I’m proud to be lead author of the Thomson Reuters Peer Monitor report on the Australian legal market, prepared in collaboration with the Melbourne Law School. The report received good coverage in the Friday 28 August edition of the Australian Financial Review.
In summary, the report reveals that the Australian legal market bears all the hallmarks of a mature industry: declining demand, increased price-based competition, worktype decomposition, entry of market disruptors, technology substitution, and growth in both consolidators and niche players. While market conditions are tough, they’re not calamitous. The larger firms generally have shrinking profit pools but have kept their heavy-hitters happy by de-equisiting other partners and cutting headcount. The contention that a firm cannot cut their way to greatness probably doesn’t hold true if one looks at how the larger firms have performed in recent years. However, the point when cutting comprises the underlying business model of scale, range and reach cannot be far off.
In my view, the biggest structural change in the market has not been NewLaw entrants or even globalisation, it has been the dramatic shift of work in-house and an increase in buyer power and sophistication. This trend has been prevalent in Australia for over a decade but its impact is really being felt in a benign economy and a demoralised political environment.
Some specific takeouts
- While the long-term trend is negative, the last quarter of F15 saw an increase in demand and the first half of 2015 saw firms rehiring lawyers. It would be great to predict a bottoming out of the market and upside from here on end, but it’s foolish to pick a trend from one data point.
- It’s been Christmas all year for firms with strong property and construction and M&A practices. It’s been Good Friday all year for firms with big banking and finance practices.
- In the global versus local scrap, it appears the domestic firms are winning in litigation, IP and general corporate, with the globals making headway in property and M&A. It begs the question whether a global brand puts a firm at a disadvantage in targeting work perceived as domestic or jurisdiction-specific?
- The data suggests that the firms that have gone down the global route have had a greater drop off in demand but have increased profits per equity partner. Perhaps it is these firms that have had more radical changes in their equity partner ranks and downsizing some practices.
- In these tough times it appears that technology is the biggest investment area of the larger firms. In other sectors of the economy facing maturity, marketing and BD expenditure tends to increase relative to other areas. The signs are that law firms are banking on technology to make step-change improvements in efficiency and effectiveness.
- The headhunters and recruitment firms supplying the legal market are popping champagne corks. Expenditure increased over 10% in this area in 2015 versus 2014.
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