Change at the top
7 September 2010
20 June 2011
2 March 2009
11 October 2009
8 July 2010
The recession has had a massive impact on law firms’ performances this year. There was dramatic change this year at the top of the rankings in The Lawyer UK 200 Annual Report.
For the first time, the largest firm in the UK by total revenue was not Clifford Chance.
The magic circle firm, built largely on a financial institutions client base, was the highest-profile casualty of the economic meltdown that has engulfed the world over the past two years. It fell two places to third in the table with a revenue of £1.26m, beaten this year by Freshfields Bruckhaus Deringer on £1.28m and Linklaters, the new number one, on £1,298m. The other member of the magic circle, Allen & Overy, claimed fourth spot with revenue of £1.09m.
But Clifford Chance’s woes were even more pronounced when the average profit per equity partner (PEP) figure is considered. All three of its closest rivals posted a PEP above £1m, an impressive feat in the current turbulence. In contrast, Clifford Chance’s PEP fell 37.4 per cent during the 2008-09 financial year from £1.17m to £733,000. That left it with a profit margin - an accurate reflection of the quantity and quality of business in a firm’s practice - of just 24 per cent (all three of its rivals have margins comfortably above 30 per cent).
Senior partner Stuart Popham admitted how hard conditions had been when he told Lawyer 2B’s sister title The Lawyer: “We’re the pre-eminent firm in financial services globally. That’s the bit of the economy that’s been hit hardest.”
While the firm’s finances took a tumble, one thing Clifford Chance did have in common with its magic circle rivals is that it embarked on a wide-ranging restructuring programme (Freshfields had already been through such a programme two years earlier that saw around 100 partners leave the firm).
The cuts in partner, associate and support staff ranks were designed to halt the drop in profit and leave Clifford Chance leaner and better prepared for the upturn when it arrives. Popham was careful not to sound overly optimistic, adding: “Costs continue to grow for some time after revenue stops growing. It’s like a traffic accident - costs run into the back of you.”
A decade in the making…
As always, in this year’s UK 200 we analysed the financial performance of the top 200 firms by revenue in the UK. (An expanded version of the hard copy magazine is available online, with individual write-ups and additional financial data on each of the largest 100 firms.)
But this year we also took the long view. After all, a one-year snapshot tells only part of the story. For the bigger picture we traced the evolution of the current crop of leading firms over the past decade, the years that The Lawyer has been detailing the finances of the UK’s biggest firms by revenue. What emerged is that the firms that have been unafraid to take a succession of bold decisions have been rewarded with groundbreaking success.
So, the most successful firm of the past 10 years? Linklaters. During the past decade, the firm that began by integrating the firms in its European alliance ended by restructuring the practice and making 450 layoffs. In the process Eversheds’ turnover grew 326 per cent from £305m to £1.298bn, while PEP considerably more than doubled, from £502,000 to £1.3m.
Neatly, global managing partner Simon Davies was promoted to the partnership in that pivotal year of 1999. “At that point we were definitely an English law firm in the City of London,” he admits. “The journey over the decade has been to become a leading global law firm. Back then we had a few overseas offices, but the catalyst was Linklaters & Alliance.”
Perhaps not surprisingly, in this most challenging of financial years it was apparent that several firms that were previously keen to gain a PR advantage by unveiling record revenue and profit results during the boom were less keen to do so when the numbers were going south. In this year’s report we addressed that by looking at those firms that, for one reason or another, preferred not to report all of their financial results to The Lawyer.
One firm that has been on an upward trajectory in recent years, though one that appeared to hit a wall last year, is Cobbetts. For the first time the firm refused to supply profit figures to The Lawyer, although it did reveal an 18 per cent drop in turnover.
Cobbetts was certainly not alone in making redundancies, as it did during the 2008-09 financial year. But while the majority of firms provided profit figures, Cobbetts managing partner Michael Shaw merely said: “You won’t be receiving a [profit] figure. Goodbye.”
Over the past few years we have also analysed the performance of the leading firms (by revenue) in the four key sectors central to most major law firms: corporate; finance; real estate; and litigation.
Last year’s turbulence in the deals market was illustrated perfectly by the corporate top 20. Only seven of the top 20 corporate practices grew revenue last year. Revenue fell on average by 4 per cent across the top 20 in contrast with a 17.4 per cent rise in 2007-08.
The real estate sector was the hardest hit, with the top performer, Lovells, increasing its revenue by only 5 per cent. Two years ago that sort of performance would have been enough to leave the firm’s partners hanging their heads in shame.
In contrast, real estate revenue at SJ Berwin fell by 28 per cent, while at Freshfields it was down 27 per cent (roughly the average for majority of national firms except for Eversheds, where property revenue dropped by £24.1m, more than the entire property practice at rival Taylor Wessing).
Good times at the bar
For those more interested in a career at the bar than in a firm of solicitors the past year provided evidence that this sector of the legal market may well be recession-proof.
Total revenue generated by The Lawyer’s bar top 30 jumped by a whopping 13.6 per cent last year, from £661m to £750.6m. Most market watchers expect that to accelerate further this year as big-ticket claims start to roll in.
Asked whether he expected litigation levels to increase, decrease or stay the same this year, Darren Burrows, senior clerk at One Essex Court says: “Increase or at least stay the same.
lus, despite political rhetoric about an improving economy, companies continue to haemorrhage people and go under at alarming rates, and disputes will flow from the rise in companies unable to meet their obligations or perform as they may have contracted to do”.
That trend has already benefited some of the sets in the top 30. Quadrant Chambers, for example, reported a 38.6 per cent rise in turnover to £21.9m from £15.8m a year earlier, the biggest grower of all the top 30 sets. Tim Gerrard, the former Jersey trust manager Quadrant appointed in June as its chief executive with a mandate to grow revenue, says the growth partly stemmed from an upturn in insurance-related work.
At the top of the table, Brick Court hung onto the number one spot with revenue of £41.5m, One Essex Court moved up from fifth to third with £38.5m, while Essex Court Chambers remained in second spot with a revenue of £38.8m.