For Slaughter and May partners the figures probably speak for themselves. The firm is far and away the most profitable in the country.
But as jealous lawyers at other firms see the top partners tucking away close to £1m in the last financial year, dark mutterings about the firm's non-investment in foreign offices are spreading. Partners are “taking the money and running” in the words of one rival senior partner.
While all the other top firms are investing in foreign offices and foreign law, Slaughters has deliberately ploughed a purely English furrow – excess profits have gone into partners' pockets. Could Slaughters be heading for a fall?
“In six or seven years the shit will hit the fan,” says one observer. “The firm's capital markets work is already dropping off. In a few years' time, when clients are offered a seamless global legal service by firms like Clifford Chance, they will take it rather than have to deal with several different law firms.”
The subject of global expansion was really first debated at Slaughters when the London corporate finance specialist Clifford Turner obtained global reach by merging with banking practice Coward Chance 10 years ago, forming an international financial law firm which threatened all the top firms – Slaughters, Freshfields, Allen & Overy and Linklaters.
Unlike all the other firms, which reacted by building up international capacity and hiring foreign lawyers, Slaughters decided to do things differently. There was no need for panic, the firm's partners concluded. They would maintain quality, and profits, by concentrating on providing English law advice.
“Back in 1989 the globalisation issue was at the top of the agenda. That was the burning issue,” says corporate partner Charles Randell who is in charge of the firm's international strategy. “We spent a lot of time trying to look at what the position was going to be in five years' time. We decided we would wait and see. If it ain't broke don't fix it.
“Looking back on that, the thing that strikes me in some ways is how little things have changed. The league tables show the usual suspects.”
Randell, a German speaker, did himself attempt to expand the firm's English law practice internationally by opening a Frankfurt office at the start of 1992, shortly after German re-unification. But three years later the office closed. Slaughters had misread the market. Clients did not want an English law service in Germany, they wanted a German law service in Germany.
Randell said at the time of the closure: “If you have an office and you want to expand, the only way is by practising German law. We understand the market now a lot better than we did then.”
Of course, moving into German law was not an option. There was a danger it would dilute quality – and profits.
Is Randell right that the league tables are still dominated by the usual suspects? In M&A work, Herbert Smith was up there with the other four major players 10 years ago. Now it has dropped out of the premier league. Like Slaughters it has not built a large international presence. While it held onto its Paris and Hong Kong offices, Slaughters withdrew from Frankfurt.
On the other hand, Allen & Overy, Clifford Chance, Linklaters and Freshfields have all built up massive capacities in projects and international equities and are still hiring foreign lawyers and forging exclusive alliances with foreign firms to help them build up this work.
At the beginning of the 1990s the New York Stock Exchange made it far easier for foreign companies to list there with its famous 144A rule. This opened up international capital markets as never before.
By the start of 1997, all this action finally began to make Slaughters partners a little nervous about their strategy. Profits were still pouring in, but they were worried about anecdotal signs that the best law graduates looking for jobs were starting to think of Linklaters or Freshfields before Slaughters because of its lack of international presence.
Several sources say there is a fierce debate going on between partners about whether to invest some of their huge profits in building a global presence, although Richard Slater, the head of banking and on the partnership board, denies that partners are split between junior and senior camps. “Some of our junior partners are quite conservative,” he says.
At the start of 1997, the firm decided to deliberately step up its existing friendly referral relationships with a number of firms and pressed them to do joint tenders.
There were four in the US – Davis Polk & Wardwell, Cravath Swaine & Moore, Sullivan & Cromwell and Simpson Thacher & Bartlett. In Germany there was Bruckhaus Westrick Stegemann (now Bruckhaus Westrick Heller Lober) and Hengeler Mueller, and in Sweden there was Mannheimer Swartling.
The idea was to give Slaughters a chance to do jobs with a US equity tranche and in return the New York firms could pitch for project finance transactions which might be written under English law.
Senior partner Giles Henderson briefed staff at a series of seminars over the next few months, telling them the strategy and the reasons for it, so that every lawyer understood the priority relationships with these firms.
It was the firm's first recognition that it had to do something to keep servicing clients with international work such as privatisations and projects.
Slater acknowledges: “We accepted some time ago that we are not going to have as many people as the others doing this. We are not going to grow as fast. It follows from that that we could not expect any longer to do all the work that would be available to us if we really tried. We had to be much more selective.
“That's true in lots of areas, but mostly in projects where there are lots of opportunities to pitch to people we have no connections with at all. For the most part we don't do that. We concentrate on our existing clients to try and ensure that when they have projects, we do them.”
In other words, the joint tendering efforts are not aimed at expanding into the growing international capital markets, they are designed to enable the firm to keep servicing existing clients. Slaughters' capital markets and projects work appears to be dropping off as a result.
At the end of 1996 Slaughters dropped out of International Financial Law Review's annual top 10 table for advisers to managers of international bond issues for the first time in 15 years and has not improved its position since.
