If Mahlab Recruitment’s 2007 private practice survey is anything to go by, the firms had every reason to be putting retention at the top of the priority list for the upcoming year.

The Hudson HR priorities 2008 survey echoed its competitors’ results, rating staff development and retention (41 per cent) and attracting suitable staff (38 per cent) as the top two priorities within the professional services sector in 2008.

Fifty-eight per cent of private practice lawyers who responded to the Mahlab survey said that they were considering leaving their current position — a nine per cent jump from last year’s results. Significantly however, only 30 per cent of these respondents were considering moving to another Australian law firm (down from 43 per cent the year before).

The remainder are looking elsewhere — overseas or in-house — and some are looking to leave the profession altogether.

Australian law firms increasingly have to compete with international firms to retain talented Australian lawyers, and according to Alex Neskes, Mahlab Recruitment’s manager for private practice, it’s the junior lawyers with a few years experience who are most likely to be drawn overseas. “I think it’s become de rigueur,” she said.

Helena Kuo, the national human resources manager at Corrs Chambers Westgarth, agrees. “I think Corrs is in a similar position to the other top law firms. The lawyers at the two to three year mark are probably the ones that we’re most exposed to losing,” she said. “They’ve finished their graduate program, they’re skilled up, and for that group of lawyers there is the lure of working overseas.”

As Neskes explained, even putting the considerable salaries aside, working overseas is a significant drawcard for Australian lawyers. “I think undoubtedly the higher salaries are one of the factors that lawyers take into account, but I think it’s also the actual experience of working overseas in a larger market and being able to travel,” she said.

“The reality is that the key international firms, such as the magic circle firms in the UK, will recruit the top five to ten per cent of the Australian market. They poach the absolute best,” Neskes said.

“However, there are also lawyers outside that small pool who want to work overseas, who might end up working for a slightly smaller firm. Those lawyers will go overseas for the experience, irrespective of whether they’re working for the magic circle firms that are offering the astronomical salaries.”

Stuart Fuller, a managing partner at Mallesons Stephen Jaques, also said that as firms overseas experience a similar lawyer shortage, some of them have now started to target even more junior Australian lawyers.

“After [a couple of years’] training under your belt, you’re a much better lawyer than you were when you first joined the firm. That’s when we’ve traditionally seen lawyers go overseas to work and that’s still a fairly strong trend,” Fuller said.

“But now you’ve got the big four UK firms, the global elite, competing in the summer clerk programs and the graduate recruitment programs as well. That’s just good testimony to how good Australian lawyers are.”

Losing lawyers overseas isn’t the only concern for Australian law firms. Neskes said firms are also having to compete with a growing number of in-house opportunities.

“In the past, because of an absence of appropriate in-house opportunities, some lawyers were prepared to continue working in private practice and sometimes that took them all the way to partner level. But at the moment there’s an increase in the number of in-house opportunities

that they’re able to explore,” she said.

Fuller agrees that a career in-house has become much more feasible in recent years. “There’s no doubt that in-house departments have increased in size significantly over recent years so that really is a viable opportunity for lawyers now,” he said.

He also noted that a larger number of lawyers are now leaving the profession altogether to take up non-legal roles in the corporate sector. “Lawyers going into investment banking or other commercial roles — that’s a lot more prevalent than it was in the past. Again, it’s just that lawyers have a particular training which means they’re very analytical so they’re good in the commercial world,” Fuller said.

Neskes, Fuller and Kuo all listed M&A and banking and finance as the areas in greatest demand for lawyers. Other areas mentioned were corporate, construction, capital markets and equity.

“These are the key areas where the overseas firms are recruiting so you’re feeling the haemorrhaging in that space,” Neskes explained.

According to Fuller, Mallesons has put retention at the top of its priority list. “Our board and chief executive consider retention rates, the people part of our business and the strategies we put in around out people, absolutely fundamental to the business,” he said.

And it appears to be paying off. Despite the competition between the firms for a smaller pool of lawyers, their lawyer turnover rate dropped quite significantly last year to 19.7 per cent, down from 25.6 per cent the previous year.

Fuller listed a number of strategies that Mallesons has implemented over the past few years aimed at improving staff retention, including a transparent remuneration scheme and formal bonus scheme; a structured training program for very junior lawyers; a tailored career management and a development program for more experienced lawyers; a voluntary mentoring program matching junior lawyers to more experienced ones.

Kuo explained that Corrs too has implemented a number of programs targeting retention that enabled them to lower their attrition rate last year, despite the tight legal labour market. For example, the firm offers a scholarship which allows Corrs lawyers to attend courses at international business schools such as Harvard and Wharton in the US. It also has an overseas internship program. Corrs also has flexible work options which are particularly designed to help retain women lawyers and, like Mallesons, a transparent bonus scheme.

However, despite their professed emphasis on staff development, poaching leaders is more popular with firms than growing them internally. According to the Hudson survey findings, less that 8 per cent of the professional service industry employers surveyed rated developing leadership capabilities as a top priority in the coming year.

Stuart Ablethorpe, practice leader at Hudson legal believes that firms will have to lift their game as the market for legal professionals tightens in the next 12 months.

“Ultimately, it’s about offering an attractive employment proposition that attracts high quality talent while keeping existing employees satisfied, challenged and motivated,” Ablethorpe said.

Neskes agreed that the pressure on firms won’t be easing in 2008. “The candidate pool was very tight in 2007 and we think that will continue in 2008. We think there’ll be consistently high demand for those junior to intermediate lawyers — that pool of lawyers that were difficult to find last year,” she said.

Additional reporting by Laura MacIntyre