Australia v the world
While the Australian legal market appears to be a quiet achiever, how does it stack up against the rest of the world?
Lawyers in Australia may feel that they are in a global sweet spot – big deals are on offer, remuneration is reasonable and technology is increasingly being embraced. Yet it may surprise Australian lawyers to see how the local market compares with other jurisdictions.
The United States of America has the biggest economy in the world, the United Kingdom has longstanding legal roots, and Singapore is seen as the rising star of the legal world.
Each jurisdiction has its own legal specialties, and is embracing innovation and technology at its own rate. But when it comes to job opportunities, the odds are better in some regions than others. Where do Australian lawyers fit in on the global scale?
Heavyweights and featherweights
While lawyers practise all around the world, legal markets vary in size across the regions.
Statistics show that the USA has the highest numbers of law firms and lawyers by a significant margin. The UK has a similar number of law firms to Australia, but has almost double the number of lawyers. Singapore has comparatively smaller numbers of firms and lawyers, in keeping with its small size and population.
Taking a look at the bigger picture, Peter Charlton, the current Asia-Pacific regional managing partner for global law firm Clifford Chance, says the size of the legal market in each jurisdiction is influenced by the size of the economy.
“The USA is the world’s largest economy, and is hence a major financial centre, while the UK is the central financial hub for Europe,” according to Mr Charlton.
Although both economies remain world-leading, the USA is still recovering from the global financial crisis and the UK has taken a hit in the wake of the vote to leave the EU.
Taylor Root partner and head of Australian recruitment Tim Fogarty emphasises the damage the Brexit vote has done to the London market, which dominates the legal market in the UK.
“The size of the London market has traditionally always been driven by the large and sophisticated financial and professional services market in the city,” he says.
“It is still unclear how the decision to leave the EU will affect the legal market, but certainly in the short term we are anticipating a slowdown in real estate and corporate transactions. In the medium term, exiting the EU will produce a huge amount of regulatory and advisory work.”
In contrast, while Singapore’s legal market is making a name for itself, it is smaller than most people think, coming in at only one fifth of the size of the Hong Kong legal market, according to Mr Fogarty.
He says there are four main domestic firms that dominate the market in Singapore. There are also over 140 international law firms, but many of them are very small service offices. Overall, there are only nine international law firms with the coveted Qualifying Foreign Law Practice licence.
“Leading international law firms with long-standing offices and partners in the region tend to mop up most of the work,” Mr Fogarty says.
“Longevity matters when it comes to building relationships with clients in south-east Asia, so the more recent arrivals have therefore sometimes struggled,” he adds.
Clifford Chance is the largest international law firm in Singapore, with 83 lawyers at its one office.
Geraint Hughes is due to replace Peter Charlton as the regional managing partner, Asia-Pacific, for Clifford Chance on 1 September 2016.
“Singapore, which has adopted a phased approach to market liberalisation, is an increasingly relevant legal hub regionally and globally, in particular for multinational banks and corporates, and in the areas of capital raising and dispute resolution work – with its market positioning being strong within the growing ASEAN region and beyond,” Mr Hughes says.
“We are seeing a number of international transactions outside south-east Asia either using Singapore law as the governing law, or SIAC [Singapore International Arbitration Centre] or SICC [Singapore International Commercial Court] as the means of dispute resolution.”
The Australian legal market sits somewhere in between these global players.
Mr Hughes says that despite the Australian market being affected in recent years by the price cycles of commodities, it remains an important jurisdiction and is increasingly connected to the broader legal community within the Asia-Pacific region.
“The Australian legal market is deep and provides cutting-edge structures and jurisprudence in a number of key areas, including institutional investment and infrastructure, as well as regulatory developments in a number of fields,” Mr Hughes says.
Globalisation means that no single market is immune to worldwide shockwaves. Recent political changes around the world have also had an impact, and created a degree of uncertainty in the Australian market, according to Mr Fogarty.
