The new Establishment
13 August 2012 | By Catrin Griffiths
In an Olympics season where the world has become obsessed with competitive rankings, it’s fitting that this week we’re running a sneak preview of The Lawyer UK200 Annual Report. I
In the full report, published next month, you’ll be able to see granular analyses of firms’ performances, but there’s so much material we have decided to devote this issue of The Lawyer to the implications of the headline turnover trends.
As I noted several weeks ago when commenting on the self-presentation of CMS Cameron McKenna (The Lawyer, 30 July), rather than splitting out revenues according to jurisdiction and profit-sharing systems – themselves merely products of internal culture and history rather than meaningful indicators of global footprint – we’ve pulled together a turnover ranking whereby full global revenues are taken into account. This means that those mergers of equals Hogan Lovells and DLA Piper regain their place in a UK-centric table. The result is that DLA Piper takes the crown as the largest law firm, with a London HQ or co-HQ. It comes down to this – what do the clients see? As far as they are concerned, they’re buying into a global business. Whether there’s a separate UK LLP is utterly irrelevant to them.
In the past we may have been too deferential to a hierarchy established in the 1990s. We need to get away from the spectral pecking order of a magic circle that included Slaughter and May whereby ranking was based on revenues and that most intangible of metrics, brand. The traditional magic circle was trailed by a group that included Norton Rose, Herbies, Ashurst, Simmons, legacy Cameron McKenna and Lovells (now CMS and Hogan Lovells). This year’s ranking puts DLA Piper at the top by turnover, followed by the old magic circle – and no, that doesn’t include Slaughters. Norton Rose and Hogan Lovells especially, are now within shouting distance of revenues comparable to the magic circle.
Because the table refers to the financial year 2011-12 it can’t yet take account of the seismic mergers of Ashurst and Blake Dawson and Herbert Smith and Freehills, both of which put on huge weight with pan-Australasia deals. They will feature strongly in the table next year. There are still differences between allthese firms – notably in that key indicator of work quality, revenue per lawyer (RPL), but these firms form the new Establishment.
So much for the giants and their mergers. As this issue highlights, acquisition is a quick way to bulk up, but what of the firms have grown organically? As you’ll see in our UK200 preview they include Berwin Leighton Paisner, Mishcon de Reya, Olswang, Taylor Wessing and Travers Smith, all firms bristling with energy and focus. DLA Piper’s confidence in going all-equity – a move that will depress its profit per equity partner (PEP) considerably – is just one example that shows how little firms are now in thrall to PEP – unless you’re Linklaters or Freshfields, that is.
Of course, The Lawyer has long argued that PEP is a misleading statistic given the diverse range of profit systems. In The Lawyer UK200, the most comprehensive report available of top firms’ financial results, we will be taking average earnings per partner (EPP) as a more important benchmark. In the same vein, the pecking order we reveal today turns an outdated hierarchy on its head. The globalised world order is not around the corner – it’s already here.