Australia 2018: fightback intensifies against Big Four invaders

Accountancy firms have been poaching lawyers and clients from law firms for some time, as they continue to push aggressively into the legal services market. Now, several Australian firms are in the vanguard of a fightback. By developing innovative technology, buying niche consultancies and hiring for a wider range of skills, their strategy is to offer clients more and to develop new revenue streams.

“Many clients are looking for solutions that reduce their risk, are more cost-efficient and easier to administer,” says Andrew Cunningham, partner at MinterEllison, a Sydney-based law firm. Multidisciplinary approaches that combine legal and non-legal capabilities from different areas are the result, he adds.

In July, MinterEllison, which traces its roots back almost 200 years, bought the tech consultancy ITNewcom to strengthen its own technology division and provide a greater breadth of service. By incorporating its specialist skills, says MinterEllison, it is responding to clients’ demand for advice that goes well beyond legal services.

“Clients see a gap between traditional ‘legal’ services and the need for more practical business advice, and they want their ‘trusted advisers’ to provide it,” says Mr Cunningham.

Intense competition in Australia’s legal market is forcing law firms to look beyond their core expertise, pushing many to the forefront of innovation in the Asia-Pacific region and argu­ably ahead of many leading US and UK firms. Revenues for the Australian legal sector are forecast to grow by just 1 per cent to A$20.7bn (US$15.6bn) over the five years to 2022-2023 as “intensifying external competition” squeezes prices and margins, according to a report by IbisWorld.

“This external competition largely stems from large accounting firms and government departments that have increasingly expanded on their in-house legal services capabilities,” says Kim Do, an analyst at the research con­sultancy.

The Big Four accountancy firms — PwC, KPMG, Deloitte and EY — have poached dozens of lawyers from Australian law firms over re­cent years to expand their legal practices. Senior partners Tony O’Malley and Stuart Fuller, formerly of King & Wood Mallesons, have been installed as head of the legal services divisions at PwC and KPMG, respectively.

Small subcontractors were often not bothering to use the dispute resolution machinery . . . and were writing off claims of up to A$50,000

Law firms have responded in kind. In 2014, MinterEllis­on installed Tony Harrington, former Australian head of PwC, as chief executive; this year Slater & Gordon hired John Somerville, a former KPMG national partner, as chief executive.

“We are seeing the traditional boundaries between the legal and consultancy firms blur as professional services firms [develop] their models to make themselves more relevant to their clients,” says Mr O’Malley.

“Delivering value for clients through transformation, strategic M&A and management of regulatory risk is complex and multi-faceted,” he adds. The firms that have multidisciplinary teams and that apply technology to clients’ problems “will be the winners in the long run”.

Jackson McDonald is among the traditional law firms now embracing the technology revolution. It has developed a web tool, Get Paid Quick, to help construction clients lodge legal claims faster and more cheaply in payment disputes under Western Australia’s Construction Contracts Act.

“We noticed small subcontractors were often not bothering to use the dispute resolution machinery in the law and were writing off claims of up to A$50,000 because they felt it was either too complex and time-consuming to prepare themselves or too expensive to hire a lawyer,” says Thomas Jacobs, partner at the firm.

He and his team joined forces with a tech business to develop a web-based app that provides a low-cost online application process that takes as little as an hour to complete and ends the need for a lengthy meeting with a lawyer.

“Technology and automation enable us to compete with larger law firms and also tap into markets [that] in the past would have been prohibitively expensive,” says Mr Jacobs.

We will see the boundaries become even more fuzzy between the consultancy and legal services markets — only tradition is keeping them apart

Intensifying competition is also pushing Australian law firms to change how they work as they attempt to outpace domestic rivals at home and, increasingly, overseas.

Last year, law firm Ashurst created a team comprising lawyers, support services and a project manager to work on Project 90, a brainstorming initiative to streamline the firm’s finance projects. The team spends 90 days identify­ing areas for improvement, solving particular problems and working on new approaches.

Nichola Shaw, counsel and legal operations executive at Ashurst, says the project was spurred by greater competition, pressure on margins and clients’ demands for greater use of technology in legal matters: “The initiative is now being rolled out by the Ashurst finance team in London.”

One of the most significant innovations resulting from Project 90 is saving the firm up to A$1m a year. It has automated the process to generate “transaction bibles”, files containing all the executed legal documents at the conclusion of a financial matter or transaction. “We have reduced the production time for transaction bibles from several hours to 10 minutes and delegated the task away from junior lawyers to non-legal staff,” says Ms Shaw.

Although Australian law firms are embracing innovation and diversifying, academics warn that further convergence of the legal and consultancy sectors is likely.

“The Big Four are relatively larger in Australia in terms of revenues as a proportion of gross domestic product than they are in pretty much any market they operate in,” says Ian Gow, a professor at the University of Melbourne. PwC’s legal services unit, for instance, the biggest among the Big Four, has a team of 140 lawyers and 30 partners.

“Australian law firms are doing good stuff — forging partnerships overseas and introducing technology. But it is very difficult for them to match the Big Four in terms of scale,” says John Flood, professor of law and society at Griffith University in Queensland.

“We will see the boundaries become even more fuzzy between the consultancy and legal services markets — only tradition is keeping them apart.”

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Explore the Innovative Lawyers Asia-Pacific rankings 2018

Overall

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• Rule of law and access to justice • In-house
• Most Innovative Law Firms (International)
• Most Innovative Law Firms (Asia-Pacific)
• Most Innovative In-House Legal Teams

Business of Law

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• Australia • In-house
• New business & service delivery models • In-house
• New products & services
• Talent, strategy and changing behaviours • In-house
• Technology • In-house

Legal Expertise

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• Accessing new markets & capital
• Accessing new markets & capital (Asia-Pacific)
• Accessing new markets & capital (International)
• Australia • In-house
• Dispute resolution
• Driving value • In-house
• Enabling business growth • In-house
• Managing complexity & scale
• Managing complexity & scale (Asia-Pacific)
• Managing complexity & scale (International)