Weekend Warriors: How Mallesons Juniors Work Harder Than The Others

[ED: This post was originally published in early December last year, during which time Firm Spy was blocked at Mallesons. Given that the site is now freely accessible by staffers, we wanted to make sure that the entire firm has an opportunity to read this post. It argues that working-life at Mallesons involves more time at the firm than all competitor firms, which should make excellent reading on a miserable Monday.]

NB: Unless otherwise stated, this post is based on opinion which may rely on rumours

JUNIOR LAWYERS & GRADUATE LAW STUDENTS TAKE NOTE: we regard Mallesons Stephen Jaques as the firm most likely to involve junior lawyers working late nights and sacrificing weekends.

And with that bold statement in mind, let’s move on to the second installment of the Firm Spy Partnership Salary Series to work out why.

but do you love working on weekends?

On Tuesday, we extracted from the AFR Profit Survey the estimated profit stats of Australia’s largest law firm by revenue, Minter Ellison. Today, we move onto Australia’s traditional revenue gold medallist (but recent bridesmaid), Mallesons Stephen Jaques.

According to BRW, in FY 2009/2010, Mallesons boasted the following stats:

• Revenue:  $494.4million
• Revenue Reduction: -10.5%
• Employee Numbers: 1600
• Employee Headcount Loss: -13.1%

Meanwhile, the AFR in its Profit Survey, had the following insights:

• Estimated Profit Margin: 46%
• Estimated Profit: $227.4million
• Profit Per Non-Partner Fee-Earner: $229,000
• Profit Per Equity Partner: $1.28million
• Revenue: $494.4million
• Revenue Per Partner: $2.75million
• Revenue Per Equity Partner: $2.78million

Partner Remuneration System: Lock-step. Virtually full equity.

Partner Pay for 2009/2010: Equity partners drew between $355,000 and $1.89million each. The majority received between $1.2million and $1.4million.

The Verdict: Chief executive partner Robert Milliner said revenue fell as the full impact of the global downturn hit and high-end transaction work remained soft. Downturn-related litigation did not ramp up as expected, but it is on budget this year and revenue is expected to rise by a few percentage points as the M&A and property markets improve.

Comment: Mallesons – and some of its competitors – has not been able to find alternative revenue streams in the downturn, although determined cost-cutting and a smaller partnership helped boost profit. A leaner Mallesons could be set to take off as conditions improve, but it will not want to lose many senior partners.

Subject to the caveat that we think the AFR underestimate profit per non-partner fee-earner (explained below under heading “Transparency Around Partner Profit”), we consider the AFR comments above to be accurate. However, further analysis is needed to explain why. This analysis will also lead to the conclusion of which all graduates, junior lawyers and potential laterals to the Mallesons should be aware: in Firm Spy’s opinion you are more likely to work late nights and weekends at Mallesons than at any other major firm.

“Determined Cost Cutting”

Not that there was a helluva lot to cut, but Mallesons indeed managed to cut its comparatively meagre expenses even further in the last financial year. Moreover, in FY 2008/2009, Mallesons’ profit margin was estimated at 44% while this year it has grown to a staggering 46%. This enabled the firm’s partners to quarantine profits from declining revenue; so rather than profit declining linearly with revenue, it declined by 7% (versus a 10.5% reduction in revenue).

The major decisions which we believe contributed to this increase in profitability were:

• the singular greatest percentage drop in a major firm’s number of senior associates in Australia’s history (at least, the history we can locate on the internet), following the firm’s voluntary redundancy scheme;
• keeping the firm’s already below-market junior lawyer wages frozen for considerably longer than its competitors;
• cutting discretionary-spend on things like fruit and morning teas;
• using outdated images on the firm’s website, embarrasingly including the faces of ex-employees rumoured to have been managed-out of the firm rather than paying for an updated website; and
• getting rid of employee annual-leave loading of 17.5%;

It goes without saying that the most significant cost for the firm is its staff wages. Accordingly, major efforts were made by the firm to reduce headcount to increase profitability, so let’s analyse these particular changes in detail.

Headcount Changes

In 2008/2009, Mallesons is reported to have reduced its headcount by 5%, while in the same financial year (08/09) its revenue incredibly rose by 1.5%. Meanwhile, last financial year (09/10), Mallesons is reported to have reduced its headcount by 13.1%. However, by including support staff job losses, this statistic in our view belies the gobsmacking loss to fee-earner headcount. Moreover, as reported by AFR (25/06/2010):

In the year to July 2, Mallesons non-partner fee-earner headcount will have fallen from 1070 to 842 (down 21.2%), the biggest fall of the surveyed firms.

