We wrote a feature article in early March about changes to leverage in major Australian law firms. The major premises of the article were that: leverage ratios are decreasing; A&O and Clifford Chance are “lean and mean” and likely to attract high-end non-commoditised work in part because of their leverage structure; competition for the very best junior lawyers will intensify because deleveraged law firms have less scope to err in graduate recruitment; and outsourcing to low-cost jurisdictions will flourish as deleveraged firms emerge in Australia.
These propositions were roundly endorsed by the top brass attending the AFR‘s 2011 Law Conference a few days ago:
Senior partners at large law firms say a shift of less complex work to mid-tier and boutique firms is causing them to increase the proportion of legal services provided by partners as opposed to junior lawyers… falling leverage at firms was a major theme of the … conference last week.
Mallesons Managing Partner Tony O’Malley told the AFR:
We are seeing leverge in Australia come back from five or six [lawyers] per partner to four or possible three… I would certainly see that trend continuing.
Allens Arthur Robinson CEP Michael Rose said:
Some of the leverage is coming back … but I don’t expect it will ever come back t where it was, say, five years ago.
Mr Rose acknowledged that leverage was falling in part because of
the growing use of cheap foreign jurisdictions such as India to provide routine legal services “will deal quite significantly” with the number of graduates firms hire and the training they provide them.
With 28,000 students currently studying a law degree in Australia – not to mention countless thousands of recent graduates wondering what the future holds – the news that top law firms will be offering less jobs in the future must be a rude awakening. Accordingly, we put the proposition that leverage is falling, and less grad jobs will be available across the top-tiers, to the Law Faculty Deans of:
- The University of Sydney;
- The University of Western Sydney; and
- The University of Technology, Sydney
We wanted to hear their views on whether they would consider lowering their intake of law students, given that there will likely be less graduate law jobs available in future.
Ms Gillian Triggs, Dean of the University of Sydney Faculty of Law, had the following comments:
Dear Firm Spy,
Your questions arise from concerns about the major law firms and the competition provided by offshore legal services. These issues do not have any necessary effect on the number of law students. This is primarily because a law degree is now a generalist degree that forms the foundation for many careers beyond practice as a barrister and solicitor. We believe that at least 55% of our Sydney law graduates are not practicing law within 4-5 years of graduation. Rather, our students are seeking opportunities with government, corporations, business, transnational organizations such as the World Bank, United Nations, lMF and not for profit sector. It is also true that our students are in high demand internationally, with law firms in London, Paris and New York, especially in International commercial arbitration, corporate law and banking and finance.
The globalization of legal services has given well educated Australian lawyers new opportunities to find stimulating work that is often transnational and international in nature. Legal education is in exceptionally high demand at present, reflecting the ATAR score for admission to the Sydney law School at 99.7. In short, the emphasis upon a relatively narrow aspect of legal practice is now out of tune with the internationalization of legal services generally. Legal education increasingly reflects these changes so that most courses now include international and comparative law. Moreover, many candidates for legal education are international and academic staff are often from other countries.
I expect that many among the future generation of Australian lawyers will have practicing certificates in more than one or two nations and will move with confidence across national boundaries as they provide legal advice on transnational matters.
We thank Dean Triggs for her insightful comments. We’re not sure the “demand” for legal education has any relationship with “need” for such large numbers of law graduates in the market. We think that most prospective law students are estranged from the realities of competition among law grads for top-tier graduate jobs. As such, one of the questions we put to Dean Triggs was:
Do you believe your law school has an obligation to keep law students (and prospective law students) apprised of changes in the marketplace that will affect their future employment opportunities?
That question wasn’t directly answered in the Dean’s response. We tend to think that if more high school graduates were aware of how difficult it is to secure graduate employment now, not to mention what it might be like in the deleveraged future foreshadowed above, the demand cited by Dean Triggs might diminish.
Professor Michael Adams, Dean of the University of Western Sydney Faculty of Law, also responded to an email we sent earlier in the week. He had the following insights on the issue:
Although there are no formal limits in the number of law students UWS will take, the reality is we are probably at our maximum capacity in terms of human and physical resources – as Head of the Law School, I would not like to see UWS law intake grow beyond our current 500 first year students. This is not driven so much by the way firms recruit as for the ability to provide a quality law degree and maintain appropriate ATAR and entry qualifications.
