Findings

The report found that law firms in Australia “have consistently outperformed” their global counterparts, with the most recent financial year having contributed significantly to that — even with a drop-off in the second half of financial year 2022, which saw a decline of 2.1 per cent in demand from the rise of 6.4 per cent in the six months preceding.

Despite challenging conditions around the world, Australian firms are performing to the point “where the market may serve as a beacon for other firms globally” in managing recession fears, rising costs and recruitment hurdles, Thomson Reuters submitted.

On the whole, the report said, the success of Australian law firms in recent times is the result of “no singly practice area” being the sole driver of growth.

Instead, most practices have seen demand grow in FY22 in Australia, with some major practice areas experiencing growth in the 5-6 per cent range, such as tax, real estate and regulatory.

Worked rate growth is also “especially robust”, Thomson Reuters continued, with an average of 6.5 per cent, up from 1.6 per cent in FY21.

Australian firms have, on the whole, seen an average increase in fees worked of 8.7 per cent — a “considerable” jump from the previous year. Firms have also experienced substantial rises in billing realisation, in line with global counterparts.

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Firms here were not immune from rising expenses that global practices faced, including and especially the growing competition for talent, with Australian employers seeing higher turnover rates (31 per cent of Australian associates left their firms in the last year) than those seen in the United States.

This said, Australian firms have “largely” managed to keep associate salaries in check, Thomson Reuters found, with growth in pay for employees “well below” the rises seen in global firms.

Compensation for associates in Australia grew by 8.3 per cent in FY22, the report said, while in the US, it was 11.7 per cent.

The cumulative impact of all of these factors, Thomson Reuters espoused, was overall revenue growth of 10 per cent for the average Australian law firm — a “near record-setting” level, it noted.

In addition, profits for firms here grew by an “even stronger” rate of 12.6 per cent.

Elsewhere, Australian law firms increased their investment in technology in the last financial year, with tech spend up 5.3 per cent after a year of “flat growth” in FY21.

Such investments, the report hypothesised, could provide assistance to firms in their efforts to retain top talent — particularly, Thomson Reuters added, given that nearly three in 10 (29 per cent) of lawyers, its research said, would be prepared to leave their current firms for a more innovative practice.

Commentary

Reflecting on the report’s findings, Thomson Reuters Asia and emerging markets managing director Jackie Rhodes said that law firms in Australia are “uniquely positioned” on the world stage.

Moreover, she proclaimed, firms here “continue to prove themselves remarkably resilient in dealing with conditions that are challenging law firms across the globe”.

“Finding ways to engage with legal talent is key. And the evolving intersection of talent and technology means new opportunities for firms to improve efficiency and drive a culture of digital transformation to the benefit of the firms, their lawyers and their clients,” she advised.

The report’s executive summary echoed these sentiments, noting that even a strong foundation that can weather a storm can still find itself threatened by other factors.

“Essential challenges loom for the region which, if not addressed, could well become unsolvable in the future,” the report warned.

This includes the experience of partners in Australian practices — whom the report described as “cornerstones of law firms” — grappling with ever-heavier workloads, year on year.

“These partners are under greater pressure than ever to master an evolving role which is evermore emphasising developing technologies and leadership in addition to their roles as lawyers,” it said.

However, for the time being, it appears that Australian law firms are indeed weathering this storm.

They must still be sure not to undermine myriad risks, including those outside of their financial foundations, Thomson Reuters said.

For now, though, “there are ample reasons for continued optimism”.