Change in legal markets happens on a geological timescale, or at least that is how the received wisdom has it.
But the latest rankings of City firms by numbers of FTSE100 clients shows the advisory market can transform itself.
Linklaters and Slaughter and May, once the sole occupants of the legal market’s top table of two, have been given a fright by the quiet surge of magic circle rival Freshfields Bruckhaus Deringer (previously just Freshfields in its pre-merger days).
Freshfields has broken into the top two in the 2011 Hemscott Law Firm Rankings for the first time in the 20 years Hemscott has been keeping records thanks to the firm’s tally of top-level clients increasing from 15 to 23 in the past two years.
Its victim is Linklaters (previously Linklaters & Paines), the league leader when Hemscott launched its rankings in 1991. In fact Linklaters has dropped to third place with 22 FTSE100 clients, two down from last year and lagging behind Slaughters and Freshfields. That said, Linklaters still leads the pack when firms are ranked by market capitalisation or the profits of their clients.
Herbert Smith is also hot on the heels of the magic circle and is now just one FTSE100 company shy of Linklaters’ tally.
Allen & Overy (A&O) has made significant strides, increasing its roster of top UK clients sixfold, from three in 1991 to 18 this year.
Clifford Chance now has seven FTSE100 clients compared with four when the data was first gathered. And Ashurst’s (Ashurst Morris Crisp in 1991) roster has almost doubled over the 20-year period, rising from four to seven.
The evolution in the rankings suggests a gradual dispersal of top-end work from an establishment of four firms to a broader base of brands that includes A&O, Addleshaw Goddard, Ashurst and Clifford Chance.
It also highlights the dominance of corporate powerhouses over firms with top-notch banking practices such as A&O and Clifford Chance, both of which lag behind Freshfields, Linklaters and Slaughters.
Further down, a number of international and domestic firms pick up FTSE100 clients in single figures, while Scottish firm Morton Fraser Milligan (now Morton Fraser) and Stephenson Harwood are among those to have dropped off the list over the course of two decades.
But lawyers may need convincing that rankings such as these have much authority. While not as subjective as, say, rankings directories based on market feedback, these numbers-based tables have the potential to skew reality.
“We do acknowledge statistics – they say something, but they’re not conclusive,” says Alan Paul, a partner in A&O’s City corporate team. “[But] the information is relevant.”
But whether the statistics indicate much of a shift in the market is another question, according to Paul.
“It’s all been pretty close in the top four or five, except for Slaughters, but they have a different UK-centric as opposed to a global model,” he notes. “Small numeric changes don’t mean much.”
The firms the rankings favour certainly lend some importance to the results.
“We work hard at keeping our clients happy and it’s pleasing to see that reflected in these results,” says Frances Murphy, head of corporate at Slaughters. “Clients clearly do look at these sorts of charts.”
Freshfields corporate practice head Mark Rawlinson comments: “We’re delighted. One of our strategies was to increase our FTSE100 roster – it’s been a concerted effort not only to capture new clients, but also to keep our existing ones happy.”
Clifford Chance global corporate head Matthew Layton believes the Hemscott rankings are “just one of a number of indicators”, but he defends his firm’s position as the lowest-ranked magic circle firm.
“Hemscott tends to be focused on corporate relationships,” says Layton. “We advise a number of financial institutions, but that wouldn’t give us the credit. There are also Fortune Global 500, DAX and CAC4 corporates around the globe. It’s one constituency of clients.”
Even if the rankings are a fair reflection of firms’ ability to win and retain premium clients, the question still arises as to whether the figures reflect the quality and level of work a firm does or simply which clients it has on its roster.
Hemscott’s team of three researchers gets around this by contacting clients’ law firms to check that the advice is purely corporate. This filters out those who only give firms ad hoc work or, for example, mandates only involving litigation or real estate partners.
Neither can anyone argue that the rankings are skewed by a major time lag. The Hemscott team writes to law firms when the FTSE100 is reviewed on a quarterly basis and go from cutting the data to publishing it in three weeks. The most recent data was cut on 6 May.
While Hemscott used to award half-points to non-sole advisers it now awards one point per client, even if the firm was appointed as part of a panel. This means that clients such as BP, whose panel was reviewed in May, can account for several firms’ credits.
“We’ve seen the number of panel reviews increase in recent years, and in some cases large companies will use several firms to cover their M&A and other corporate needs,” comments Layton.
Large corporates’ reluctance to disclose the names of their legal advisers is a potential stumbling block, as the rankings only include clients in their tally if they have given permission.
But law firms’ keenness to publicise their client bases helps get the data in.
“Some of the larger companies will not be happy to show a firm as a key corporate adviser,” reveals Hemscott publisher Andrew Parson. “It’s fairly safe to say we’re catching 99 per cent – the firms are so keen to let us know who they consider to be clients.”
But does a long list of FTSE100 clients necessarily translate into top-flight fee income? Herbert Smith global corporate head
James Palmer suspects so.
“It’s not rocket science to figure out that the biggest corporates have more significant challenges and more significant legal needs,” he says. “They have interesting work and will in many cases have the biggest legal spends.”
Regarding the rankings, Palmer says: “I don’t mind short-term movements up or down a bit – it’s the long-term trends we care about.”
Even if A&O and Ashurst can seriously improve their tallies over long periods of time, longstanding client ties, whether based on quality of service or simply brand and contacts, seem to be the central issue.
Corporate partners say it takes a great deal of investment and a sustained focus to effect even an incremental change to a corporate team’s relationship with a FTSE100 client it does not already advise.
Firms rely on regular dialogue with clients and offers to help, which enable the firm to gravitate towards the company’s line of vision.
Smaller firms can be reassured by the hope that isolated events can have an effect on a firm’s FTSE100 client tally. This year, for example, Slaughters increased its lead even further when clients ITV and Wood Group were promoted from the FTSE 250.
Panel reviews also make their mark – BT booted out Linklaters but kept Freshfields in a revamp in late 2009- as do general counsel moving from company o company, as client relationships are guided by personal relationships. And firm mergers and partner moves can potentially shift the state of play.
But whether a lateral hire can have a real effect is in doubt. As Palmer says: “However much individual lawyers like to think these relationships are personal, they’re deeply institutionalised in most cases.”
Freshfields’ FTSE100 clients
InterContinental Hotels Group
Smith & Nephew
Linklaters’ FTSE100 clients
British American Tobacco
Capital Shopping Centres Group
Lloyds Banking Group
Royal Bank of Scotland Group
(Click image to view larger table)