Let’s be generous and assume that only half of the 5% headcount reduction in FY 2008/2009 were fee-earners. Applying that 2.5% reduction in non-partner fee-earner headcount in FY 2008/2009 to the 21.2% non-partner fee-earner headcount reduction in FY 2009/2010, and, all of a sudden, Mallesons has approximately 25% less non-partner lawyers now than it did as at 31 June 2008.

With around 25% less lawyers filling in time sheets now than as at 31 June 2008 – being coincidentally close to the approximate date of the zenith of the pre-GFC boom when all lawyers were fully utilised -  one could probably expect that the firm would earn 25% less revenue. So how has revenue performed over this timeframe?

In FY 2008/2009 revenue reportedly rose by 1.5%. In FY 2009/2010 revenue declined by 10.5% in FY 2009/2010. So while fee-earner headcount has constricted by something like 25% in two years, revenue has only declined by approximately 9%.

Let’s have a beer this weekend to celebrate this GFC profit bonanza! Actually, no, let’s go to work.

Weekends @ Work

You’ll recall, of course, we observed last year that:

…according to our calculations … Mallesons’ workforce will now have shrunk from a total of 1,936 to 1,642 in 15 months; a loss of 16%. If this figure is correct, Mallesons now has less employees than its two nearest competitors in terms of revenue (196 less than Minter Ellison and 112 less than Freehills – or 11% and 5% less respectively). Yet Mallesons reported revenue that was $58,000,000.00 higher than these competitors in 2008/09.

It is a truly remarkable feat that compared with a full complement of approximately 25% more lawyers, working in the pre-GFC fully-utilised halcyon days, the Mallesons Stephen Jaques of today is able to post a revenue decline of 9%. Yes, with around 25% less mouths to feed!

But how does the firm do it?

Similar to the comments we made last year and re-published above, the conclusion which we think is to be drawn is that the lawyers who were fully utilised – punching out 80 billable units on a daily basis in the pre-GFC boom – are now probably nudging 90 billable units per day. Either that, or they’re still doing 80 billable units Monday to Friday, and then coming in on a Saturday or Sunday to clock up an additional 50 units. The conclusion in our opinion is of course that:

Lawyers who remain at Mallesons work longer and harder hours than at competitor firms.

GET TO YOUR DESK HOMER!

Transparency Around Partner Profit

Mallesons recently made a major song and dance about the “transparency” it affords to partner profit. As observed by BRW (27/10):

… Mallesons is the only firm within its segment to openly disclose profit numbers. It recently recorded $229.2million profit for the 2009-2010 financial year – a $15.4million drop on the previous year’s $244.5million.

Sensing an opportunity to score valuable PR points, Mallesons Managing Partner Stuart Fuller commented in relation to the board recent decision to open the books, remarking to BRW that:

“We just felt it was the right thing to do … Clients in particular were interested and the people in the firm wanted to know how we were performing. We took the view it’s better to be open rather than have people speculating – it is better to have the real performance rather than what people think it is.

Meanwhile, in something of a media blitz, Mr Fuller also commented on the transparency issue to ALB:

“It’s an issue of integrity not only outside the firm, but also inside the firm… you’ve got to have transparency around partner income, otherwise people will guess at what it is… If you’re making difficult choices about spending or salaries, transparency is important… What we find is that when we’re transparent to people in the firm, particularly senior lawyers, there is a much deeper level of understanding about why the firm is doing these things – rather than jumping to a suspicion that it’s all around preserving partner profits.”

When partners are transparent, we agree that it is a good thing, but unfortunately we disagree with Mr Fuller that Mallesons has been sufficiently transparent with its staff about partner profit in the last financial year. Moreover, we think the firm has been less than transparent with staff about the effect that the capital expense of redundancy payments had on profits – somewhere between 110 and 227 lawyers received a redundancy payment in the last financial year – and the cost of making these redundancy payments must have had a major impact on the firm’s profit margin. But was this made clear at the partnership profit briefings held by Mr Fuller? We doubt it.

To make it clear for our readers, if Mallesons can in one financial year lose approximately 21% of its fee-earner staff, make redundancy payments to many of the same, lose 10.5% of revenue in the same financial year and STILL only post a profit reduction of 7%, it means  in our view that:

• lawyers who remain at the firm are working incredibly hard; and
• when revenue returns, Mallesons will become even more profitable.

The Symphony of Destruction

But the thing about pushing your workers to breaking point is, well, over time, they get fed up and leave. Or they never go to the firm in the first place. Which gets us back to a claim we made a few months ago that rather than “conducting the orchestra”, Mallesons Chief Executive Partner Robert Milliner is instead leading a symphony of destruction. Arguably the firm’s most valuable asset – its ability to attract the very best graduates – is suffering because of the greed of its partners. Partners who have earned up to $1.89million last financial year, no less.

Sound like the sort of place you want to work?

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