players in the market, and the market will become more fragmented, so I think there is definitely opportunity for people to do what we have done."

Lishman believes that a growing segment of talented, baby boomer partners from top-tier firms is likely to take up that opportunity in the near future, especially as their firms try to maintain maximum profit and they begin looking towards the next stage in their lives.

"All the large Australian firms have maintained profit by 'managing equity', which is a euphemism for telling young lawyers they can't be partners, and that some of the older partners have to retire before they are really ready to go," he says.

"That is fine in a rising market, but you are now getting to a critical point where there are so many partners with talent approaching that magical 55, who are now looking around and thinking they [don't want to retire], they like work, they want to practise and they don't need the same level of income, so they can afford to take a risk.

"I think there are going to be lots of small firms in the future."

Pistilli agrees, though cites different reasons.

"Big firms are looking more towards practice-profit alignment. For example, if the M&A department of a big firm is more profitable than the employment department, and that is more profitable than the IP department, that creates significant partner tension," he says.

"I think that over time, those firms might break up into more profit-aligned groups. The groups with the highest profits will be in one firm, the groups with the next highest profits will be in another firm, and so on. That will drive a large number of small off-shoots."

A changing market and growing influence

That CP&S and CLCL chose to merge with Clifford Chance is perhaps surprising, especially given their reasons for breaking away in the first place and the obvious pride and satisfaction such a move has delivered.

Lishman and Cochrane openly acknowledge that many sleepless night were spent mulling over whether accepting the offer to merge was the right move.

"As tempting as it would be to say that we positioned for a global play, we didn't," says Lishman. "We just focused on our market and on being as good as we could, and it happened to be something Clifford Chance wanted. We obviously had to think about it, because it's a big change. We'd go from being very small to still being very small in terms of people in the office, but part of a huge firm.

"But we felt that the market was globalising and that, particularly for our younger lawyers and staff, this would provide a long-term opportunity."

Cochrane says that giving up the freedom they have enjoyed and the independence that comes with being the founders of a boutique firm was not easy. In the end, though, they couldn't refuse.

"Clifford Chance is such an incredibly powerful brand name, and it was so flattering that they chose to talk to us, we thought that it would be almost criminal not to give it a try," he says.

For Pistilli, agreeing to the merger was a matter of staying one step ahead of the market and leading the charge into a new era in Australian legal service offerings.

"My sense is that once the market starts globalising, it's a hard trend to stop," he says. "I think you'll find that the top end of the legal market will, in a number of years, be dominated by global firms. There will still be one or two premier Australian firms in the mix, but they won't dominate the market like they currently do.

According to Pistilli, legal markets around the world in which global firms dominate also contain numerous significant boutique players.

"I don't see any reason as to why that trend wouldn't be the position here. In that kind of market, there is certainly scope for smaller firms."

Whatever shape the market takes in the future, it seems that small corporate firms are here to stay, and CP&S and CLCL have demonstrated just what successful small firms can achieve in the high-end corporate space. And it is highly likely that along with those that remain, new players possessing the right mix of ingredients will emerge and make their mark.

"Small firms will always survive," says Cochrane, "because invariably, the people who start them have strong personal relationships with their clients. And that, more than anything, dictates their survival."