The Lawyer UK 200 preview: Vereins: To verein or not verein
15 August 2011
19 May 2014
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23 June 2014
12 December 2013
The increased integration of firms poses problems with ranking them by revenue, explains Matt Byrne
When it comes to ranking firms by revenue, few issues are as problematic as that of dealing with the multi-profit centre titans.
An increasing number of firms are using structures such as a Swiss Verein or European Economic Interest Grouping to facilitate integration. Most are keen to project a public image of one combined entity.
Under these vehicles, the component firms make contributions to cover central costs but do not share profits. Purists argue these are not real mergers. They claim the lack of financial integration suggests they are nothing more than glorified associations along the lines of Lex Mundi. Often those jurisdictions have lower profitability levels, adding grist to rivals’ mill that the main reason for not integrating is to avoid diluting profits.
Consequently, they say, there is not the same level of vigilance in driving partner behaviour and, ultimately, client service suffers.
Take Norton Rose, the highest-profile example of a firm that has boosted its international profile radically via non-financially integrated mergers.
This year the firm was among those (including Eversheds, CMS Cameron McKenna and Squire Sanders Hammonds) that did not provide a global average profit per equity partner (PEP) figure as the partners in its UK LLP and those of its Australian former-Deacons end do not share profits (neither do the partners in the firms Norton Rose added this June in South Africa and Canada, respectively Deneys Reitz and Ogilvy Renault, the revenue of which are not included in this year’s results).
All three of Norton Rose’s new partners are understood to have a lower PEP than the UK firm. But this is not a one-size-fits-all argument. DLA Piper’s US top of equity far outstrips that of its UK business. In the UK, the firm’s top earner took home £1.7m last year. In the US, top of equity is estimated to be approaching £4m.
“There are around 25 DLA partners in the US that are in a different ball park to those in the UK,” said a source close to the firm.
The rise of these behemoths, and the issues associated with ranking them on a level playing field, came to a head in 2011. This summer saw the first year’s results from the likes of Hogan Lovells, SNR Denton and Squire Sanders Hammonds.
The non-stop natural resources-led merger strategy of Norton Rose added another twist, while the continuing lack of full financial integration between the US and Emea halves of DLA Piper adds yet another.
Consequently, this year, The Lawyer is publishing two tables. Alongside the traditional UK 100 ranking we are also publishing a table reflecting how the top of the table would look if UK-headquartered firms’ global revenues were included.
The biggest change is that DLA Piper leapfrogs the UK big four of Clifford Chance, Linklaters, Freshfields Bruckhaus Deringer and Allen & Overy to take the number one spot (US firm Skadden Arps Slate Meagher & Flom, helped by the weak pound, retains its number one spot as the world’s largest firm by revenue).
Elsewhere, Camerons jumps up the table from 14th to seventh, while the former Hammonds and Denton Wilde Sapte make considerably improved showings thanks to their new American friends.
Does any of this matter? To firms, enormously. Camerons’ management, to take one example, is particularly keen to see the combined heft of its nine-firm European network’s revenues reflected.
Camerons managing partner Duncan Weston says that increasingly clients work with his firm as CMS across a number of jurisdictions.
“It seems odd therefore not to recognise our full European offering as our clients do,” Weston says. “With BT, for example, we work with them in over 80 countries. I think recognising structures such as ours is an important step for the industry, particularly as more and more firms take this route for developing their international propositions.”
Does it matter to clients? Probably not a jot, so long as the service across offices is of a good quality.
As K&L Gates chairman Peter Kalis, one of the most outspoken advocates of the single partnership approach, put it earlier this year: “Clients and law partners themselves will be the final arbiter. The debate will focus, at least in part, on whether vereins can match across their internal profit borders the seamless client service of single law firms.”
In part, this becomes a philosophical argument with no single correct approach. To that end, The Lawyer has continued to list Hogan Lovells and DLA Piper in the UK 100 table using their non-US revenues on the basis that neither firm is the result of an outright takeover and both firms continue to be run by dual management teams.
In contrast, few outside the firms involved would argue that the mergers of both Sonnenschein Nath & Rosenthal and Dentons and Squire Sanders and Hammonds were anything other than takeovers by larger US entities.
With previous US takeovers of UK firms, such as Mayer Brown and Rowe & Maw or Jones Day and Gouldens, in the year following the merger the UK firm disappears from the UK ranking and - assuming it is large enough - appears in The Lawyer’s top 30 ranking of the largest international firms in London.