“The lead-up to Brexit, the local federal election and the upcoming US election, together with an air of caution generally, have seen limited growth in the last few months,” he says.
“With two of these three events now out of the way, there is an element of anticipation for an upswing in activity.”
In markets of every size, competition for clients remains the greatest challenge for firms.
In Australia, low levels of activity, coupled with a number of new entrants and a trend of more work being done in-house, mean competition between firms has dialled up.
“The number of law firms competing for work is growing, with new entrants from overseas and boutique firms setting up quite regularly,” Mr Fogarty says.
“The overarching view, however, is that the legal spend in the market generally is flat. So the competition for work is fierce.”
This is causing some firms to go to drastic lengths to keep clients and secure work.
“There are lots of ‘war stories’ around the market about firms lowering rates to ‘ridiculous levels’ to get work,” Mr Fogarty warns.
“Clients are only too happy to shop around for a better deal, and some of the larger firms have reputations for dropping their rates to unsustainable, loss-producing levels to keep their lawyers busy, and in the hope that more work will follow.”
Firms are continuing to offer free or at-cost secondees, significantly discount charge-out rates, offer training to clients’ staff free of charge, and provide seamless international work – with one bill, from one office, in one currency – to retain clients, he reports.
“In essence [they are] increasing flexibility to meet the demands of clients.”
However, it is not just the Australian legal market that is facing competition. Beaton Capital director Dr George Beaton says this is being seen worldwide.
“Nowhere is it easy and nowhere are we going to see a decline in competition based on price,” he says.
The intensification of price-based competition is being driven by two forces, according to Dr Beaton. Primarily, firms are trying to undercut one another to win clients’ favour.
“It’s being driven by competition between the firms discounting against each other, seriously determined to hold on to their clients or to win new work, and using price as their primary weapon, which of course just drives the price down across the industry,” he says.
In addition, he believes some clients are driving down prices by negotiating intensely in an effort to cut costs, though this is only a portion of the market.
“You get the very aggressive reverse auction and very sophisticated procurement practices by clients, through to those that are quite traditional, loyal to an individual partner and [pay] them an hourly rate, so there’s a big spectrum amongst the clients as well.”
Interestingly, Dr Beaton believes that US- and UK-based clients are more adept at pushing prices down than those in Australia.
“My observation would be that the Australian corporate in-house legal departments are not as active in looking at this. I’m not saying they’re inactive, but speaking comparatively with the US and the UK,” he says.
“A few are getting very active, but the majority are still in the old mould and accepting time-based fees.
“The reason is that most of their inhouse counsel have come from large law firms and therefore are accustomed as to how to buy legal services, because it’s how they used to sell and provide, and so they’ve taken those habits and they’ve been perpetuated in the large law firms.”
Competition in Asia is another topic in and of itself, as the region is in so many different stages of evolution, according to Dr Beaton.
“You could treat Singapore and Hong Kong very much like any Westernised country: they are equally competitive, but then you go to Vietnam or Myanmar or China [and] it’s a completely different story,” he says.
Sealing the deal
While competition is hot, it is also important to look at what exactly firms are vying to win.
The Bloomberg Global M&A Market Review 1H 2016 report shows that 46.6 per cent of all deals completed is the first half of 2016 were in the US, far outweighing the number of deals completed in any other jurisdiction.
Mr Charlton says the US often sees the biggest and best deals due to its significant client base.
“Half of the clients globally, in general terms, are in the US or US-headquartered. The amount of work and clients in the region is relative to the size and depth of the economy and legal market,” Mr Charlton says.
In particular, he says, New York is a centre for financial services work, with a wide range of activities for players in this space.
“This includes liquidity/capital raising, mainstream finance work, capital markets, securities, M&A and litigation.”
As New York is for the USA, London is a finance hub for the UK, while Singapore is a centre for international arbitration, according to Mr Charlton.
“The UK has continual reliance on the financial services industry, which makes up perhaps 14 per cent of its GDP, with the rest of the economy dominated by services,” he says.
