McKinsey warns Slaughter and May: your clients will want you to go global

Study of 50 International legal practices reveals law firms trail industry; Skadden Arps tipped for future domination

`And despite their elite reputations, Slaughter and May and Cravath Swaine & Moore are singled out.`The report says: “We believe that they will face growing pressure for geographic expansion to maintain world-class capabilities in their specialities and to meet the increasingly global needs of their clients.”`The consultancy has plotted a profitability map which puts the size of a firm against its performance, measured by profits per equity partner (see table, right).`Selected top 50 global law firms are plotted on the map, with most firms clustered in the lower left-hand corner showing they are neither distinctive in scale nor profits per partner.`The report splits the firms into four categories – specialists that focus on a few very profitable practice areas, shapers that have achieved both significant scale and profitability, full-service integrators which boast a broader set of less profitable practices and incumbents which have neither the profitability nor the scale.`It then sets out five winning strategies of which firms should choose one. It says two types of shaper will emerge winners, those such as Skadden Arps Slate Meagher & Flom with more than 2,000 lawyers, top-end international practices and new economy firms.`Elite Wall Street firms and relatively small firms that focus on issues such as intellectual property and litigation will do well if they grow organically or with acquisitions of like-minded firms. And then a half dozen US national firms will consolidate moderately profitable regional firms into high value practices and multidisciplinary firms will win out.`The table shows that two US firms, Skadden Arps Slate Meagher & Flom and Latham & Watkins, have managed to increase both profitability and scale since 1993.`New York corporate powerhouses Wachtell Lipton Rosen & Katz and Cravath Swaine & Moore have both increased their profitability dramatically, while Clifford Chance has grown through merger.`McKinsey principal Wendy Becker, who ran the research, said one striking difference between the legal industry’s profitability map and those for other industries is the fact that only one firm, Skadden Arps, fell in the shaper quadrant. Like shapers of other industries, it has followed the strategy of moving up the map and then right.“1 Figures are for Linklaters only; does not include revenue of other firms within the Alliance of European Lawyers.`2 Number of equity partners reflects Clifford Chance’s merger with Rogers & Wells and Pünder Volhard Weber & Axster. Profits per partner represent eight months of Clifford Chance and four months of the new firm following the mergers. The firm’s starting location as represented in the exhibit is Clifford Chance’s position in 1998.“Source: The American Lawyer, 2000; The Industry Standard; McKinsey analysis