The high cost of ambition

It’s a fascinating marker of how firms have managed their businesses.

The average cost per lawyer among the UK top 100 dropped by 3 per cent, from £241,000 to £234,000. Most efficient of all was Freshfields, which managed to slice off £132m from its costs burden - a full 19 per cent. That performance may have Simon Davies crying into his cornflakes, but Linklaters did okay, with a cost reduction of some 14 per cent, or £109m.

With all the noise and fury over cost-cutting, you might think that firms have streamlined dramatically. Not so: the trajectory is still upward over five years, which is distinctly un-Cameronian. Overheads are rising, and with the movement through salary bands set to unfreeze in the City, that’s not going to change any time soon.

Clifford Chance has the tightest control of the big four, with costs growth in the half-decade of 18 per cent compared with Linklaters’ 21 per cent, but I suspect its tighter performance is due to its shrinking US offices; perhaps David Childs’ axe is rather less to be feared than mythology allows.

The biggest growth in costs over five years comes from firms that have invested heavily in international expansion over that period: Allen & Overy (42 per cent), Ashurst (54 per cent),
CMS Cameron McKenna (42 per cent) and Norton Rose (45 per cent). Balancing cost control and responding to a globalising legal market will become increasingly tricky.

Indeed, the cost profile of a law firm inexorably shapes strategic options. As we’ve seen with the number of transatlantic mergers under discussion (see page 18 for our sceptical analysis of the
Hammonds-Squire Sanders talks), this is a period of anxiety for mid-market firms with fewer resources than the internationalists outside the magic circle.

Firms with cross-border ambitions whose costs have swollen in five years - Pinsents (26 per cent), Trowers (64 per cent) and Withers (40 per cent), take note. You’re on our merger watch list.

catrin.griffiths@thelawyer.com