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Freshfields Bruckhaus Deringer, which is at the early stages of a radical partner de-equitisation programme in a bid to boost partner remuneration, made more profit than any other firm in the world last year.
The firm came top of the net profit table in this year's The Lawyer Global 100 - the annual ranking of the world's largest firms by revenue, which is published today (30 October).
Freshfields made £432m profit on a total revenue of £882.1m, a margin of 49 per cent. Its nearest rival in the table was Skadden Arps Slate Meagher & Flom, which had a net profit of £396m from £884.6m, a 45 per cent margin. Allen & Overy, Clifford Chance and Linklaters all feature in the top 10.
However, Freshfields' success in becoming the firm with the largest pool of profit underscores the necessity of its new de-equitisation programme if it is to compete for the top talent with the leading US firms.
Although it headed the net profit table, it could only manage 23rd position in the rankings for average profit per equity partner (PEP), with £830,000, behind Herbert Smith, Linklaters and Slaughter and May. By comparison, Skadden posted £1.04m for 2005.
Freshfields' all-equity structure, married to its sheer size, resulted in its impressive position in the table ahead of all-comers.
The removal of up to 50 underperforming partners from the equity at Freshfields will inevitably dent the firm's total profit figure, as these partners either leave the firm or their remuneration moves to the cost line. However, it should have the desired effect of increasing both its PEP and its competitiveness.
As Giles Pugh, co-head of management consultancy Professional Services Consulting, put it: "At the end of the day, what all the top UK firms have their eyes on is how they develop their US practices, and increasing their PEP is at the core of that. A means of doing that is to weed out those partners at the less performing end of the curve."
This year's Global 100, published in association with The American Lawyer, offers some perspective for Freshfields' management as the firm embarks on the de-equitisation programme.
Unlike Freshfields, the firm at the top of the PEP table Wachtell Lipton Rosen & Katz is a single-office, corporate and securities-focused powerhouse. It retained its traditional place at the top with an outstanding PEP of £2.1m, twice that of Skadden.
The gap between Wachtell and the firm in second place, Cravath Swaine & Moore, was £654,000, a figure that is higher than the PEP of more than half the firms in the top 100.