Strategic decisions

Patrick Stewart says that the shift towards a more business-oriented legal market has increased the competitive pressure on Australian firms. Patrick Stewart is a freelance journalist.

At the start of the year, Arthur Andersen threw down a challenge to Australia's legal establishment when it announced plans to expand its ranks of lawyers from 90 to more than 200 in just two years.

Andersen Legal, as the accountancy firm's legal arm is known, is not yet considered a major threat by the leading players in the market. But its access through Arthur Andersen to corporate clients, its aggressive poaching of staff and its ambition to capture premium transactional work has forced the leading players in the market to take the threat seriously.

The moves of the other accountancy firms, notably Ernst & Young and KPMG which have set up small legal units, are are also being monitored.

That the market is conducive to new entrants is clear. A sea change has taken place over the past 10 years with the market becoming increasingly competitive. As Robert Handley, a partner in the London office of Minter Ellison, notes: “Previously, big companies used one set of lawyers, but over the past decade they have started tendering for various services, including legal services.”

This process has enabled firms to get a foot in the door with corporate clients that they never had before. Minter Ellison, for example, snatched airline Qantas from Freehill Hollingdale & Page after a formal tender three years ago.

The emergence of new areas of practice such as privatisation, where Clayton Utz has carved out a name for itself has created openings for firms traditionally perceived to be outside the top tier.

These firms have also benefited from conflicts of interest. As Greg Hammond, London resident partner at Mallesons Stephen Jaques, says: “As firms have become bigger and more national, there have been more conflicts and firms have picked up work from that source.”

The growth in opportunities for practices such as Clayton Utz and Minters does not mean that the top-tier firms have been toppled. Mallesons Stephen Jaques, Allen Allen & Hemsley, Arthur Robinson & Hedderwicks, Freehill Hollingdale & Page, Blake Dawson Waldron and Corrs Chambers Westgarth are still forces to be reckoned with in some practice areas.

But the shift towards a more business-oriented legal market, where competitive pricing and standards of service have become crucial in the client-lawyer equation, has led to a reshuffling of the pack.

Meanwhile, the pressure on firms to address deficiencies has mounted. Blake Dawson Waldron is one firm that has had setbacks over the past decade and many identify it as being in the market for a merger partner. As one competitor notes: “What it lacks is a corporate group which leads the firm.”

Jeremy Kriewaldt, resident partner at Blake Dawson Waldron's London office, disputes this interpretation, but he does recognise that the firm has had to improve in certain areas.

While a large-scale merger has not been ruled out, its current thinking is to expand through strategic acquisition and lateral hires. Over the past 18 months, it has merged with boutique tax practice Rosenblum & Partners and taken on teams from medium-sized firms to bolster its Brisbane and healthcare practices.

Firms are also looking more carefully at issues such as the operation of national partnerships and globalisation.

Nationally, firms have become more aware that they need to provide coverage in the key commercial centres of Sydney, Melbourne, Perth and Brisbane in order to claim a place in the premier league.

Recent times have seen Arthur Robinson & Hedderwicks open in Perth, Freehill Hollingdale & Page merge with Perth firm Parker & Parker, and Allen Allen & Hemsley merge with Brisbane firm Feez Ruthning. At the time of going to press, Phillips Fox, another large firm with national ambitions, announced its plans to merge with a Perth practice.

But a large question mark hangs over how integrated national structures have to be. Some firms, such as Freehill Hollingdale & Page, operate as a federation of partnerships under one name, while others run single equity partnerships. Allen Allen & Hemsley and Arthur Robinson, meanwhile, have a long-standing strategic alliance and do not see the need to move any closer.

Yet some argue that the push towards closer structures centred on Sydney, Australia's financial capital, is inevitable. Kriewaldt thinks it is easier for properly integrated firms to make decisions on important strategic issues such as opening offices abroad.

Peter Jones, a partner at Allens, is not convinced, arguing that its looser arrangements with Arthur Robinson work well. But there is common agreement among Australian firms that change is inevitable.