Legal Sector Divides as Larger Firms Remain Cautious, Smaller Firms Drive Expansion

Top-tier law firms in Australia are taking a cautious approach to partnership growth to protect profitability and manage ongoing economic uncertainty. In contrast, mid-sized firms are expanding their partner ranks to tap into high demand for legal services in disputes, infrastructure and energy transition. Over the past six months, more than 260 new partners have joined firms across the country, with nearly half of those appointments taking place at smaller firms that are betting on new opportunities amid broader market changes.

Although the biggest firms are showing slower growth in their partnership numbers, the legal sector as a whole continues to perform strongly. Among 56 firms surveyed, overall partner numbers rose by 1% in the first half of 2024, with 83 more partners than at the same time last year. About 55% of the new appointments were salaried and nearly 50% were women, reflecting a broader trend toward inclusion and different approaches to distributing equity.

Among the largest 10 firms, partnership numbers remained steady or rose slightly. These firms added 120 new partners while 100 partners left during the same period. Lateral hires, or movement between firms, are now just as common as promotions from within, with both avenues accounting for about half of all partner appointments. Partner pay remains closely tied to performance and varies significantly, ranging from $400,000 to several million dollars per year. Reports also show steady revenue growth and rising profits per partner.

Smaller firms, which often face fewer structural constraints, are expanding more aggressively. Hamilton Locke recorded a 10% increase in partner numbers, while King & Wood Mallesons had the highest increase among major firms, growing its partnership by 4% to reach a total of 199 partners. Not all firms experienced growth. Clyde & Co, an insurance-focused practice, saw its partner count fall by 38%, highlighting the impact of differing levels of demand across service areas such as disputes, investigations and energy projects.

Firm leaders note that activity remains strong in cross-border deals, regulatory changes, ESG matters and flows of private capital. Lawyers are staying busy and artificial intelligence has not yet disrupted their roles. Instead, AI tools are improving efficiency by accelerating routine tasks such as contract reviews. One firm used generative AI to process 45,000 documents in just nine hours, demonstrating that technology can enhance productivity without threatening legal jobs or profitability.

Despite global challenges, Australia's legal sector remains resilient. While the consulting industry continues to face headwinds, legal firms appear relatively unaffected. With increasing demand across energy, infrastructure and risk advisory work, along with early signs of recovery in IPOs and capital markets, smaller firms that are choosing to grow now may be positioning themselves for long-term success. Whether larger firms will eventually follow their lead remains to be seen.

Source: Australian Financial Review, Sonder Consultants, Lawyers Weekly, Thomson Reuters, Marsden Group