Public Face of the Law
Feature: Slater & Gordon
BRW. 22 May 2008
Pages 48-49
CASHED-UP CLASS ACTION SPECIALISTS REDEFINE THE LEGAL PARTNERSHIP AND EMBARK ON AN ACQUISITION AND EXPANSION SPREE.
It has been a year since Slater & Gordon became the world’s first publicly listed law firm, but it is unlikely that lawyer and managing director Andrew Grech will be throwing a party. He and the other directors have had other things to worry about.
“The listing, to be frank with you, is pretty incidental,” he says in answer to how the float has altered company culture and business practices. “It was never for us an end in itself. It was always for us only one more way of achieving what we wanted to achieve as a group.”
Instead it has been a catalyst in a broader overhaul begun in 2001 when the firm was first incorporated. The May 21 float last year netted a capital injection of $35 million and allowed the company to begin an ambitious course of acquisition and expansion that has returned revenues and profits beyond even the directors’ initial expectations.
The listing was also a path to running the law practice in a more democratic way than the traditional partnership model. “We had assembled a really talented group of people, and wanted to create a way for them to have the same opportunities for ownership that we did,” Grech says. “But we also realised that we’re in an environment where, for people to work collaboratively, we had to move away from the more traditional model which we feel encourages people to take quite a short-term view, operating quite independently of each other.
“In a partnership, it’s really about what fees [lawyers] generate and what clients they personally bring in rather than what role they play in the execution of a strategy for the whole of the practice.” The partners all received substantial stakes in the listing, with Grech and deputy chairman Peter Gordon both sitting on stakes valued at more than $89 million. But almost a quarter of employees are now also stakeholders through a shareholder plan.
Grech stresses that as an ownership and management structure the public listing places remuneration partially in the hands of the market, making it dependent on overall performance rather than concentrating the power to determine promotion and reward with a group of senior partners.
“There’s talk in some parts at the moment of people scaling down and not admitting any new partners. In a partnership if you know your income’s going to be less, you cull the number of partners. We wanted a business that allowed the rhetoric [of supporting lawyers’ careers] to become a bit of reality.”
It is a claim that mirrors the egalitarian way Slater & Gordon believes the organisation approaches the law and business in general. “What troubles us is the sense that sometimes we are viewed as though the business is all about one small group of people in charge,” Grech says. “We believe one of the strengths of the business is the group we’ve built around us. And if you look, we’ve built considerable wealth for a lot of people.
“Rather than the rhetoric about those things, we’d like people to judge us by what we actually do. The fact is our people are out there every day helping clients, that’s what they do. Whatever people might think of us, there’s no denying that we fill a real need in the community, and the community commitment of our people, I think, is absolutely unparalleled.”
Grech is referring to the class action law for which Slater & Gordon is famous - or infamous - from the watershed 1989 compensation award to miners affected by asbestos in the CSR Wittenoom blue asbestos mine to current cases centering on asset management firm Opes Prime, retail investors Centro and Westpoint Property Group.
With the additional reporting requirements and transparency of a listed company, as well as the capital injection from public investors, Slater & Gordon’s project and class-action workload is likely to ramp up even further.
The public company structure has raised the interest of domestic and international litigation funders, and Grech expects the shareholder class-action market to open up dramatically in the next year.
“They see us as having the competency and the scale now to be able to deliver the results that they need,” he says. “If you’re a litigation funder, one of the things that you’re very focused on is the capacity of those that are engaged by the clients to carry it out. Your investment really hinges on the competency and the capacity of the lawyers that are engaged.”
It will be helped, he believes, by a more receptive environment for class actions in Australia. “Now I think it’s widely recognised that class actions and group actions have a significant role to play as an economical way of redressing people’s legal rights. There’s a lot of hyperbole about about ‘an explosion of litigation’, but more informed commentators agree that grouping claims and sharing legal costs has got to be good for the client.
“I also think they see the private profession and the civil law system as a way of ensuring and essentially providing a significant deterrent for people to ensure that these things don’t happen in the first place.”
This month, Grech is overseeing what will be the company’s eighth acquisition in the past year - Secomb’s Solicitors of Footscray, western Melbourne. It will bring the company’s legal network to 26 locations with more than 500 staff and expertise in areas such as wills, probate, family law and wealth protection. Grech estimates that at any moment, the business is dealing with more than 12,000 individual, active clients.
Having set an original target of $65 million revenue for the 2008 financial year, Slater & Gordon has turned over more than $37 million in the first half and has adjusted its projections. Profits for the first half to December 2007 were almost $7 million.
Grech attributes much of the growth to expansion into regional areas, and an attention to providing commercial legal services to small and medium businesses that Grech believes have previously been priced out of top-tier legal firms.
“One of the things that running cases on a conditional-fee basis teaches you to do is run cases very cost effectively. We’ve been able to transfer those skills into the more traditional fee-for-service areas of commercial litigation and business transactional work.”
On the issue of a possible worsening US sub-prime crisis or credit crunch, Grech is unfazed.
“The stockmarket fluctuations are disconcerting. It would be less than honest for me to say that’s not a concern. But overall we take a long-term view on share price, and it’s just pleasing that the price remains above the listing price, notwithstanding any market volatility.”
The share price currently sits comfortably above the issue price of $1, an exception among newcomers on the ASX. Grech’s explanation is prosaic: “There’s hardly a relationship between the rate at which people get injured on the roads and the economic cycle, or even the rates at which people get injured at work.”
It should also do little to soften the scrutiny that Slater & Gordon’s directors have become so used to, with the market ructions likely to increase opportunities in their commercial law sectors and boost their profile even further.
“In fact, one of the things that attracts investors to our business is that in a way it’s counter-cyclical,” Grech says. “In the business law and commercial litigation area, we’re moving into a period with tightening credit where businesses are going to become distressed, and that tends to create legal problems. It creates a volume of litigation that drives work for firms that provide services in those areas.”
The company intends to continue its expansion. Client referrals from regional areas are growing “exponentially,” and the company that previously earned 98 per cent of revenue in Victoria now earns 40 per cent from other states. It is a strategy it believes will spread risk as most personal injury legislation, in particular, is state-based. There are also plans to corner a larger piece of the $700 million-a-year personal-injury market by providing local legal services.
But don’t expect any change in attitude. “It’s not as though we’re unused to being criticised,” Grech says. “The legal profession has its share of petty enmities. It has been new territory, a listed law firm, but business has been growing across all areas, and our strategy is pretty clear. We’ll continue supporting organic growth.”
SARAH NEILL
