Revenue figures for 2002/03 reflect a subdued year, not to mention a particularly flat third quarter. Francis Wilkins discovers while the business of law is not immune to uncertainty, not everyone is struggling
Businesses and business analysts eagerly awaited this year’s reporting season, not least because many hoped the figures would shed some light on how companies had weathered the economic downturn that dogged much of 2002/03. Revenues have taken a battering, budgets were revised downward and while the corner now appears to have been turned, caution is still the watchword. For lawyers, there was added interest — or should that be dread? — with end-of-year salary reviews expected to reflect the conservatism of the times.
Figures published recently by Lawyers Weekly revealed that most national law firms that responded to requests for information achieved revenue growth at or below 10 per cent, while several mid-tier firms achieved higher rates — topped by Sparke Helmore at 28.9 per cent.
So what did the end-of-year figures say about how Australian law firms fared over 2002/03? Stuart Gregory, CEO of McCullough Robertson, said the big national firms’ greater exposure to multinational companies — and hence the economic woes experienced globally — likely played a role in reducing the revenue those firms would otherwise have achieved. Smaller firms whose client base is focused more in Australia, may not have been hit so hard. (McCullough Robertson boosted its 2001/02 revenue of $35 million to $40.3 million (Lawyers Weekly estimate) last year — a 15 per cent change.)
Gregory added that when the going gets tough, clients start to look more closely at price and value. Big companies with a panel of law firms may then decide to transfer some of their work from the top-tier firms on the panel to some of the smaller firms. Gregory estimated that if McCullough Robertson normally gets one to five per cent of a client’s work, the firm might be able to pick up between 10 and 15 per cent when times are hard. Taking advantage of this opportunity not only boosts the revenue of smaller firms, but cuts into that of the top-tier players.
But while having a more domestic focus might protect a firm from some of the effects of a global downturn, Gregory added that it is really a “swings and roundabouts” situation. Once things pick up internationally, the larger firms with greater access to multinational clients will benefit considerably more than those whose clients are predominantly Australian.
Gregory said his outlook for the current financial year would be “more conservative”, with the firm expecting growth but not at the same rate as in 2002/03.
Henry Lanzer, managing partner of Arnold Bloch Leibler, said that while the downturn in the global economy, the Iraq war, SARS and the drop in major transactional activity have undoubtedly had an effect, it has not necessarily been more significant for large firms. While Arnold Bloch Leibler didn’t achieve its budgeted 20 per cent revenue growth, it was still able to grow by 11.9 per cent. Lanzer attributed this to the firm holding its position in its traditional markets and being less affected by the drop in major transactional work. The firm’s new growth in Sydney and in its industrial relations practices was also a major contributor, he added. Lanzer said he is “quietly confident” Arnold Bloch Leibler will achieve revenue of approximately 15 per cent in 2003/04.
“There’s no question that it’s a difficult and uncertain environment,” he said. “There’s no question that most professional firms were very badly affected — and more so than they are prepared to admit. As we stand at the moment, the signs are positive, but just as things may turn quickly one way, they may turn the other way too.”
Phil Clark, CEO of Minter Ellison, said despite revenue growth having tapered in 2002/03, he was “pretty pleased” with the firm’s 8.1 per cent performance. Minters’ brand, the firm’s broad client base and its being less dependent on straight corporate work — as well as more than $40 million of government work — were the key contributors. Clark added that global economic woes had not hurt the firm significantly, with Minters picking up plenty of work in Asia and deals at the Hong Kong office “going through the roof”. Minters is budgeting growth of more than 20 per cent internationally, while its overall figure is set deliberately lower than 2002/03 so the firm can easily beat it.
CEO of Freehills, Peter Hay, advised caution when comparing the revenue growth of small and top-tier firms. Freehills achieved 9.5 per cent revenue growth — the largest of the top-tier firms — but Hay noted because the large firms started with a larger base, there is much less room for growth. “We see our position in the market such that it doesn’t grow fast at our level,” Hay said. “We are very big in a market, which in global terms is tiny, and there’s an inherent limit on growth. But we’ve had as many referrals from overseas this past year as before and we’ve not seen a drying up of work.”
Hay added that the effects of global problems were not always predictable or clear cut: “Things like SARS make it less likely that business leaders will do transactions, so we wring our hands — but we still do 10 per cent [revenue growth]. Sometimes even a dicky economy can spawn the conditions for a deal.”