Mahlab Recruitment has today released their annual legal survey for 2012 and joining us to discuss the major tends to emerge this year is the Managing Director of Mahlab Recruitment Victoria, Kathie Sampson, welcome Kathy.

Thank you.

And joining her is former King & Wood Mallesons Chief Executive Partner and Corporate Adviser Robert Milliner, Robert thanks for joining us.

Thanks David.

Robert I might kick off with you here and what a year we have had.  Would it be fair to say that we’ve never seen so much change in the Australian legal sector.

Yes I think that’s correct David.  It reminds me very much of what happened back in the mid 80s through to the mid 90s, that saw the development of the Australian national firms driven very much by clients and technology, so the big eight national firms that we know, firms such as Mallesons, Freehills, Clayton Utz, Minters and Allens, only really evolved over 20 years ago through that period where they merged a series of state based firms into national firms.  I think what we’re seeing now is the next round of that evolution as clients and technology again drive firms to look at how they deliver their services on a global basis.

Well we’ve certainly seen a lot of globalisation over the last I guess 18 to 12 months, in particular, can we expect more international entrants over the next 12 months?

I think that’s inevitable, whether they’re actually entrants of firms or firms creating relationships and alliances with firms in other countries I think you’ll see a mixture of both.  I think that what is driving this is clients, it’s technology but it’s also the concept of global brand awareness and that ties into the trend of global consolidation across all businesses, whether it’s in mining, banking and financial services, entertainment and media, whatever sector the fact is, is that clients therefore look for their service provider to have some form of either global reach or global recognition and we have seen one of the driving forces being that ability to service clients and be recognised by clients on a global basis.  That tied in with Australia’s interconnectedness in the world through energy and resources makes Australia a player in a market that might not have been seen 10 to 20 years ago.

And Katherine I might just bring you in here, how’s these international mergers and tie ups reshaped the legal sector model?

I think the mergers have reshaped it in a number of ways.  What’s happening in Australia now is these new internationally merged firms tend to be focussing on major transactional commercial B&F and commercial litigation matters, and are prepared to let other domestic areas drop.  There’s also a big rise in the mid-tier firms who are taking advantage of partner movement, a number of partners are not happy with the new entity and have voted with their feet and often taken clients with them, and gone to a smaller firm, often in the mid-tier, those firms in turn sell the, well you’re getting the same partner at a lower cost message to clients and obviously hope to deliver on that.  Interestingly though the mid-tier firms are also looking at international tie ups, so we see that as changing the model.  A small number of Australian firms have not yet linked up with anybody and there’s a small number of overseas firms that are now operating out of Australia without being merged, so it will be interesting to see what happens to those.  And I think that one of the other things that is changing is as the world shrinks more firms and more corporate clients here for those firms in Australia are looking at legal process outsourcing, which is already happening but I think is on the increase.

Well Katherine just sticking with you and apart from the globalisation and the themes that flow from that, what other trends are you seeing?

Well probably the biggest trend is that more clients are loyal to the partner and not the firm, so where you’ve got all these brands changing I still think that it’s the clients that are following the individual partner and I think that’s on the increase.  I think that more of the law firms are tackling the challenge of alternative billing methods than ever before.  We’ve also seen a trend to additional in house legal functions, so newly created in house roles or expanded legal departments, and interestingly we’re seeing more of an interchange between general counsel and partners of law firm, in other words there is a swinging door if you like more than ever before between those partners who remain in their law firms and those who join perhaps a major client as the general counsel.  I think that another trend is, this is the continuation of a trend I guess, is the recruitment and retention of staff is a real concern for firms, there’s still a real war for talent.  And I would also say that there’s an increased casualization of the legal workforce, particularly in-house, so that in-house counsel are often recruited on an as needs basis rather than on an permanent basis.

And Robert those sorts of things, loyalties to individuals as opposed to brands, the casualization of the workforce and retention, those issues, are they the sorts of things you’re seeing as well?

Certainly I think those are a whole series of symptoms of the underlying causes, and the two big underlying causes which Kathy’s been talking about there are client buying patterns, what is changing around clients and I think some of that goes to staying with partners, some of it goes to following global brands.  In the same way talent issues and choices by talented lawyers come to whether they aspire to be part of an independent firm, be part of a local firm, do a certain type of practice or be part of a global network.  So those two key important factors are quite critical and I think you could sum up what’s happening there in one word and that’s competition.  It’s becoming an ever more competitive game and the source of competition is changing just as our retailers see that online retail is really substantial now a competitor to store fronts, so are global brands, technology enabled, LPOs, all of those are different forms of competition.  I agree with Kathie about her comments that she made about the mid-tier but I think even in that space it’s becoming incredibly competitive, so what you are looking at is across all tiers of the profession different firms adopting different models, different approaches.  Really trying to deal with competition securing clients and work, and approaching that in different ways that either their view of the world or what they aspire to do.

