2018: The magic circle will be no more

Prediction: The global elite will split into two and magic circle will become a meaningless name tag

In 2008 The Lawyer coined the phrase ‘Sweet Sixteen’ as part of our Transatlantic Elite research. It describe a group that was widely accepted as a band of elite firms based on revenue per lawyer, profitability, client base, lawyer numbers in London and New York and key positions in deals tables.

But things change.

Who’s in the elite?

For some time now Allen & Overy (A&O), Clifford Chance, Freshfields Bruckhaus Deringer and Linklaters have benchmarked themselves against a group of US firms. The price of entry to that club is an average profit per equity partner (PEP) of £1m. 

Any firm that cannot consistently turn in a million-pound-plus PEP cannot claim membership.

On this basis, Clifford Chance is by far the weakest of the UK firms in the global elite. In the dark years of 2009 and 2010 it managed a PEP of £733,000 and £933,000 respectively, when all its magic circle rivals were still posting over a million. Furthermore, its earnings per partner continues to lag behind the other magic circle firms.

No more magic circle

The phrase magic circle will become outmoded. It will remain an easy shorthand to denote the UK-heritage firms with the biggest revenues, the most international work and which consistently outperform the rest of the market on profitability. But, as The Lawyer has argued before, one should interrogate its validity. Clifford Chance’s profitability does not match its rivals’, while in terms of revenues Slaughter and May is half the size of the others. Its estimated turnover in 2008 was £479m. It is simply does not operate the same model as the other big four.

The international business law firm tier

Five years ago, this would have denoted a group of firms whose profitability was some way below the Sweet Sixteen. They were not on the highest-value deals but their international investment allowed them to be considered global players; with revenues evenly spread around the world. Profitability in this group can vary wildly and does not determine membership: in 2013 Norton Rose Fulbright’s PEP was £420,000, compared with Hogan Lovells’ £729,000.

In the past five years, this group of firms have transformed themselves through merger or – courting some controversy from purists – through Vereins, where profits are not merged but operations are.

For some firms, that will be their future. For others, a seat at the top table will no longer be a dead cert.

The US elite

Within 10 years Wachtell Lipton and Cravath will join Slaughters as super-boutiques, while the premium end firms Paul Weiss and Debevoiose will also capitalise on their international disputes credentials to gain entry to this club. Of the original Sweet Sixteen, the biggest question marks over continuing membership will hover over Kirkland & Ellis and Weil Gotshal & Manges.

 

Global elite 2023

Allen & Overy

Cleary

Davis Polk

Freshfields

Latham & Watkins

Linklaters

Simpson Thacher

Skadden

Sullivan

Kirkland

Weil Gotshal

 

International business law firms 2023

Clifford Chance

Ashurst

Norton Rose

Hogan Lovells

DLA Piper

Jones Day

Baker & McKenzie

White & Case

Herbert Smith Freehills

King & Wood Mallesons SJ Berwin

Sidley

 

Boutiques 2023

Cravath

Wachtell

Slaughter and May

Debevoise & Plimpton

Paul Weiss

 

Video:

David Morley, Allen & Overy

Video:

Tony Angel