The Australian legal market is full of firms talking, but is anyone listening? Justin Whealing talks to three managing partners from a global, national and boutique firm that are cutting through the noise to hear what makes them tick.

Webb Henderson are doing very well, thank you very much.

The four office global boutique, which nominally calls Sydney home, is turning over between $10 to $20 million per year, with clients that include international heavyweights such as British Telecom, Foxtel and local behemoths such as the NBN Co.

Just last week Webb Henderson got the gig to act for the ACCC in the misuse of market power case that was commenced against Pfizer.

Its name partner, Angus Henderson, reckons that in a crowded legal market, specialisation is the key.

“It is getting harder for the large national firms,” he says, adding that in a decade’s time he thinks the Australian legal market will see more boutique firms and less large firms “whether through mergers or consolidation”.

“The areas where we operate are areas our clients regard as premium services.”

Henderson was a senior partner at Gilbert + Tobin prior to launching Webb Henderson in 2009 with Malcolm Webb, who was formerly a partner with Bell Gully in New Zealand.

The firm now has nine partners and 32 total lawyers spread throughout Sydney, Auckland, Singapore and London.

Its areas of specialisation are technology; media and telecommunications; corporate and competition law; dispute resolution; regulatory consulting; energy and infrastructure, and government and business.

As his firm has been steadily growing he has been watching with interest as large national and global firms in Australia have been instituting pay freezes and rolling out redundancies.

“All of those firms will have to manage costs in their own ways, but salary freezes are a clunky way to do that,” he says. “There are more important organisational decisions that have to be made about premises or internal structures which drive more costs than salary freezes.”

Henderson’s old firm Gilbert + Tobin is about to move into new digs in Sydney from its long-standing Park Street address to the Barangaroo precinct in 2016.

“We are doing well,” says Gilbert + Tobin’s Danny Gilbert. “It seems to us we are getting our fair share of work.”

When asked if that is reflected in the bottom line, the elder statesman of the private practice profession in Australia demures, telling Lawyers Weekly that “we don’t usually reveal revenue figures”.

When pressed, he confirms that revenue for FY13 was up when compared to FY12.

Don’t blame the foreigners, blame the local market

Where do you start when detailing the tale of woe that beset many firms in 2013?

By no means an exhaustive list, Lawyers Weekly reported on redundancies and cost-cutting at national and global firms that included Clayton Utz, DibbsBarker, DLA Piper, King & Wood Mallesons, Herbert Smith Freehills, Kelly & Co, Finlaysons and Norton Rose Fulbright.

This year, Lawyers Weekly has also exclusively broken stories about redundancies at Piper Alderman in Adelaide and Gadens in Brisbane.

Gilbert reckons it is too simplistic to say that the arrival of global firms has made it harder for everyone, and therefore all firms are suffering.

“Global law firms have made no difference to us,” says Gilbert, adding with a flourish that “the impact of global law firms is overrated”.

“Partner movements and declining incomes are a function of a lessening in the availability of work and the rise of in-house counsel,” he continues. “The biggest driver for the under-utilisation of capacity at all law firms has been a downturn in the volume of work – and that has a lot to do with post-GFC economic uncertainty; due to a reduction in demand for commodities in China, and uncertainty in the US and trouble in Europe.”

Timesheet tinkering

There is no doubt that general counsels have more leverage in the market at a time when firms are scrambling to retain key clients and diversify revenue streams by gaining new ones.

“A few years ago there was a perception, correctly I think, that in the law firm-client relationship, the law firm was more in charge than the buyer,” says Gilbert. “That has reversed and will continue to reverse. We will never go back to that.”

Allen & Overy’s Grant Fuzi agrees with Gilbert’s general sentiment that clients are sophisticated and in a good position to call the shots.

“Clients are extraordinarily discerning in their choice of law firms,” says Fuzi, the firm’s senior partner in Australia.

He confirms with Lawyers Weekly that there have been occasions when clients have told him they are thinking of using the global firm, but know they can get a cheaper rate with other firms and might in fact go with them.

