Public enterprise

A public listing may not be for everyone, but it has paid off for Slater & Gordon in Australia

As the first law firm to be traded on the Australian Securities Exchange (ASX), and possibly the first in the world to publicly list, the experience of Slater & Gordon has attracted the interest of the legal and business communities locally and internationally.

But despite the headlines of 2007, it is simply business as usual for Australia’s largest plaintiff law firm. Clients appear unconcerned by the move and enquiries remain strong. Anecdotally, there is an increase in enquiries from potential corporate clients, as if the ASX listing has freshly validated the commercial credentials of the business.

Transparency

The main difference between life pre- and post-listing is that the firm now has some extra disclosure requirements. Unlike its competitors, Slater & Gordon’s financial position is available for the world to see.

Its decision-making is also transparent – the work of a five-member board that includes three executive directors and two independent non-executive directors, among them chairman Anna Booth, a prominent Australian business name and former union leader. Over time the board will evolve to a majority of independent directors.

Transparency also extends to the issue of the firm’s duties to its customers and owners, a ‘conflict’ that initially troubled some commentators. Like any business, Slater & Gordon has responsibilities to multiple stakeholders, including clients, shareholders and the wider community.

With the approval of the relevant regulators, Slater & Gordon’s position is clearly and openly defined: lawyers owe a primary duty to the courts and a secondary duty to their clients. Their obligations to the owners of their firm, be they partners or shareholders, are subservient to those duties.

Growth strategy

The public listing of the firm may have come as a surprise to some, but its realisation was the result of years of planning, consultation and plain hard work. It arose from an exhaustive management review five years earlier.

The primary purpose of the listing was to access capital to support our growth strategy. Our management team had identified opportunities to grow the firm through both the acquisition of other practices and by accelerating the organic growth of the business through increased advertising and other marketing initiatives. The traditional methods of funding the business had been for the owners to put in more funds or to borrow from the bank. This time other options were considered, including talks with private equity funds. Eventually it was apparent that the best option was to go public – to share the ownership of the firm more widely, both within the firm and the wider community.

Under the initial public offering (IPO), a total of 35 million shares in Slater & Gordon Limited were offered, attracting strong interest from both institutional and retail investors. On 21 May 2007, shares in Slater & Gordon were issued at A$1 (46p) each. By the close of that first day they were worth A$1.40 (64p) each, and within weeks were trading in the A$1.70-A$1.80 (78p-83p) band, with a high of A$1.97 (91p). More recently, they shed around 20 cents (0.09p) in the worldwide fallout from the subprime crisis.

Today around 32 per cent of the company is externally owned, with leading institutional investors holding strong stakes.

Ownership plan

Since July 2005 Slater & Gordon has acquired 11 other legal firms, including five since the public listing of May last year. Forecast earnings have been adjusted accordingly. Over the same period, the firm has opened several new offices, extending its national network to 24 locations.

An expanded marketing programme is expected to increase enquiries from potential clients (already Slater & Gordon deals with well over 30,000 enquiries each year). And the capital raised will ease pressure from the capital-intensive work of a plaintiff law firm, where much work is on a no-win, no-fee deferred payment basis, tying up some A$60m-A$70m (£27.56m-£32.15m) of working capital.

Importantly, it gives us additional means to attract and retain key staff in a very competitive market for top talent. A key aspect of the total Slater & Gordon offering is the opportunity to participate in the ownership of the business through the employee ownership plan. Functioning as both a reward for performance and a long-term retention plan for key staff, the ownership plan offers participants access to a substantial number of shares, which vest over time when individual performance hurdles and service period requirements are met.

Some 40 staff members already participate in the ownership plan and more will be invited each year as part of their career development at the firm under protocols integrated into HR processes.

Whether other Australian or overseas law firms head down the Slater & Gordon path is their business. Legislation in most Australian jurisdictions allows for any type of legal practice to float, but it will not be an appropriate course for all to follow. For us, listing was the best option to source the capital needed to progress our growth plans. Other firms may not have the same call for capital.

But any firm that has a sustainable business model, has the management capacity to deal with the demands of being publicly listed, is not frightened by transparency and has a call for capital has the potential to float.

We expect that the same considerations will apply in other countries when their laws allow for publicly listed law firms.

Mike Feehan is chief operating officer at Slater & Gordon

On 23 November 2007 Slater & Gordon held its first AGM as a public company. Highlights included an after-tax profit of A$10.65m (£4.89m) – 17.7 per cent higher than the prospect forecast, 175 per cent higher that the previous year and a 38.8 per cent year-on-year revenue increase to A$62.93m (£28.9).