FS Editorial: Clayton Utz Laments Legal Aid Funding Amid Pro Bono Concerns in Era of Deleverage

We read with interest a letter to the AFR editor entitled Legal access to justice is fundamental written by Clayton Utz pro bono partner David Hillard. The letter speaks to the inadequacy of the Federal Government’s provision of funding to legal aid but particularly in the context of this year’s budget.

on pro bono work?

We think it also enlivens bigger issues that merit discussion. Says Hillard:

Twelve months ago, in the May 2010 budget, the Commonwealth announced increased funding for the most vulnerable and disadvantaged people in our community. The 2011 budget last week confirmed that last year’s increase to legal aid was only a one-off…

Legal aid funding levels are insufficient to resolve the access-to-justice crisis across Australia. Too many people miss out on advice and representation. Even with 2010′s one off increase, the funding for legal aid remains $20million a year below 1997 levels… there has been a 78 per cent reduction in the availability of legal aid for civil law matters since 1995-1996.

Pro bono is not the solution to ensuring comprehensive access to the justice system. The leading pro bono firms are already stretched to capacity, and can only meet a tiny fraction of legal need. Last year Clayton Utz provided 400,000 hours of pro bono legal assistance, and it is unlikely that we can expand that practice much further. Even at these levels, large pro bono law practices cannot begin to fill the access to justice gaps.

While we applaud Mr Hillard for expressing his justifiable concerns, we couldn’t help but find ourselves looking at recent estimates for the Clayton Utz partnership draw: $1.25million for top partners in 2009. Sure, Clayton Utz like all major firms is running a commercial enterprise, but in circumstances where the Federal Goverment’s budget is failing so dismally to meet the needs of our most vulnerable, perhaps very wealthy partners owe an even greater responsibility to give back to the industry that has so enriched them? What about partners cap their annual salary at $1million and chip the rest into legal aid? Too Socialist? Barristers in Victoria increased their collective pro bono output by 30% last year, so what’s stopping top-tier partners from doing the same? We invite your comments below.

More likely is the opposite situation. We think top-tier firms in the short-to-mid term will increasingly view pro bono as an overheads that can:

1. be managed to increase profitability; and
2. explained away by reference to deleverage and fewer juniors.

Moreover, following on from our editorial a few weeks ago canvassing changes to leverage across the top-tier and the corollaries thereto, came an excellent article in the AFR on 28/4. Although we might have waited nearly a month for something substantive to come out of the AFR’s 2011 Legal Conference (31/3) we think most people who read the excellent work of Legal Affairs editors James Eyers & Alex Boxsell will agree it was worth the wait.

But the general gist of the article was nothing particularly new. It stood for the propositions that the legal market in Australia is not growing and firms are looking abroad for growth opportunities. More specifically, the premises were:

• there are US/UK firms who are looking to grow via entry into the Asian market through a “sattelite office” in Australia or more directly into Asia itself;
• Australian firms are looking for growth opportunities via entry and/or stablisation in Asia, or through merging with an international firm already entrenched in that region;
• the legal market is being divided into commoditised and non-commoditised work; and
• clients are no longer willing to pay top-tier fees for commoditised work.

The article also elaborated on some of our other recent themes (considered here). The bit we found particularly interesting is that the established set of 6 top-tier firms made it clear in their comments to the AFR that they are grappling with the client-driven commodotised/non-commoditised dichotomy:

Corrs Chambers Wesgarth chief executive John Denton said companies were putting downward pressure on fees at a time when law firm salaries grew on average about 10 per cent in the past year “in a sector that is not actually growing”.

But shouldn’t top firms be able to emasculate client demands for lower fees in circumstances where “top-tier” legal services are non-commoditised? Say you’re a multinational wanting a cost-base step-up on a repatriated asset – how many firms possess the expertise to structure it without offending Part IVA? Cant the firms that do possess the expertise, charge top-tier rates? It sounds to us like the issue confronting the top-tier isn’t simply a client-driven division to commoditised and non-commoditised work. We think they are increasingly either failing to communicate their value proposition to clients, or being exposed by clients as not possessing that value. Hence the reduction in revenue.

Which gets us back to pro bono and the concerns voiced by Mr Hillard. If major firms like Clayton Utz are going to be part of a revolution amongst the established 6 which will see leverage drop from about 1:4 to 1:3 or 1:2, who is going to perform the pro bono work that all the juniors used to cut their teeth on?

Meanwhile, we received the following humorous comments from an anonymous Clutz spy in response to our Delusional Duo posts last week:

Defection trend setter Clayton Utz appears to be starting another trend – poaching partners from boutique and mid tier firms to replace the gaping holes left by departing partners in recent years. And to be fair, here they really do appear to be ”bucking a bit of a trend.” While other top tier firms and global firms are looking at ‘restructuring’ and focusing on high end transactional work, Clayton Utz appears
to be repositioning itself to chasing lower fee generating work. Oh well, as they say, in every relationship there is a settler and a climber, a partner who’s done well for themselves and one who has, well settled. And while settling isn’t, as you so often report, Clayton Utz’s strong suit, it appears that they can’t stop talking about their recent conquest:

Clayton Utz Acquires Melbourne Workplace Boutique

The firm’s incorporation of Trindade Farr & Pill, a two-partner workplace relations boutique, bucks the recent trend for partner moves from large to mid-sized Australian firms.

(THE CHURN May 11, 2011)

See also here, here and here.

Your favourite clutz partner said the hires reflect “significant growth” in the area. He doesn’t appear to have said anything about his firm’s recent losses, of partners that is.

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