Law Graduate employment is an interesting subject, as only 50% of law graduates seek admission and enter into some form of private practice. Many UWS law graduates (who are mostly double-degree students) will seek employment outside traditional law firms. A high percentage of UWS law alumni work in State and Federal government departments, such as Legal Aid, Attorney-Generals department etc or move into commercial roles or follow their social justice aspirations from the ethic communities to Community Law Centres etc.
Yes we do brief our students as to changing labour markets through our Practical Legal Training programme (post completion of the LLB) and also through the very active UWS Law Students Association.
Again, thanks very much to Professor Adams for taking the time to respond to us. It is excellent to hear that UWS keeps students apprised of changes in the market that might affect their employment prospects pursuant to their studies. But perhaps there is room to go further? Perhaps high school graduates could be given a career tutorial before enrolment?
Finally, Ms Jill Mckeogh, Dean of the University of Technology Sydney Law Faculty (and also the Chair of the Australian Council of Law Deans) had the following thought-provoking comments to make:
On the first point, for at least the last forty years about half of law graduates have not ended up practising law after about three years out from graduation. The very top graduates in fact often end up in management consulting, accounting firms, studying overseas, etc. Many other careers are also available including journalism (many journalists have a law degree!) policy and advisory jobs, the government sector, working for NGOs and in human rights organisations, and also in banking, finance and other business roles. In-house counsel jobs to be expanding remarkably and because a law degree confers a great many generic skills, it is a good preparation for a variety of employment.
We have recently found at UTS that that among our alumni 55% of our graduates are in legal practice, this could be a bit higher than for other faculties but we do not have that data. The others work across a wide variety of businesses and occupations. It is certainly true that there has in the past two decades been a big increase in the numbers of law graduates, but demand for legal services has grown at about the same rate as the increase in number of graduates in law over the past 20 years. It is not yet correct to say that there is an oversupply of law graduates. Currently more than 16% of Australian legal services are delivered in international commercial transactions. This is an area of rapid growth in legal practice with enormously important implications and potential for Australian exports.
The International Legal Service Advisory Council (ILSAC) points to the continued expansion of Australia’s legal and related services market internationally and the fact that legal services are one of Australia’s biggest exports, indeed the biggest services export. Australia’s legal exports and international activity in the 2008-09 financial year was $709.1 million, an increase of $34 million or 5% since the last biennial survey in 2006-07. The survey is available on: www.ilsac.gov.au/thirdsurvey
“The survey shows that the international market for Australian legal services is still growing and that Australian firms have been able to adapt to changes in world trends to maintain their competitive advantage”. Tim Bugg, Chair of ILSAC: http://www.ilsac.gov.au/
To address the points you make on top tier firms; mid tier boutique firms have always had less leverage. Typical is 2 lawyers per partner, as the work is more specialised than work the bigger firms do and clients want personal contact. It is possible the big firms are finding out that the days of the “six pack” are numbered – clients won’t tolerate four junior lawyers in every meeting anymore, especially as there are so many viable alternatives now with all the breakaways from large firms.
It is said that revenue is down about 15% in large firms this year – which is a big chunk of profit. But our impression is that it is not going offshore necessarily but to more niche firms. The top tier firms only employ about 15% of all lawyers in NSW. They are disproportionately represented in the media but what they are doing is not necessarily relevant to the vast bulk of the profession, where most of the activity is.
On the point of what we tell law students: we are very concerned about our graduates and their career destinations and make efforts to ensure that a full range of employment possibilities is presented, and that graduates understand what employers look for. We certainly think we have “an obligation to keep law students (and prospective law students) apprised of changes in the marketplace that will affect their future employment opportunities?”.
Our efforts include having a range of events each year where students can hear about career options across the board, and also having a curriculum which will ensure excellent employability and skills. UTS introduced a new curriculum in 2008, and what we learned from speaking to government, the legal profession, policy makers and other employees has been incorporated into the course, and is assessed as part of our ‘graduate attributes’ project.