So what do you do Grant?

“We look at it on a case-by-case basis,” says Fuzi. “We have faith in the quality of our service and there is a fair price that goes with that.”

Clients’ idea of what constitutes a fair price has shifted.

In the words of Nick Humphrey, the head of the corporate group at Sparke Helmore, “the old way of ‘here is my hourly rate of $1000 an hour, times the number of hours and the big team I put on it’, those days are gone”.

Allen & Overy, Gilbert + Tobin and Webb Henderson all offer alternate fee arrangements, such as fixed fees, capped fees and pendulum billing.

Despite that, it is still the billable hour that drives revenue for these and the majority of firms in Australia.

While it will be a long time before the majority of Australia’s top 30 firms and leading boutiques look to throw away the timesheet, as Gilbert and Humphrey state, you can’t just use a timesheet as the basis for an invoice anymore.

“It is a given that we will have to control fees in some way in any matter, general counsels ask us to control fees in a manner that is open and transparent to them,” says Henderson.

“That is the environment we operate in.”

Steady as she goes

Something that unites the three firms featured in this article is that their respective strategies are transparent and have been consistent for some time.

‘The arrival of the global law firms has not seen any changes to our internal mechanisms,” says Gilbert. “Our culture is the same now as it was five years ago.”

While Allen & Overy opened to much fanfare in Australia in 2010, it has deliberately followed a very targeted model in Australia.

High-end M&A, banking & finance, energy & resources and litigation work form the bulk of its practice, and since it launched by poaching over one dozen partners from Clayton Utz, subsequent lateral partner hires have been infrequent and highly targeted.

“We have tested and re-tested our strategy and we believe [it] is the right strategy,” says Fuzi when talking about the firm’s two-office Australian practice in Sydney and Perth. “Our strategy has effectively not changed since we opened.”

Although it is one of the largest law firms in the world, in Australia, Allen & Overy is dwarfed in size by international rivals such as DLA Piper, Herbert Smith Freehills, King & Wood Mallesons, Ashurst and Norton Rose Fulbright.

Domestically, it is performing stronger than all of those firms.

For FY13, global turnover increased from $US909 in 2012 to $US976 million, a rise of 7.5 per cent.

While the firm does not reveal specific office figures, Fuzi says the Australian practice in Sydney and Perth is making money.

“2013 was a great year,” he says. “We invested in people, brought in laterals and had a truly, truly successful year, and rewarded people for great performance.”

Something that Webb Henderson does not have is the pull of a global firm moniker like Allen & Overy.

While Webb Henderson is a leading firm in its chosen fields, its partners would be cheaper than the equivalent partners at Gilbert + Tobin and Allen & Overy.

When it comes to getting top-shelf work and high-profile lateral partners, such as recent recruit Andrew Christopher, the former head of competition law and disputes at Baker & McKenzie, being a small firm with a low leverage ratio is a big selling point.

“Our strategy is to offer access to senior resources, with access to partners and senior staff critical,” says Henderson “We try to spend as little time on management and as much time with clients as possible.”

Henderson elaborates that the firm has a ‘90-10’ rule, where 90 per cent of a partner’s time is spent on external or client matters, and only 10 per cent on internal concerns.

With no HR department, Henderson says his biggest drawcard when talking to possible lateral partner hires is the ability to not have so much administration work and to “get back on the tools”.

“Being a small, integrated firm gives people more time to do the work they want to do and less time on planes or in management meetings.”

Unsurprisingly, the relative strength of Gilbert + Tobin and Webb Henderson has attracted interest from international suitors.

Gilbert + Tobin had an alliance with King & Wood before the Chinese firm merged with Mallesons, while Angus Henderson has been sounded out by Magic and Silver Circle firms in the United Kingdom.

In speaking to Henderson and Gilbert, you get the feeling the former colleagues are both pretty content with their lot at the moment.

“I am not worried about global firms,” says Gilbert. “I am very happy. More can come as far as I am concerned.”

In 2014, he will most certainly get his wish.