Joint accounts

This year Eversheds provided figures for its entire overseas network, as well as its UK operation. Matt Byrne recalibrates this year’s revenue rankings to unveil the alliance factor

Duncan Weston

Duncan Weston

This year the questionnaire Eversheds returned for The Lawyer UK 200 Annual Report included a little more information than usual. For the first time the firm not only included financial data for its LLP, but also the total revenue generated by the members of its overseas network, ­Eversheds International.

Total revenue for the primarily UK end of the business stood at £365.9m. ­Eversheds International pulled in an extra £130m or so (£496.8m to be exact).

The revenue figure was the only dual piece of data Eversheds provided, but it raises the question: why bother?

According to Eversheds partner and head of international Stephen Hopkins, the larger revenue figure was provided “to reflect what clients see”.

“We’re increasingly acting for clients on a multijurisdictional basis and I think they’d be surprised if they just saw the LLP figures when we have other offices,” he adds. “Surprised and confused.”

All clear

Nobody wants a confused client, so in the interests of clarity The Lawyer has decided to recalibrate the top end of this year’s ­revenue table to show what it would look like if the fee income from firms with ­formal, exclusive alliances were included.

DLA Piper joins the global ­heavyweights on size when revenue from the US and Europe, Middle East and Africa (Emea) parts of its business are merged, splitting Allen & Overy (A&O) away from its berth among the top four in the process. The top three in the UK list stay grouped together, underlining the ­distance the magic circle has now built up between itself and the rest of the UK ­market.

But Herbert Smith, which has long hankered after a spot among the elite, closes the gap significantly when the ­revenues from alliance firms Stibbe and Gleiss Lutz are taken into account. ­Compared with ­Herbert Smith’s £444m turnover, the combined alliance revenue jumps by 44.5 per cent to £641.4m.

But the biggest riser is CMS Cameron McKenna. Last year Camerons’ turnover was £240m. The combined revenue from the alliance was e781m (£621.9m), which is up by just under 1 per cent, from 2007-08’s €775m (£530.7m).

Which is all fine and dandy, except that most critics would claim these are smoke and mirror figures because they represent revenue from relatively loose alliances of firms rather than a single entity, and ­crucially that the alliance members do not share profits.

“Delivering successfully in your core market isn’t necessarily a question of ­sharing profits – Slaughter and May’s best friends club is the prime example of that,” argues KermaPartners consultant Friedrich Blase. “But in reality, in most firms nothing gets done in a coordinated way unless there’s a financial consequence.”

The most obvious financial ­consequence is a reduction in personal profit share or de-equitisation, a sanction not available to firms in alliances.

It is also not yet available to Peter ­Martyr, chief executive at Norton Rose, which earlier this year unveiled its deal with Australian firm Deacons. In time this is expected to lead to a full merger, adding around £120m of revenue to the combined entity.

“The problem with an alliance is that it’s effectively an elaborate joint venture, and most joint ventures tend to fizzle out – there’s not enough glue,” argues Martyr. “You’re only going to get the right level of service if you have the ability to make ­people abide by certain things, the power and authority to make things happen. You have to have sovereignty.”

Structural soundings

Not surprisingly, partners at alliance member firms such as Eversheds’ Hopkins and Camerons managing partner Duncan Weston disagree with Martyr.
“From the client’s perspective, how these offices are structured is largely immaterial unless it impacts on the ­service,” claims Hopkins. “So long as the client has a single point of contact, that’s the main thing.”

Weston is more forthright. “The largest firms all have internal mechanisms to ­separate profits from different ­jurisdictions and spend ages agonising over how to remunerate people. It’s bloody madness,” he states. “The ­economics of a country dictate the level of profit. So we share profits and price according to the local market.”

He claims that, as far as any of CMS’s clients are concerned, the network may be structured differently on the surface, but fundamentally it is the same as any of the large international firms’.
“It’s an organisational structure similar to the large accountants,” says Weston. “There’s a holding structure in which all the members contribute revenue to the centre for common systems and so on. We believe our structure offers a distinct ad­vantage to clients. We’re now achieving a 60 per cent hit rate on European ­tenders.”

Spectrum analysis

From next year Norton Rose and Deacons will operate under the Norton Rose brand and the Deacons name will disappear, but in the short term the two firms will not share profits. Does this make it an alliance? Not according to Martyr.

“We’re not entering into an alliance,” he claims. “I’ll be chief executive, it will be one firm. The only thing we’re not doing – yet – is telling everyone how to split their profits. So we’re much closer to the ­Clifford Chance end of the spectrum than the other end.”

Martyr’s “other end” of the spectrum includes networks such as CMS’s ­international group of nine firms, which to outsiders at least continues to look more like a marketing arrangement rather than a cohesive group. Or to put it another way, like a wrapper in the car industry, when one make of car is rebadged as another.

“At one end of the spectrum the client knows they’ll be getting uniform systems with the name and reputation behind it,” adds Martyr. “The other end is simply about rules for club members to abide by.”

So how does a client know if it is buying a Jag or a Rover Metro? One word: ­integration.

“Based on my UK experience, alliances offer real value when the different firms have common goals, a common way of working and some common systems and processes, such as resolving client conflicts and common precedents,” says consultant Jeremy Knott, also of KermaPartners. “But few if any can deliver this at present, although many talk about convergence and working towards this goal.”

Neither side is likely to agree. But in revenue terms at least, in alliances such as CMS, the magic circle has a hefty ­competitor.

”The largest firms all have internal mechanisms to separate profits from different jurisdictions and spend ages agonising over how to remunerate people. It’s bloody madness. The economics of a ­country dictate the level of profit. So we share profits and price according to the local market.”
Duncan Weston (above), CMS Cameron McKenna

“The problem with an alliance is that it’s effectively an elaborate joint ­venture, and most joint ventures tend to fizzle out – there’s not enough glue. You’re only going to get the right level of service if you have the ability to make people abide by certain things, the power and authority to make things happen. You have to have sovereignty.”
Peter Martyr, Norton Rose