The new Australian rules
1 May 2000
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Abigail Townsend reports on how the Australian legal market is being shaken by panel reviews and globalisation.
As in any legal market in the world, the driving force behind the changing fortunes of Australia's law firms are the clients.
But unlike many other economic centres, the largest Australian companies are also demanding more and more from their professional services providers. As a result, the country is in the grip of a series of high-profile and dramatic panel reviews. Numbers of retained firms are being cut from as many as 40 to only one or two main corporate advisers.
The four main retail banks - ANZ, the Commonwealth Bank, National Australia Bank (NAB) and Westpac - are the latest and most significant to undertake such reviews.
The most recent is NAB. It uses 13 law firms but the results of its review are due any day. Although Mallesons Stephen Jaques' position is believed to be safe - the firm has been involved with the bank since its beginnings in the last century - other practices are not so secure.
And then there is Westpac. It is one of Australia's oldest banks with global assets of more than AU$140bn (£55bn). But four years ago, concerned at the levels of legal spending, it began a gradual reduction of its 34-strong panel. By 1999, it was in a position to ask just 24 firms to bid for its work. And out of that, only a handful have survived. Mallesons, Allens Arthur Robinson, Corrs Chambers Westgarth and Minter Ellison have been retained, but the losers include major player Clayton Utz.
And even for the firms that managed to keep a panel place, the win was slightly less than victorious. It is understood that Westpac negotiated lower fees as part of the retention package and it had already gone through a 25 per cent reduction in legal spending before it even got to the final review.
It is not just the banks which are holding panel reviews. UK company Hendersen Investors was acquired by Australian insurance giant AMP two years ago.
UK firms will also feel the pinch when NAB, which with its ownership of the Yorkshire and Clydesdale brands makes it one of the UK's largest banks, undertakes its domestic panel review.
Regional general counsel Nuncio D'Angelo confirms that a UK review will occur on the back of the domestic one within the next few months "as a way of maximising competition between our service providers".
But panel culling is not just occurring in the financial sector. Telstra, Australia's largest telecommunications company, announced huge changes to its panel earlier this year.
The company, which spends an estimated AU$75m (£28.3m) annually on legal advice, sought to reduce this amount by retaining fewer firms for less money.
The winners included Mallesons and Blake Dawson Waldron but leading practice Freehill Hollingdale & Page was made a specialist
supplier in workplace relations only.
The impact for the firms goes beyond having less work. It has forced the market to question its service provision - who it is supplying, why and for how much.
Yet many senior players remain surprisingly relaxed about the changes, arguing that it is a natural economic development.
John Colvin, Blake Dawson's CEO, says that panel slashing has been going on for some time now but he believes that the second-tier has more to fear from the latest changes.
"This is not a recent development. Most of the major companies are downsizing their panels. But it has accelerated. Virtually every one of our major clients, or potential clients, is going to reduce their legal firms. But it is mainly an issue for the second-tier who are missing out when panels reduce down from 30 to four or five," he says.
Many also argue that however disagreeable to the status quo, the panel reviews make good business sense.
Freehill Hollingdale's national executive chairman Peter Hay says: "Our experience is that companies always plan to spend less. We come under some fee pressure and we have to live with this, as do our competitors."
Hay also believes that it is up to firms to start acting more commercially. He bravely argues: "The firms which provide the best solutions, add value and operate commercially have nothing to fear from reviews. It is part of good business practice."
Firms are also seeing their clients expand beyond domestic and Asian borders. Colvin says that Blake Dawson is being forced to consider its future position as more and more clients grow. "Most of the Asian deals are driven out of New York and Japan as well as Australia. We are thinking about the whole issue. We are actually embarking on an internal process over the next three to four months of talking to partners regarding their aspirations with regard to the whole subject of globalisation," he says.
Another senior Australian lawyer says: "The pressure will ultimately come from clients. They have significant requirements outside of Australia and significant capital raising requirements in both the New York and London markets. Clients are actually looking for a global solution."
Companies that are stretching beyond their own domestic borders include the Southern Pacific Hotels Group - which was bought by Bass from Hyatt International earlier this year - NAB, BSkyB and AMP.
Non-Australian companies are also creating a foothold in the country which in turn will create a demand for Australian legal advice. For example, UK and US giant BP Amoco has 70,000 employees worldwide and has in-house counsel to specifically look after all interests in the Far East and Australia.
Hay says: "Many of our large Australian clients are increasingly moving into Asia and further afield and we also act for many international organisations which are moving into Australasian markets."
As most insiders concede, the legal market is becoming more and more competitive, particularly as the country boasts such a large number of lawyers.
Most commentators expect that clients' decisions to work internationally and reduce legal spending will force consolidation upon the market.
Put simply, there will be less work going to fewer firms.
Another senior lawyer believes it is imperative that all firms are able to offer the best possible service from secure infrastructures. He argues that you need only look at national versus federated firms as an area that companies will pick up on.
He says: "The sort of feedback we get is "you are a national structure'. We have got very well-developed processes for managing clients nationally and that seems to be important, the general quality of our national delivery.
"Technology and what we can do by linking clients into the firm's system also seems to be important."
The future for Australian firms and their clients can never be guaranteed. But Hays says: "The Australian market is very competitive. The firms that will survive will be those who are successful and innovative."