Companies spending a combined $3 billion-plus on legal fees have delivered a harsh score card on the nation's law firms, half revealing plans to bring more work in-house or use alternative providers to meet cost pressures in the coming year.
The gong for the highest ranking in Australia and the Asia Pacific based on a survey by global client market researcher, The Legal 500, went to national law firm Corrs Chambers Westgarth.
Gilbert + Tobin, Minter Ellison and Clayton Utz also featured in the top 20 for the Asia Pacific region despite being national firms.
"When we talk to clients there is a sense that the strong Australian firms slightly lost their focus by chasing these big international dreams," said The Legal 500 publishing director David Burgess.
"Yes, some of their clients definitely needed it and have benefited massively from it, but some of their domestic clients have been left behind. It's created huge opportunities for [other] firms."
The report notes most of the nation's biggest law firms scored highly on technical legal ability but "fared poorly for their client relationship skills and project management skills, relative to other firms in the report". The Legal 500 surveyed 226 general counsel from companies across Australia, most from the financial, energy, industrials and retail sectors, whose collective spend on law firms is around $3.2 billion a year. Mr Burgess said the base included around 75 of the ASX300. Not all companies answered every question or revealed their legal spend.
Firms were assessed on a scale of one to 10 — one being poor, five being good and 10 being market leading. Despite lacklustre scores in some areas each firm had pockets of brilliance, such as KWM's capital markets and M&A; practices, Herbert Smith Freehills' litigation teams, Allens regulatory and M&A;, and Ashurst's corporate teams receiving a number of "10" scores.
The results contrast with the latest merger tables, topped by Allens and Herbert Smith Freehills, although that table similarly showed a strong performance for Gilbert + Tobin and Minter Ellison.
Mr Burgess said that while some firms may trumpet increasing profits, clients are concerned that innovation has been focused on making more money internally by innovating to cut costs rather than to work with them on their needs.
"What they really want is more collaborative resources that can be customised for their individual needs as a company. When you have a domestic firm such as a G+T and Corrs, it's much easier to galvanise a partnership into a similar kind of mindset and get that buy-in to do things," he said.
"Firms are trying to find their way a little bit."
Despite one third of respondents planning to bring more work in-house, only 25 per cent planned to grow their teams in the coming year. Another 20 per cent revealed plans to work with "alternative providers for commoditised work". One third viewed an increased workload as their biggest challenge ahead (33 per cent), followed by cost constraints.
The survey data was gathered in the three months to June 2016, before the administration of the European arm of KWM.
In a coup for Corrs, it also topped the Asia Pacific survey, followed by global monolith Dentons which entered Australia at the end of last year by absorbing the Sydney and Perth Gadens offices. Gilbert + Tobin and Minter Ellison took sixth and eighth spots respectively, beating once-local now global rivals.
Speaking to The Australian Financial Review at the end of the year, Mr Denton said that the "deep challenge" for the firm was to ensure it was "constantly calibrating" to maintain its global networks.
"Culturally we have the appetite."
In January, Mr Denton was appointed co-chair of the B20 — the international business equivalent of the Group of Twenty — financing growth and infrastructure taskforce.
Across the Asia Pacific, a vast majority of corporate legal teams — 82 per cent — felt they had "deepened" their interaction with their business over the year. Putting aside legal advice, almost half thought their team had delivered the most value in "commercial and business advice", followed by risk mitigation. Global economic stress, increased regulation and expansion into new territories all vied for top placing as the biggest challenge of the year, listed in that order and towering over other concerns.
It is the first time The Legal 500 has published its client research results.
