A&O Code Red; Freehills Partners Call For Changes to Equity Distributions

At close of business 2010, if you had asked a legal industry commentator to name the best, most prestigious Australian law firm, chances are they would have said eaither Freehills or Mallesons. They probably would have premised their response on the revenue of these firms compared with competitors, their clients, headcount and, importantly, the regard that prospective employers have for people who have worked at either firm.

Freehills enters the severe defection-threat level

Partners at either firm, however, probably premise “prestige” on a different metric – partner drawings.

To that end, there is little doubt that Mallesons partners consistently draw higher profits than their Freehills brethren (and would accordingly regard themselves as the superior firm). The best industry estimates are that in 2009/2010 Mallesons averaged $2.78million per equity partner, while Freehills equity partners averaged $2.32million over the same period.

With significantly higher revenue per partner and (in our opinion) a vastly lower spend on overheads (for example, consistently lower staff wages), Mallesons partners can boast higher profits than most, if not all, mid/top tier competitors in the market. This makes it easier for partners to claim the prestige prize (and no, we’re not sure what it means either).

But for a variety of reasons, we think Freehills is (or at least, was) the better firm to work at. Apparently Mallesons staffers are listening too – we’re hearing rumours that a very highly regarded Senior Associate in Mallesons’ Melbourne office recently defected to Freehills and took a major client of the firm with him (more details to follow).

However, we fear that the comparatively reasonable working conditions at Freehills might be endangered. We understand that major divisions are forming within the Freehills partnership over the current distribution of equity points, precipitated by two recent A&O raids on the Freehills partners.

We received the following comments from an anonymous Freehills spy last week:

Word is Freehills is doing a major review of its business; something called ”Leading Practices” or something similar. The intention is to retain partners who speak for at least $3million in fees – up from around $2.2 million-$2.4 million. [A partner] who returned to the firm after a somewhat brief stint as a [General Counsel], is leading the charge. Many partners are genuinely worried, but the feeling is there are too many ”cruisers” billing $2million a year and the bigger billers simply want more and more. It is said this is partly in response globalization as Freehills is one firm that might miss out on a dancing partner with the global giants and therefore its star partners are going to be poached big time, … [they] could move to smaller operations of global giants that will have much higher profits.

We put the substance of the allegation to Freehills and commented that a change like that foreshadowed by such a programme  would make Freehills “more competitive with the likes of Mallesons for top-end partner drawings, and would probably go some way toward emasculating the clear and present danger of A&O raids”.

A spokesperson for Freehills said:

Freehills partner remuneration allocations are distributed based on performance across a range of measures. For obvious competitive reasons we do not discuss the detail of this in the media.

Is your firm concerned about A&O defections? What changes are being made?

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