Thanks to Dean McKeogh for taking the time to address our questions. We were particularly interested to read the statistics on the growth of Australian legal services as an export. We take on board the comment “it is not yet correct to say that there is an oversupply of law graduates”, but we are certainly hopeful that Law Faculty Deans will use objective data to continuously assess this claim as law firm leverage decreases into the future.
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Good on the Deans for their considered responses. But the comment “law graduates are not practising within 4-5 years of graduation” skirts over the necessary pre-condition: for the first 3-4 years, they ARE practising; have competed for grad jobs to qualify for admission; and THEN they move on to greener pastures. It is that short supply of graduate positions in law firms in order to make the subsequent transition out of the law, which is the key point. A law degree may have become a generalist degree, but it is more valuable in the ‘general’ world (whether government, commercial etc.) when backed up by admission as a lawyer.
Great article guys! Seems like an already competitive landscape is becoming even more so. I completely agree with your comments regarding the obligations of high schools, however I would go even further.
When I studied at undergrad level (business and economics) there was a two thirds attrition rate. One third of students who started a degree did not finish any degree. Another third transferred to a different course that they went on to finish and only one third actually completed their original degree.
This has a huge impact on the people involved, not only emotionally, but also economically as they still leave that first course with a HECS-HELP debt.
I blame both high schools and the universities for this. High schools place too much emphasis on going to uni for the sake of it rather than matching student interests to course, not to mention encouraging students to enrol in courses with the highest entrance score relevant to their own score.
Universities focus on attracting students with high entrance scores, and in many cases don’t even meet the students before enrollment to ask them WHY they want to study that course. Perhaps interviews for all courses could help resolve this.
It is my understanding that the attrition rates were consistent across nearly all faculties, which means that the problem is much more systemic than just business or law or any other faculty.
Keep up the great work guys. You are getting a reputation for deadly accuracy in your reporting, much to the bane of many a HR department across the country!
Grads just need to open their minds to the other opportunities out there for them… but suggest to any kid at Melbourne Uni that they don’t just follow the herd to compete for a small number of jobs in the “top” firms and they’ll agree, and then apply only for the big firms. Heaven help them if their friends hear that they would consider going to a small firm, government job or (gasp) regional law firm!
I can’t help but feel the Deans pussyfooted around the concerns Firm Spy raised.
The reality of the situation is: Law Faculties primary aim is revenue raising. The more students attending their school, the more money they get. My opinion is that there is not a genuine interest in how the market looks for the students post law school. One of the Deans you contacted mentioned that upto 50% of law graduates do not want to practice. I find this extremely hard to believe.
From my personal experience, every single law student/graduate I have ever come across has intentions to practice law. I am yet to come across a law student/graduate to say they’re studying law but want to work as a so and so non-legal practitioner.
There is an alarming oversupply of law graduates, and there aren’t enough law positions to employ 25% of them immediately post graduation. I am yet to come across a law faculty, that takes reasonable steps to inform potentional students of the reality of the market.
Also, I find it unfortunate that the legal profession Australia wide is now a fused profession. Graduates don’t have the opportunity of doing a Bar Vocational Course, or a readers course, or a pupillage, without having been admitted first. In WA, you can’t join the bar unless you’re at least 2 years post admission experience and have an unrestricted full practising certificate.
The situation stinks – and I have many a times thought about wearing a noose over this. For universities to allow such a high number of students to graduate from law school – knowing full well that they’re about to walk down the boulevard of broken dreams – is very unethical, to say the least.
The whole law student intake has to be massively regulated by the Federal Government. Law Schools need to downsize, and have their fundings cut. A system should be introduced where a reasonable number of students are allowed to attend, to allow competition in the job market, but also allowing the realisation of dreams.
If the situation can not be regulated, admission requirement should be changed (similar to those in Pharmacy), where you work 1 year or so without pay prior to admission. That way, law firms can increase substantially increase their intake of graduates as their costs would now be at a fraction.
I do hope serious consideration is given to the landscape of law students, faculties, law graduates and prospects post university. The current situation is a massive source of depression and despondency.
Excellent topic. Random observations.
At the risk of giving away my age, the year I finished law school (it began with a “199″)was, I think, the first year the number of people graduating with a law degree exceeded the number of lawyers then in private practice in NSW. This is hardly sustainable irrespective of leverage levels or the Australian desire to over-lawyer everything.
