How will your firm look in 2015?
“I’m very certain that we are going to be a very successful and strong firm.”
(Clayton Utz Chief Executive Partner David Fagan, 25/06/2010)
Today marks the fourth insallment of the 2010 Firm Spy Partnership Salary Series, featuring Australia’s fourth highest firm by revenue in 2009/2010 – Clayton Utz. We thought we would preface today’s post with the quote above because it was made (to the AFR) just 12 short weeks after a partnership decision was made to sack approximately 30% of Clayton Utz’s Melbourne graduates. It also came about 6 months after the decision was made in Sydney to offer just over 50% of the firm’s summer clerks a graduate position.
So, despite a steadfast conviction that Clayton Utz would ride out the GFC, its aftermath, and would continue to be a “very successful” and “strong” firm into the future, Clayton Utz took the axe to juniors and would-be juniors. For this reason, Clayton Utz in our view distinguished itself from competitors in 2010 through its proclivity to mistreat to Utz & abUtz junior staffers.
And on that note, let’s move onto the statistics.
The 2010 Statistics
According to BRW (06/10), Clayton Utz had the following revenue statistics in FY 2009/2010:
- Revenue: $442.5million
- Revenue Reduction: -9.7%
- Employee Numbers: 1,548
- Employee Reduction: -9.1%
A revenue reduction of just 9.7% is a remarkable achievement for Clutz, given that we estimated in February the losses attributable to the A&O partnership defections alone would account for 9.3% of the firm’s revenue. So to quarantine any collateral fallout from the defections to a diminution of just 0.4% of revenue is, well, an achievement.
But could the firm have afforded to keep a few of the sacked Melbourne grads?
To answer that question, we need to consider what the AFR Profit Survey (10/09) has to say about the state of Clayton Utz partner salaries in FY 2010/2009:
- Estimated Profit Margin: 44%
- Estimated Profit: $194.9million
- Profit Per Non-Partner Fee Earner: $280,000
- Profit Per Equity Partner: $1.19million
- Revenue: $443million
- Revenue Per Partner: $2.28million
- Revenue Per Equity Partner: $2.7million
- Partnership Remuneration System: Lock-step.
- Partner Pay for 2009-2010: The best equity partners made between $1.3million and $1.45million, with the lowest starting around $450,000. Fixed-share partners (about 15% of the partnership) received between $300,000 and $400,000.
- The Verdict: New Chief Executive Darryl McDonough said work slid in 2009-2010 after an exceptional 2008/2009, as corporate activity slowed. The NSW Government practice suffered from the shelving of the CBD metro project, but new projects had quickly filled this gap. A new Hong Kong office opened in April.
- Comment: Clayton Utz has told clients it is business as usual after the defection of of 15 partners to Allen & Overy; it says client losses have been minimal and new partners are stepping up. But it remains to be seen whether clients will stick to the new teams. As it rebuilds, competitors will seek to capitalise on its misfortune. The litigators will be hoping corporate Australia rekindles an appetite for litigation.
A Questionable Meritocracy
Although Clayton Utz has indeed done a terrific job of quarantining revenue losses in the aftermath of the mass partnership defections to Allen & Overy, it nevertheless remains to be seen whether clients will stand by the new look firm. In our opinion, clients have ample cause for concern when partners are hastily appointed in circumstances such as those prevailing at Clutz. In the six months to January 2011, for example, Clayton Utz will have made up 10 partners (AFR 10/12) on top of the 6 appointments announced in March, bringing to 16 the total number of new partners this year (that we’re aware of). The mass defection to A&O, meanwhile, accounted for 14 partners. Given the proximity of the number of defections vis-a-vis the new partners, it sounds to us like the firm is desperately trying to put a “partner” in the seats vacated by the defectors. But are they up to it? If they are anything like the “junior” lawyer who made senior associate in April, then questions will probably be asked.
Junior Lawyer Job Insecurity
Which brings us to the potential fallout for junior lawyers if the new crop of partners is unable to stem revenue losses in the wake of the A&O defections. Will juniors enjoy job security? We think the best way to hypothesise how a corporate firm will act in the future is to have regard to its past behaviour, so we will now turn to how Clayton Utz has treated its juniors in the last year.
.jpg)
In the last year, Clayton Utz in our opinion showed a greater willingness than competitors to cut junior workers when revenue and profit was at stake and may also, alarmingly, have resorted to nefarious means like performance management to reduce headcount.
- Blake Dawson fee earners have dropped from 715 to 662 in the past 12 months – a fall of 7.4% – following a round of redundancies;
- Allens Arthur Robinson’s full-time head count plummeted from 947 in January 2009 to 839 in January 01 [following a redundancy program], a fall of 11.4%;
- Mallesons Stephen Jaques has sliced 21.2% off its fee earner head count since July 2009, or 227 lawyers. Mallesons also had a voluntary redundancy program which aimed to cut 100 staff.
Meanwhile, Clayton Utz between January 2009 and July 2010, Clayton Utz shed 13.4% of lawyers despite having no formal redundancy program. In our minds, this immediately raises the prospect that unbearable performance management might have taken place at the firm during which supervising partners might have made life so miserable for juniors that they decided to quit en masse rather than stay at the and ultimately receive redundancy payment.
Such claims are refuted by the firm. According to the AFR (02/07):
Clayton Utz spokesperson Lauren Scott says the drop is due to “natural attrition”.
Presumably Ms Scott forgot about the sacked Melbourne grads who, according to the AFR:
…suffered a blow when several contracts were not renewed. One Clayton Utz lawyer says graduates “were told you can only stay if you can find a partner who can take you”, which left many unable to secure a permanent position. That “is really stressful and unfair and they didn’t know that from the beginning,” the lawyer says, who declined to be named for fear of losing her job.
In our opinion, job security for young lawyers at Clayton Utz is found wanting. In circumstances where Clutz partners took home up to $1.45million last financial year, affected Melbourne graduates should not have their contracts torn up at the end of their first year.
Of course, the firm would refute this assertion by reference to falling revenue and the coextensive contention that the affected Melbourne graduates were not needed for the future. But then we get back to the comments from David Fagan that the firm will be “very strong” in 2015, we have partners earning up to $1.45million in FY 2009/2010, and we have the repeated representations from Clutz that notwithstanding the defections, it is “business as usual”.
Sound like the sort of place where junior lawyers can feel comfortable about forging a career having tomorrow?
Is it business as usual, or more of the same corporate funny business?
Send the Firm Spy your news and views!
Loading...