And just looking at how all this affects the salary side of things, in private practice Kathie last year we saw a 23% increase in remuneration surely we couldn’t make that sort of figure this year?

No our survey results don’t reveal a similar increase in 2012, it’s definitely a more conservative approach this year and what we’ve also done with the survey this year is drilled down by location and by the level of lawyer.  So for example Perth lawyers across the board enjoyed the biggest increase this year with 13%, and Melbourne junior lawyers, that’s in the first five years of practice, their pay on average went up 12% compared to Sydney’s 10.5% and Brisbane’s 10%.  Whereas more senior lawyers and junior senior associates, perhaps in the first three years of senior associate ship, saw quite modest increases in Melbourne 3.6%, in Sydney just over 5% and at the same time salary bands which as you know can move as well, have only moved by about half a percent this year.  So certainly more modest across the board and corporate in-house salaries haven’t moved terribly much about 4.42%, that’s not much different to last year.  I think that probably the biggest change is the bonus components, so in both law firms and in-house we can see star performers being rewarded add ons with the rest of the people in their seniority band.

And what is your outlook for private practice say for the next 12 months?

I think the legal profession is doing very well compared to other industries and we’ll continue to see outstanding employees getting very good increases and good bonuses.  I think that that the geographic differences will continue with Perth still seeing bigger increases than Melbourne and Sydney because of the competition, the talent there.  I think that the law firms may, I’ve been saying this for a while, I’m not sure if it’s going to happen I’d be interested in Robert’s view, law firms may move away from automatic seniority increases in the first few years, you know that you automatically go from a first year to a second year and therefore enjoy a pretty significant increase, it may come down much more to the individual than to the band.  And I think that we’ll also see new overseas entrants, particularly firms with links to the US will come in and compete very heavily for staff on remuneration.  We saw that happen in London I suspect it will happen here, I also think that mid-sized firms more and more matching the highest seller is in the market to get the right people to get the stars, and on the corporate side I think that general counsel remuneration will rise as more and more large firm partners go into those roles, and start expecting what they’ve been earning as a partner in a major firm.

Well Robert what’s your outlook for the private practice pay side of things?

I think I agree with Kathie in terms of the next 12 to 24 months I think that firms have taken a very long time to break away from the status quo structure but as we can see from the data that Kathy’s reports produce that’s changing in terms of having standardised salaries which flows through to things like standardised hourly rates etc across the country.  I think that’s being driven by a different market factors in each of those and as we see that variation increase I think we’ll start to see even greater pressure to move away from standardised approaches and look to the more individualised approached that Kathie talked about.  The report doesn’t include it but I know from previous experience that it’s interesting that over the last few years lawyer productivity in Australia has generally been on the decline and I think that combined with some of the forces that Kathie was talking about and new entrants, we’ll see pressure to move to more performance orientated salaries with a greater reliance on individual performance rather than standardised salary setting across bands.  But I’m in Kathy’s camp I’ve been saying that for a while and it hasn’t happened as quickly as I thought it would, but I think competition new entrants and the fact that you’re going to have competition across tiers will make firms look more at how they can secure the best performers.

Well some very interesting trends that I’m sure a lot of lawyers will be on the lookout for.  Katherine just looking at in-house and corporate lawyer trends what were the stand out results for this year?

Really interesting this year that in-house lawyers expressed a lower level of satisfaction in their career progression.  Well down on previous years although interestingly their satisfaction with the role itself that they hold remains high.  This I think links to the increased interest expressed by our in-house respondents to looking at a return to a law firm, whereas in previous years that was really low down on their list of career progression ideas, and also this increased movement between general counsel and partners in law firms that they’re switching places a lot more than they used to.  The other stand out result for us would be that corporates themselves, corporate clients remain a lot more cautious about salary increases, so whereas in private practice you’ve got up to 13% in Perth for example, in-house increases have been pretty flat over the last few years at around the 4/4½% mark.  There’s a lot of cost pressure on our corporate clients and eventually I think this will be passed on to the private practice law firms, there’s pressure on those law firms to keep their hourly rates at a more modest level which will ultimately impact salaries.

Well some great insights from an extraordinary year, we’ll have to wrap it up there I’m afraid, thanks again for your time today Kathie and Robert.

Thank you.

Thank you David.

That was Kathie Sampson, Managing Director of Mahlab Recruitment Victoria, and Robert Milliner former King & Wood Mallesons Chief Executive Partner and Corporate Adviser.  Listeners if you need to get a copy of the survey you can visit Mahlab Recruitment’s website at www.mahlab.com.au.