As businesses re-evaluate their external legal budgets, mid-tier firms are seizing the chance to show what they can offer as alternatives to the top tier, Zoe Lyon writes
With the GFC worming its way further into Australia's real economy, businesses are trimming back the fat - but that's not bad news for all the players in the legal sphere.
With some businesses starting to reconsider their unwitting devotion to the top-tier, mid-tier players are emerging as competitively priced alternatives.
Bill Fazio, managing partner of Herbert Geer, says that with businesses now scrutinising every cost, in-house legal counsel are under pressure to find ways to reduce their external legal spend.
"I think the pressure is on the buyers of legal services to justify how they spend their budget ... and while I think it was already a significant trend, these circumstances only reinforce the trend towards asking 'Do we always need to send all our work to a panel of two or three mega-firms?'," he says.
Alan McArthur, managing partner of DibbsBarker, agrees that even those businesses that traditionally haven't looked beyond the top-tier are now considering lower-priced, mid-tier players.
"The large firms will effectively try and [hold onto their rates] and if necessary they'll restructure their business to [do so]. So they're prepared to lose work to try and hold their position," he says.
"[But] I think all in-house counsel are under pressure about costs ... and the question is being asked of them: 'Have you tested the market and are you comfortable that you've done everything you can to make sure we get value for money?'.
"For corporate counsel who have traditionally always had strong views on quality - and who have tended to use only a few firms - in times like these they start to look outside their traditional and well-worn relationships to see what other options they've got."
McArthur warns, however, that sophisticated businesses won't be taking risky gambles with their legal advice, and mid-tier firms will have to prove their worth if they want to be in with a shot.
"You're not going to get a seat at the table unless you've actually got the business know-how, the critical mass and the quality. People aren't going to take a punt on someone unknown or who doesn't have the expertise," he says.
"But they are willing to look outside their normal relationships, and if you can meet the market in terms of those criteria, they're prepared to give you an opportunity, and that's all we really ask for. If we can get an opportunity we think we can usually demonstrate that we can deliver."
Fazio acknowledges that large clients often won't forgo the top-tier for all their legal work, and for some types of work, such firms are still the most appropriate players to do the job. However, he believes businesses are becoming more selective about their legal spend - scrutinising what really needs to be done by a large firm, and what can be done just as effectively by a smaller, lower-priced competitor.
"The mega-firms have a very big machine and there's a lot that comes from their size that can help the client, and obviously there are times when [clients] need that and then those firms are absolutely the right choice," he says. "But for an in-house counsel managing a significant legal spend, why wouldn't you ask 'Am I sure I'm giving the work to the right level of the legal market?'. I think the GFC has emphasised that concern," he says.
Robert Hynes, managing partner of boutique Queensland firm Hynes Lawyers, also believes that smaller, specialised boutique firms can give the top-tier a run for their money for appropriate clients and appropriate work. However, like Fazio, he concedes that they can't always act as a complete substitute for a top-tier firm.
"If you're talking about a national public company which has a need for multiple office locations, then the major firms will always suit them," he says. "But a company might have a one-off project ... and I think for the specialist firms - those that can potentially compete on a very similar technical level and offer the same skill level - some clients are becoming very savvy about the fact that if you shop around, some of them can do the same job, but for a better price."
In addition to attracting top clients, the downturn presents opportunities for mid-tiers to recruit top-level lawyers as promotions in the top-tier firms slow down, and skilled Australian lawyers return from overseas and face a tough recruitment market. According to Fazio, the legal market at the mid-tier level has become more sophisticated over recent years, and with recruitment opportunities in the top-tier drying up, the mid-tier has a chance to show talented lawyers what they have to offer.
"The firms outside the mega-firms have become more significant - a lot more of them are multi-state, a lot more of them are on government panels - [they're] becoming a more viable and interesting choice," he says.
A factor further contributing to this trend is that while many of the top-tier firms are in the advanced stages of growth, some of their mid-tier counterparts still have significant long-term growth targets in terms of their geographic spread, or their depth in particular practice groups. This means that some mid-tier firms are still able to actively recruit, at least in selected areas.
"We're committed to building the Brisbane and Sydney offices beyond what they are, and we're committed to [recruiting] high-quality lawyers within a non mega-firm structure that lets us hopefully provide a very similar service at a slightly lower cost," Fazio says.
"That strategy makes as much sense - if not more sense - than it did 18 months ago when we committed to it. There are limitations as to how fast you might move ... but the strategy and our commitment to it hasn't changed."
Similarly, at DibbsBarker, the firm has identified key practice areas where it's focusing its growth, and it's using the downturn as a chance to pick up quality lawyers.
"We know where we want to build and where our gaps are, and we're actually out in the market actively looking for people to fill those gaps at a time when there's a lot more talent in the market than there has been probably for the last three to four years," McArthur says.
"I always think downtimes are a great opportunity ... provided you're willing to take a long-term view and your partnership is prepared to invest in a three-year horizon."
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