When a rash of foreign firm mergers and acquisitions swept through Australia's legal landscape at the start of the decade, local firm Clayton Utz considered several approaches but ultimately couldn't see where a merger would leave the firm in five years' time.

“We didn't think the attractiveness of a tie-up with a global firm stacked up,” said Bruce Cooper, deputy chief executive partner of Clayton Utz.

Instead, the 164-partner firm chose independence and now has non-exclusive relationships with “scores of firms,” which Cooper said provides benefits for clients and for the firm itself.

As other Australian firms have combined with the likes of Norton Rose Fullbright, Clifford Chance and Ashurst, seeking access to scale, multinational client referrals, and in some cases a larger profit pool, some significant local firms argue they are better off remaining independent.

Clayton Utz has a mixture of relationships, some very loose and some a little more organised. Magic Circle firm Slaughter and May has a network of firms and tends to have two preferred friends in each jurisdiction, one of which in Australia is Clayton Utz. Freshfields has a similar strategy and also works with Clayton Utz.

The firm is also “very friendly” with all of the White Shoe firms in the U.S. and also has relationships in Asia, with the WongPartnership and Allen & Gledhill in Singapore and with JunHe, Zhong Lun and Fangda Partners in China, where Cooper says the influence of foreign firms has declined.

Referral Relationships

Clayton Utz invests a lot of time learning which firm does what and which is best in each practice area. “We are able to give clients that option to say, 'you know what, if you want competition and you want Brussels, here are the three firms and here are the five individuals who are really critical',” Cooper said.

That means when clients seek advice about which firms to engage overseas, his firm can give then an honest answer, he says.

“We're not going to sell them a particular brand which we own, because we're not an international firm,” he said.

These relationships work the other way as well, delivering clients looking for counsel in Australia, Cooper said. The referring firms can be confident that Clayton Utz will not try to prey on the referring firms' existing relationships. “We are purely onshore, we will not try and disturb relationships offshore,” he says.

The firm achieved 14 per cent international revenue growth in the 2019 financial year and its international strategy of referrals to and from offshore firms contributes 15 to 20 per cent of the firm's revenue.

Cooper said maintaining the relationships with different firms and the “science behind this” is the rating the firm places on each relationship, “because obviously, you can be good friends to everybody, but you know, some friends are better friends than others.

“We don't want to be regarded as promiscuous…but we do want to be regarded in Australia and offshore as people who are sensibly cultivating good relationships with the right firms.”

The Costs of Tie-ups

Remaining independent and having what he calls “multiple best friends” is an attractive option for firms, said Joel Barolsky, head of professional services consultancy Barolsky Advisors. “As half the market engages in tie-ups, that becomes even a more significant opportunity. By staying independent, you are creating a point difference just by actually not doing anything,” he said.

Independence is important for firms with significant government practices because these relationships could be compromised by tying up with a foreign firm with close connections to the government in its own country, such as some of those in China, he said.

For others, there is the question of what benefit a tie-up would bring to a firm with a strong focus on sectors that don't have an international dimension, particularly given the financial and cultural cost of a merger. Barolsky noted that if a merger or exclusive alliance provides a 10% boost for 30% of a firm's practice, that would translate into an increase in the firm's overall revenue of just 3% — and for many firms, that is not worth the cost and loss of control.

The most important reason Gilbert + Tobin Lawyers has chosen to remain independent is that independence allows it to maintain its own culture and shape its own destiny, said Sam Nickless, partner and chief operating officer at the national 80-partner firm.

“Occasionally we've made the joke that as a group of partners, if we can all fit into the big meeting room that we have here it feels like about the right size so that we all know each other, we can make decisions together and we can act on things strategically,” he said. “We can feel like we can be nimble and able to react quickly and that goes to culture and size and the way in which we can work.”

The firm also attracts partners from global firms who Nickless said felt constrained by the bureaucracy and conflicted client relationships common in those firms. Partners are free to take referrals from their own private networks rather than be limited to the global firm or its alliances. Like Clayton Utz, it has a range of relationships, including with Slaughter and May and Freshfields.

He concedes that there might be occasions when the firm misses out on work because a multinational prefers to use one firm around the world. But he says that other multinationals and their general counsels unbundle some of their legal work and select the “best of breed” in each jurisdiction.

One rationale for a global merger or alliance has been the scale and technology it can provide, but Nickless says this is less of an issue now because the rise of cloud-based computing and software-as-a-service along with specialised legal process outsourcers means independent firms can access these services without the huge upfront costs that were previously required.

Gavin MacLaren, senior partner and chief executive officer of Corrs Chambers Westgarth, said his firm picks up the sort of work it is seeking from offshore firms.

“The reality is that a very small proportion of the world's leading international firms are interested in having an Australian office. They tell us consistently that they aren't interested in exclusivity either, but in ensuring that they have mature relationships with a small number of world-class independent firms in jurisdictions in which they don't operate,” he said.

As for missing out on work that multinationals give to a single global law firm, MacLaren says much of that work is routine or commoditized — work that Corrs Chambers Westgarth doesn't compete for.

“We are also referred work from a number of global firms with offices in Australia, which demonstrates that in some ways they are following a similar strategy to ours — they are looking for the best firm for their client, and in some cases that is a competitor,” he said.