When all those “colleges of advanced eduction” became “universities” in the mid to late 80′s, they had to demonstrate that they had “grown up”. Law was in demand and it showed you were a serious institution that sought to attract people other than nurses and hairdressers. Law schools were also relataively cheap when compared with things like medical schools: all you need was a library rather than expensive labs, procedures to deal with biohazardous waste, etc etc.
Sydney Uni is hardly going to restrict the number of law students its takes in the interests of some greater good. Nor will NSW or Macquarie or UTS. This is because employers still rate a law degree from Sydney or NSW as a sign that the holder is a bright little thing. (Although I’d argue that this is correlation not causation. I’ve worked with idiots from both.) If the universities were all fee paying then only the “good” (by which I mean rated as good rather than necessarily being better; the quality of the teaching can be patchy in any institution) schools would survive. So no more graduates from Wollongong or UNE.
Law has been the new arts degree (i.e., non-vocational) for years. The number of investment bankers I come across who fancy themselves as capable of doing a bit of “lawyering” because they did an LLB never ceases to amuse. This is usually unhelpful (and f@%king irritating) and costly for the client because said investment bankers have no idea what they are talking about.
Australia is over-regulated and has a witch hunt culture designed to ensure that fools are insulated from the costs of their investment decisions. In the same way that negative gearing artificially inflates the demand for housing, lots of regulation/regular witch hunts = need for more lawyers. To the benefit of law graduates, I don’t see this changing any time soon.
Either the prefix “non” is missing from the sentence that reads “A&O and Clifford Chance are “lean and mean” and likely to attract high-end commoditised work” (i.e., I’d be surprised if either firm wants commoditised work) or “commoditised” is a typo for “commodities”. Suspect both firms are looking to settle at leverage of around 2.0 to 2.5.
Full service firms around the world are struggling to marry low leverage practice areas (e.g., strategic M&A) with traditionally high leverage practice areas (e.g., debt cap mkts) mostly while retaining a remuneration structure that draws no distinction between the profitability gap. This is not easy. Freehills has probably got it right with it’s practice area review – find the unprofitable parts, seal the lifts and gas ‘em. Remove the bodies after dark.
Sorry. Had to reply to Reality. Quote:
“For universities to allow such a high number of students to graduate from law school – knowing full well that they’re about to walk down the boulevard of broken dreams – is very unethical, to say the least. The whole law student intake has to be massively regulated by the Federal Government. Law Schools need to downsize, and have their fundings cut. A system should be introduced where a reasonable number of students are allowed to attend, to allow competition in the job market, but also allowing the realisation of dreams.”
Leaving aside the alarmingly Stalinist undercurrents in the extract above, suggest you stop drinking the Kool Aid. Let’s say it slowly:
You. Want. The. Government. To. Assume. Responsibility. For. The. Dreams. Of. A. Bunch. Of. Adolescents.
Can you please show your mum your post and ask her to turn the “grown up” filter on her laptop on so you can’t access any more adult content?
Maybe if all the bleeding hearts stuck to getting arts degrees instead of thinking they can save the world in a commercial law firm, there wouldn’t be so many broken dreams.
Ps. A note to the Deans – stop offering so many humanitarian subjects in law degrees and stick to teaching kids what law is really all about.
It’s all well and good to say that Australian law grads go on to practice in New York et al, but I would like to know how many of them bide their time in a domestic top-tier firm for at least a couple of years before making the jump.
@ Phil Atley – Post # 1
“… seal the lifts and gas ‘em. Remove the bodies after dark.”
The humor of the point made me laugh and has brightened an ordinary Monday for me!
Excellent editorial on a very pressing issue.
The key issue here is that Universities are businesses. Students = dollars. What students end up doing after the give the dollars is quite irrelevant. Is this morally justifiable? No. Is this the reality of the situation? Yes.
The Universities cite the fact that circa 50% of law grads often find themselves employed in roles which do not involve legal practice. The more relevant question, however, is how many of them did so of their own volition? I would suspect that less than 10% would be the true answer. Everyone I knew at Law School wanted to practice, except a small minority.