Lindsay Esler, who was managing partner of Deacons for six years until the position was abolished earlier this year, tells ALB why Deacons has the position and approach to be a winner in a market where there is now a shortfall of big full service firms

For as long as those familiar with the domestic legal services market in Hong Kong can remember, Deacons and Johnson Stokes & Master (JSM) have been the dominant players. It is they who have been in perpetual struggle for some of the SAR’s most lucrative work, blue-chip clients and the best and brightest legal talent on offer. But after JSM’s marriage with US-based firm Mayer Brown, the status quo was shaken up.

Since the JSM merger announcement was made in early 2008, it has been Deacons alone filling the role of a dominant, truly independent law firm. More than double the size of its nearest competitor (Woo, Kwan, Lee & Lo is the next-largest firm with 80 lawyers compared to Deacons’ 160 plus), Deacons has one of the more lucrative and loyal client portfolios. The firm has also recently added membership of Lex Mundi, Interlex and World Services Group  to its name.

While Lindsay Esler agrees that the events of the past year have been a watershed for both his firm and Hong Kong’s legal services sector, he tells ALB that they aren’t enough to force the firm into a strategic sea change. Esler says Deacons is comfortable with its position in the Hong Kong legal market, and no amount of M&A activity in the legal services market will alter that, or its strategic direction. But while the mergers (more recently Deacons Australia’s teaming with Norton Rose) may not have as drastic an impact on Deacons Hong Kong as one would have thought, they are forcing the firm to analyse its own aspirations. Deacons, it seems, still has its heart set on being an international firm, but it’s a strategy that won’t be fulfilled in a conventional way.

Mergers, alliances, ententes

The last 18 months have been nothing if not momentous for legal services markets across the region. Law firms have merged, sought out strategic alliances and ententes and are looking for eligible partners everywhere. Esler says Deacons neither wants nor needs a merger — but this is not to say that the firm does not have its fair share of suitors. “International law firms seem to think we are a good target,” he says. “We did look at the possibility of a merger in 2001-02 and received a lot of approaches since, but now we wouldn’t consider it because, frankly, we don’t need it.” The firm has been closer to a merger than some may think — through its alliance with US-based Graham & James and Deacons Australia in 1992. That alliance fell through when Graham & James collapsed in 2000. The other half — the entente with Deacons Australia — will come to an end in early 2010, when the Australian firm formally becomes a member of the Norton Rose network.

This is an arrangement that Esler is completely comfortable with. “The merger did not surprise us,” he said. “Basically, we were two large associated firms and we were heading in different strategic directions. It is very much suited to Deacons Australia to merge with Norton Rose — and to be honest we are quite comfortable with our position within our own market, because we are by far the largest independent firm in Hong Kong.”

But being the largest independent firm isn’t where the ambition stops. “We have access to international resources through our relationships with other leading independent firms,” says Esler, mentioning as an example the firm’s recent admission as the Hong Kong member of the world’s leading association of independent law firms, Lex Mundi. “We want to build on the good reputation we have in Hong Kong and the PRC — where we were the first international law firm to have been given three licenses to set up in cities there [Beijing, Shanghai and Guangzhou]. What we need now are like-minded friends rather than merger partners.”

While a merger may not be on the cards right now, Esler does not rule out the possibility of ’closer cooperation’ with its associated firms in southeast Asia. Deacons has associated firms in Malaysia and Thailand,  and a further Greater China presence in Taiwan. “We may assist the associated firms with support systems and marketing but there is no plan for financial integration  – any closer relationships will all depend on the jurisdiction,” Esler says. “We can’t rule this out but at the moment it is really not on the radar. Asian markets are extremely diverse and even though other jurisdictions may offer good opportunities for growth, hourly rates may not justify doing things differently.”

Structural form

While striking mergers or deepening ties with its network firms may not be at the top of the agenda now, tending to structural issues is something that will keep Esler increasingly busy. He concedes that, at present, the shape of the firm is a little incongruous. “Our expansion so far has not been through rigid strategic planning,” he says. “It has involved growing in areas where other firms did not have a strong local presence — for example, funds and insurance.”

The result, says Esler, is that Deacons has a number of disproportionately large practice groups. For instance, together the firm’s IP and Insurance and Financial Services departments account for around 70 of its 160 lawyers. However, some other departments are relatively small for the size of the firm.
“The balance issues have created a logistical nightmare, but there are worse problems to have,” he says. Fixing the problem may be made easier by the fact that the firm’s client base is diverse.
“Our client base is sufficiently flexible to allow us to have a more than third of our resources deployed in these areas,” he says. “We don’t have a handful of clients contributing 50% to our total revenues. In fact our largest client contributes only 2% to our total figure — so this fact will be immensely helpful in the process.”

Hands-on

Esler hasn’t been  your usual law firm’s managing partner. For one thing, he is decidedly more hands-on and continued to play an active professional role as head of its 90-strong IP department for the entire time he was managing partner. “I am now the operations, management and projects partner,” he explains. “We realised some time ago that the firm has grown to a size where a single person could not handle the Managing Partner role , so we decided to abolish it and create an executive partner role (now held by Jeremy Lam) which involves, essentially, dealing with the partnership, marshalling the troops, convening management and strategy meetings and running negotiations,” he says. “Maybe it is similar to a whip.”

This position frees up more of Esler’s time to concentrate on what he feels to be the aspects of the former managing partner role where he can best use his skills and experience: the operational management, development, projects and IT sides of the practice. “The tasks of a managing partner usually fall into two categories: the “boring” and the “unpleasant”,” he says. “The “boring” parts, which I, perhaps perversely, find more rewarding are the operational things – being involved in marketing, technology and IT; while the unpleasant side from my perspective is dealing with all the “people issues” and the inevitable law firm politics.”

Esler is intimately involved in the firm’s procurement, application and development of legal technology. “IT systems aren’t an afterthought for us; we see them as aiding overall growth,” he says. “We are focusing our efforts on developing software programs and integrating computer systems to better service clients. We employ 20 IT professionals and programmers who work on writing software — like cost-recovery systems and programs that allow clients to check their WIP before we bill them — and then software to monitor how our clients use these services.”

Esler says that while it is a “gutsy move” allowing clients to monitor completely how and for what they are being billed by their lawyers at any stage of a matter, it is most certainly the way of the future. “We believe we lead the way in this area in Hong Kong because we believe that it is what clients will eventually demand of their lawyers,” he says. “For lawyers, it is another way they can add value for clients.” ALB