By contrast, Mr Charlton emphasises that Singapore is positioning itself as a standalone centre for arbitration. Part of its appeal is its independence from China, which its closest legal market competitor, Hong Kong, cannot boast.
In Australia, the client base is largely made up of ASX-listed and privately owned businesses, plus some multinational companies in a range of industries, according to Mr Fogarty. Resources, mining, infrastructure, IPOs and real estate are all on the agenda for Australian clients.
However, the market is not known for any particular brand of expertise, Mr Fogarty has found.
“Australia is a full-service market without being known as a specialist hub for anything,” he says.
Innovation reaching new heights
It’s no secret that when it comes to technology, America is miles ahead of the rest of the world.
Dr Beaton says North America, including both the US and Canada, is leading the way in terms of technology and innovation in the legal industry.
“I say that because the amount of venture capital and private equity that is being poured in completely dwarfs the rest of the world put together,” he says.
In 2014, more than US$400 million of private equity and venture capital was injected into law tech in America, according to Dr Beaton.
“That’s given a phenomenal boost. It’s just gigantic, and that does not include corporate equity and investments done by people like Google, who are heavily going into consumer tech, B2C.”
With US companies like IBM establishing projects such as Watson, Dr Beaton says corporates have an additional incentive to invest in law tech in this jurisdiction.
“With artificial intelligence you’re getting this huge corporate initiative, so you’ve got both private capital – in the form of venture and private equity – and corporate capital being poured in.”
Yet if North America takes gold in innovation, it is unclear who claims the other steps on the podium.
“I don’t think out of Australia, Singapore and the UK that anyone is ahead,” Dr Beaton says.
However, according to Mr Fogarty, Australia and the UK may be one step ahead of Singapore.
The Australian market has already seen the emergence of more NewLaw firms, as well as increased adoption of outsourcing by the larger firms, Mr Fogarty says.
“New, nimble law firms (NewLaw) are arriving onto the scene with limited office space or facilities and low staff numbers, usually made up of senior lawyers with specific expertise, trying to compete with the full-service firms for particular types of work,” he says.
These NewLaw firms often have a lower cost base and fixed-fee rates, which can attract certain clients and result in higher profitability. They are also able to offer much more flexible work arrangements, which can appeal to staff, he explains.
Larger firms are also turning to technology to improve work efficiency in multiple ways.
“Certainly, firms are looking into advances in technology to assist and make more efficient major projects, like discovery on huge pieces of litigation,” Mr Fogarty says.
“Some firms are also using the latest devices to permit electronic documentation and execution of transactions, limiting the need for endless hard-copy paperwork.
“Mass off-the-plan sales of Australian residential property at trade fairs in Asia are often done with an electronic signature on an iPad, on the spot, significantly speeding up the process.”
Outsourcing is also on the rise, among both larger firms and in-house teams.
“Some larger firms and clients with large in-house legal teams are outsourcing some services (back-office HR or even due diligence exercises) to overseas, typically where hourly rates are much lower: places like India, the Philippines, South Africa,” he says.
Over in the UK, some London-based firms are embracing what has been termed ‘north-shoring’, according to Mr Fogarty.
“In an attempt to increase profitability, many of the London-based firms are opening lower cost base operations in cities like Manchester and Birmingham,” he says.
“These centres are largely populated by paralegal-level assistants, who undertake the more commoditised aspects of transactions and cases.”
Flexible working arrangements are also becoming far more common, in a bid to tighten up expenditure.
“Firms are also resourcing more flexibly, with a more ready acceptance of the use of interim and contract lawyers to assist in the peaks of any workflow. Many are also seeking to utilise the skills of firm alumni who may not be in full-time employment,” according to Mr Fogarty.
In addition to the large number of global law firm mergers over recent years, Mr Fogarty says there has been a proliferation of new niche firms in the UK, particularly in the areas of technology, employment and litigation.
