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Michael writes on emerging markets, architecture and engineering. He has served as a correspondent in Tokyo, London and Johannesburg and has written for Reuters, the Financial Times, The Age and The Sydney Morning Herald.

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Managing partner’s departure from KWM a sign that mid-tier law firms have room to grow

Published 22 May 2013 12:21, Updated 22 May 2013 12:38

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Managing partner’s departure from KWM a sign that mid-tier law firms have room to grow

The departure of KWM’s managing partner for Australia, Tony O’Malley, shows that the tectonic plates are shifting under the big law firms. Photo: Rob Homer

Large law firms are going through a time of stress – as recent upheavals at King & Wood Mallesons and Herbert Smith Freehills suggest – and this is giving mid-tier and independent firms the chance to differentiate themselves and claim space in the market.

The sudden departure of KWM managing partner for Australia Tony O’Malley after the collapse of a planned merger with Singapore firm WongPartnership, along with the exit by Michael Mills and Michelle Fox from HSF to start US litigation specialist Quinn Emanuel Urquhart & Sullivan shows that tectonic plates are moving freely under the big firms.

The law firm industry in Australia is in flux – and likely to keep changing for several years to come. Declining revenue while business slows only increases the pressures on firms, which are increasingly instituting pay freezes. However, ructions at the large firms give the smaller ones, which watched as a flurry of merger activity created headlines in recent years, a chance to reassert themselves and mark out territory.

Mid-tier firm Piper Alderman last week announced a doubling in the size of its Brisbane operation, with the addition of 12 lawyers to boost its insolvency and energy and resources practices in the Queensland capital.

‘Grunt and enthusiasm’

“It’s given it the grunt and the enthusiasm and market size to make a splash there,” Piper Alderman managing partner Tony Phelps says. “If you’ve got people in the energy and resources game, you need a presence in Queensland, skilled in the areas required.”

The 54-partner firm which mainly operates in Sydney, Melbourne and Adelaide, is likely to expand its geographical spread further in “12 months or so,” Phelps says.

“We’re not finished,” he said on Tuesday. “We’ll be doing other things.”

Recent years have seen the country’s largest firms enter into international alliances: since 2010, Deacons has merged with Norton Rose, Blake Dawson with Ashurst, Mallesons Stephen Jaques with Chinese firm King & Wood, Freehills with Herbert Smith, and Middletons with K&L Gates. Allens formed an alliance with international firm Linklaters last year to refer work exclusively and create joint-venture practices in Asia.

While the action drew attention – and questions of whether they had lost out in the race – to firms that had not sealed any such deal, the current environment suggests that, just a few months down the track, those independents can afford a smile.

“The clients are interested, and yet unconvinced that there’s any particular benefit to themselves,” says Corrs Chambers Westgarth chief executive John Denton. “There may well be in some case, but at the moment it’s not seen as a client-driven activity, it’s much more seen as a law firm-driven activity.”

The clients are unconvinced that there’s any particular benefit to themselves.

The market is down almost 6 per cent year-on-year but his firm’s billings are flat, “which means we’ve gained market share,” Denton says.

Firms will keep changing as times remain tough. This was foreseen – although perhaps not in quite as much detail – by O’Malley, speaking to BRW in March.

“It is going to get harder and more competitive, and we are going to see over the next three to five years some winners and some real losers,” O’Malley said.

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