26 April 2010 | By James Swift
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It may taste a bit nasty to some, but A&O’s arrival could be just the tonic for Australia’s legal marketplace.
Good associates can be hard to find, or at least hard to hold onto, in Australia. Despite having first-class universities and being known as an overlawyered jurisdiction, Australia has a scarcity of good, three- to four-year PQEs, according to some managing partners. It is the travel bug, seemingly encoded into Australians’ DNA, that accounts for most of the attrition.
But since Allen & Overy (A&O) launched in Australia in February this year by recruiting 14 partners from one firm and declaring that it would next be on the lookout for associates, it has given managing partners a bit more food for thought in terms of employee retentio
“We’ve said from the start that we’re hoping to build up [our practice] to around 40 associates in the course of this year,” says A&O Sydney partner Grant Fuzi. “And we have had a positive reaction. We’ve been literally inundated by people interested; and not just in the domestic market, but from all over the world.”
“It’s a nice position for associates to be in,” chimes Nigel Clark, head of Minter Ellison’s London finance practice. “And inevitably it’s made HR departments sit up and take notice.”
The threat to firms’ staff is compounded by A&O’s arrival coinciding with a thaw in the legal market. Firms are beginning to unfreeze salaries and, after almost 18 months of sedated lateral movement activity, the market is becoming more fluid.
“The market here is increasingly sophisticated in terms of bonus schemes etc and firms will watch each other and have similar ideas,” says Clark. “But you wonder where [A&O] will pitch themselves. Will they be the biggest payers like the US firms were when they came in? It’s creating an interesting new dynamic for associates.”
A&O’s Fuzi would not be drawn on the subject of pay, saying only that A&O would be competitive.
But while everybody admits A&O’s recruitment drive has been, and will continue to be, disruptive, it is not a game-changer for domestic firms. For more than five years Australian firms have been losing associates and partners to the top firms in London and New York. The only difference now is that a lawyer who wants to work for a magic circle firm can do so without leaving the country.
“The Australian marketplace has been intensely competitive for a long time,” says Robert Millner, chief executive partner
at Mallesons Stephens Jaques. “This development adds another layer to the landscape, but it shouldn’t be overstated.”
But the threat of losing lawyers is not the only aspect of A&O’s arrival that has made managing partners come over all pensive. Post-downturn, introspection about the structure of law firms, which in Australia were largely shaped in the 1980s when the market liberalised to allow state firms to merge and become national, and the role of the Asian markets has come to a head.
“The question is,” says Corrs Chambers Westgarth chief executive partner John Denton, “whether that market, framed in the 1980s, is still relevant. There’s a need to question the models of law firms. This is a time of change.”
A&O’s entry into the market might just be the catalyst for change.
“[A&O’s] arrival has caused everybody to think about what will happen next in terms of more firms entering the market and what might be the pace of internationalisation in the market,” says Allens Arthur Robinson chief executive partner Michael Rose. “And it’s making people think about their next move very carefully.”
“There’ll be an uptick in Australian firms looking to work internationally,” predicts Baker & McKenzie partner Mark Chapple. “A&O’s arrival, and to some extent Norton Rose’s, is raising awareness of the benefits of having a law firm that could be both a regional and a local powerhouse.”
Australia’s top model
Some firms, such as Corrs Chambers Westgarth, insist that, unlike in the EU, to do well in Asia all a firm needs is capability and reputation. Others have gone for the bricks and mortar. In recent months Blake Dawson became one of the first Australian firms to open in Japan and Clayton Utz broke with its long tradition of operating outside Australia solely through relationships when it opened an office in Hong Kong.
“The big question for the Australian market is, what will internationalisation look like?” says Rose. “[A&O’s] approach has been to target some narrow practice areas and a particular type of client. But we also have DLA [Phillips Fox] and Norton Rose, which have broader practice areas, and it will be interesting to see which of these models really gains traction.”
Once one model does prove successful, it is almost certain that more top international firms will be opening in Australia. Even now some partners predict that two more US or UK firms will open in the near future.
“If we’re successful in this economy,” says Norton Rose group chief executive Peter Martyr, “do you think that the other firms are going to just let us get on with it?”.