For 1996/97 it slipped from eighth to 12th place as adviser to the banks managing international equity issues and also fell out of the top 10 as adviser to issuers themselves. This year, despite its efforts at joint tendering, it acted on only five equity deals for banks compared to nine last year.
In international infrastructure projects the firm has never been near the top of the table. In 1995/96, Privatisation International ranked it 16th by deal value. The next year it was 17th. It is likely to have slipped further this year with around 15 jobs compared with the 100 or so for the likes of Freshfields, Linklaters and Baker & McKenzie.
While its big four rivals expand in the steadily growing international markets for debt, equities and private financing of infrastructure, Slaughters is deliberately staying the same size, concentrating on being a superb M&A adviser for its FTSE100 clients.
It has, however, been surprisingly innovative and aggressive when it comes to holding on to those clients.
For example, some time ago when Slaughters' client Blue Circle put its legal services to tender, contact partner William Underhill won them back by offering a free global legal audit.
Slaughters' other unique strength, highlighted by some clients, is that far fewer of its partners are needed on each job because of their generalist “all-rounder” nature.
It might be that without the international distractions of other firms, Slaughters can build on its pole position for servicing blue-chip UK clients and take market share from the other top City firms.
But a glance at our graphs shows this is, so far, not happening. Linklaters and Freshfields are expanding into international work and keeping pace with Slaughters on UK M&A work. Even Clifford Chance, the international finance specialist, has continued snapping at the other three's heels over the decade.
The graphs also highlight the extreme roller coaster volatility of the UK M&A market. If this is Slaughters' main revenue stream, what happens in the next recession?
“It all depends on how strong their collegiate culture is,” says a senior equity partner at a rival City firm. “Will the junior partners expecting to get £800,000 rebel and leave when they only get £400,000 because of the recession?”
Slaughters has three separate mechanisms for dealing with the risk of tension between junior and senior partners. One is to make all partners retire at 50, a second is to force senior partners to contribute a far higher proportion of their profit share into the capital reserve pool. Finally, for the past seven years, the partners on the first and second quartiles of the lock-step ladder have been electing their own representatives to sit on the board.
But another problem is looming on the horizon. Slaughters wins cross-border M&A work on the back of prestige clients and referrals from US firms with clients making inward investment in the UK. But US firms in London have been aggressively expanding into English finance law. So far most have resisted corporate work, but Weil Gotshal & Manges' hiring of Clifford Chance corporate partner Mike Francies is a clear sign that Weil Gotshal at least is intending to do just that. More new competitors could follow.
The most talked about problem among Slaughters' rivals is the increasing need to provide a seamless global service for increasingly international clients. But what do Slaughters' clients think?
Richard Tapp, company secretary at Blue Circle reflects Slaughter's line exactly when he says: “As sophisticated users of legal services, we like to choose the best law firm in each jurisdiction ourselves.”
Glaxo Wellcome company secretary Steve Howden says: “I don't think it's the biggest issue when deciding your lawyers on a transaction. You don't need to walk into the London office of a firm and say 'run me a global transaction'. We either get our London solicitors to propose someone in other jurisdictions or we tell them to use certain firms.”
However, he concedes that when Glaxo instructed Clifford Chance on the Wellcome acquisition because Slaughters was conflicted out, “they had offices across the globe and we used them to sort out one or two issues in places like France and China. That was convenient”.
But the message from Steve Glick, group legal affairs director at Ladbrokes, which is in the midst of international expansion and which has used Slaughters for the past decade, was different: “I've always been disappointed at its unwillingness to expand internationally as rapidly as others. Slaughters has high standards and I'd like to see it develop those standards in foreign jurisdictions over time.”
However, he says “for the time being” he will turn to Slaughters for large complex transactions with a substantial UK element.
The trouble is, hiring foreign lawyers, particularly at partner level, is anathema to Slaughters. Slater says: “It depends whether you believe good lawyers are born and not madeS The majority of our lawyers come to us straight from university, they're still being trained hereS That's where we think our quality mostly arises from. With that goes an element of loyalty and commitment. It's difficult to see that you can preserve those elements if you are doing a lot of lateral hiring.”
But Slaughters, like everyone else, is losing qualified assistants, and increasingly has to rely on lateral hires. This spring it took part in a joint recruitment fair with Clifford Chance, Linklaters and Freshfields designed to attract newly-qualifieds from other firms.
No one doubts the unrivalled quality of Slaughter and May's lawyers from the top partner to the most junior. “Neither you nor I know whether they're doing the right thing,” says one ex-partner. “Because everyone else is rushing into something does not mean it's right, or that it's right for Slaughters.”
Maybe there will be enough M&A work involving UK companies to keep Slaughters at the top of the pack for a long time to come. Or maybe the other four, riding on the back of their international strength, will start to take even that work from it.