Bringing up the rear in the innovation race is Singapore.
“The law firm-backed, flexible-resourcing businesses are gradually making their way into Singapore, but it is nothing like as developed a market as we would see in the US and UK,” Mr Fogarty says.
Nonetheless, some global firms are testing new options worldwide, which will affect the Singaporean market. Mr Charlton says Clifford Chance is focused on promoting technology and innovation equally in all jurisdictions.
“We are always looking for ways to innovate,” Mr Charlton says. “This is not by jurisdiction, but firm-wide.”
“We opened our Legal Support Centre in Delhi in 2013, and have an assigned global head of innovation and business change.”
Clifford Chance also recently announced a partnership with the artificial intelligence software provider Kira Systems.
“There are a range of new entrants in the market who specialise in the automation of legal services. They focus on smaller pieces of the wider legal offering,” Mr Charlton says.
“Our clients seek out added value, high quality and often quite intricate and complex solutions – this is our focus. Our investment in innovative practices simply supplements our work at the top end of the market.”
When it comes to landing a job, some jurisdictions offer better odds than others. Singapore’s growing market has a lot of positions available, and the UK is attracting many lawyers from overseas due to a local shortage, while in Australia and the US opportunities are few and far between.
Mr Fogarty says there are certainly enough jobs in Singapore for good lawyers who have trained in top-tier Singaporean, UK, US or Australian law firms.
The job market in the UK is also relatively buoyant, and more work is expected to be generated by the Brexit process, which will potentially boost demand for lawyers.
“There is a shortage of the highest-quality lawyer candidates, who are capable of securing roles within the global firms, and this is the reason that we see relatively high numbers of foreign lawyers working within the London market,” Mr Fogarty says.
Starting salaries for newly qualified lawyers at top-tier UK firms have been significantly inflated to compete with the US firms that operate there, and retention rates are impressive, he adds.
“The retention rates within the large London firms have traditionally been very high and, whilst we have seen the retention percentage reduce slightly, it is still usual for a firm to retain around 90 per cent of their trainee lawyers.”
Salaries in London aim to stay competitive with the best on offer in the US, with Mr Charlton confirming that firms look towards US salaries as benchmarks.
Meanwhile, he says, the New York legal market is traditionally the strongest in the US in terms of remuneration.
“The New York legal market drives trends in the US, and with US firms in other markets,” Mr Charlton says.
The job market in Australia is currently experiencing a difficult dynamic, with law firms reluctant to hire graduates and instead looking to hire experienced lawyers.
“At the experienced lawyer level, [Australia] is a candidate-short market. Good-quality candidates receive multiple offers,” Mr Fogarty says.
“This is because of the decline in graduate lawyer hires the larger firms now invest in. Firms clearly do not want to hire graduates in numbers beyond almost the bare minimum, to avoid incurring the cost. Therefore teams are now more leanly resourced.”
With firms recruiting fewer juniors, and law schools producing more graduates, many are finding themselves qualified but unable to secure a job.
“Many graduates, because of the increasing number of law schools, struggle to secure jobs in the law straight out of university,” Mr Fogarty says.
“Usually it’s only the very best [that get jobs]: those who have the best academic results, have undertaken seasonal clerkships with firms and have had a balanced or multifaceted life experience to date.”
Dr Beaton adds that the trend of more work being done in-house is contributing to law firms cutting back the number of lawyers they employ.
“The trend in the top 20 firms is to shed lawyers,” he says. “There’s a reduction or a slowing in the growth rate, depending on the firm or the segment that you look at. This is because work is going in-house or because work is simply not there.”
In these circumstances, it is no surprise that a growing number of young Australian lawyers are heading overseas.
Many young lawyers have a desire to work overseas at some point, and now would be a sensible time to do so, with UK and Singaporean firms opening their doors while Australian firms are tightening their intakes.
Overall, the Australian market is relatively secure compared with overseas locations – but in a globalised world, no market acts in isolation.