The sound of silence
UK200 2009 | By Luke McLeod-Roberts
16 December 2013
7 April 2014
18 September 2013
14 November 2013
7 April 2014
Despite a tough year, most firms are still prepared to publish their financial results. A minority are keeping tight-lipped. By Luke McLeod-Roberts
It has been an incredibly tough year for the legal profession, with turnover and profit drops the norm. Despite this, most firms have been open about their figures for the 2008-09 financial year.
And why should it be any other way? As part of the drive towards greater commerciality and efficiency over the past decade, the larger firms have aligned their organisational structures, financial models and business cultures with publicly listed companies. These companies adopt a transparent approach to financial reporting because of stock exchange rules. Also, most large law firms are now LLPs and as such are obliged to file their figures for public scrutiny within 10 months of their end of the financial years.
Also, The Lawyer has been publishing the key financial data of the major firms for the last decade. Answering basic questions on turnover and profit is hardly new.
Nevertheless, for a handful of firms one would think that The Lawyer was asking for much more complex, unprecedented, and perhaps even deeply personal, information. They gave responses such as: “We will not have accurate audited figures for some further time yet”; “That’s a business decision”; “We believe that it would not be appropriate”; or - in the case of Howard Kennedy - simply ignored repeated voicemails and emails.
The silence of these ‘refuseniks’ is particularly deafening when contrasted with the way some of these firms have courted the press on previous occasions. Take, for example, an email sent to The Lawyer in 2008 from Cobbetts’ PR agency: “The partners in the London office would be delighted to talk to you in more depth about the progress of the office since its launch in September 2007, as well as more widely about the state of the market and the fact they are winning lots of M&A and public markets work at a time when others are shutting up shop or scaling down their City operations.”
But when contacted to talk in more depth about the progress of the London office over the next 12 months, key partner Simon Jones declined to comment.
In a similar vein, Nottingham-based Browne Jacobson was very happy to speak to The Lawyer in May 2008 when it saw a record turnover of £35m. Former managing partner Brian Smith said at the time: “The capital gains tax changes towards the end of the tax year led to a lot of private equity buyouts and sales and retail transactions. The market downturn hasn’t affected our corporate practice yet.”
When presented with estimated figures that point towards significant drops in both revenue and average profit per equity partner (PEP) this year, senior partner William Colacicchi said: “We’re declining to take part [in The Lawyer UK 200] this year and the figures which you have produced are not accurate and not endorsed. We’ll not have accurate audited figures for some further time yet and we have not and will not make any internal or external announcements until we do.”
This approach contrasts with what has become the established market norm in recent years. After the end of each financial year, firms tend to supply unadjusted figures and estimates. There is often a small difference between this figure and the one that is produced once work in progress, interest or other factors are taken into account (see page 28 for more on this).
Last summer, for example, Browne Jacobson supplied a 2007-08 turnover figure of £34.8m. Its LLP accounts filed in February stated £34.9m. The negligible difference is hardly something to get the legal market chattering. So what is underlying its markedly different attitude this year, as well as the approach taken by others such as Cobbetts, Howard Kennedy and Penningtons?
In Browne Jacobson’s case, the firm’s public profile appears to have dipped remarkably over the past year. Although Colacicchi was already senior partner when the firm released its results last year, Browne Jacobson changed its managing partner this year for former head of business services Iain Blatherwick. One former lawyer at the firm describes the duo as “surprise winners” of the management elections and a sign of ”people not voting for the establishment”. He adds: “They’ve withdrawn somewhat and become more of a private affair.”
This perception of low-profile management would certainly tally with the view of those at rival firms, together with regional recruiters that know the firm well. What is striking is how underwhelming its presence seems.
“They’ve got some good solid lawyers, but they’re not rainmakers, or people you would necessarily remember,” says one Midlands-based recruiter who has been instructed by Browne Jacobson in the past. A practice group head at a major Midlands firm adds: “They haven’t made much of an impact - I don’t know if that’s because they’re doing badly or quietly getting along with things.”
What is particularly strange is that the firm’s core business areas - insurance and public sector with clients such as the NHS Litigation Authority, Advantage West Midlands and the Welsh Assembly - should be in okay shape in the current market.
Despite differences in terms of client base, location and size, there are points in common with Browne Jacobson and other refuseniks such as Cobbetts, Howard Kennedy and Penningtons.
First, they all rely - to greater or lesser extents - on property work. Browne Jacobson is known for its housebuilder practice, a sector disproportionately hit by the downturn.
Property has been a particularly important part of Cobbetts’ business for years. The firm has seen an 18 per cent turnover drop when the previous year’s adjusted figure is compared with the unadjusted sum released this summer.
Penningtons is believed to have seen a revenue fall of around 21 per cent, while, according to a former lawyer, Browne Jacobson has not hit budget, although it declines to comment either way.
PEP figures among these firms on the whole have been historically inflated by keeping a tight rein on the equity (in the case of Howard Kennedy only a quarter of its partners were full equity in 2007-08) or tightening it further, as Cobbetts did in 2008.
But profit margins have been middling to low as a rule. In 2007-08 profit margin stood at 24 per cent at Howard Kennedy, 22 per cent at Browne Jacobson and just 14 per cent at both Cobbetts and Penningtons. In order to rescue profitability in a tough trading market, these firms would have had to take considerable cost-saving measures. With the exception of single-site Howard Kennedy, this group has considerable geographical spread, duplicating overheads. Browne Jacobson has three offices, Cobbetts has four, Penningtons has three.
But getting out of lease arrangements is easier said than done. It is easier to reduce the cost base in salaries, and many of them have tried. Cobbetts made 10 per cent of its workforce redundant over the last financial year, while Howard Kennedy was one of the first firms to go down that route with 46 cuts last summer. The Lawyer understands that Penningtons targeted 50 job cuts in February 2009, while Browne Jacobson is thought to have also cut jobs, with one source putting the number under consultation as high as 80 (the total staff-count was around 500 in 2007-08), although these latter two firms have avoided answering questions on redundancies.
To impact on the bottom line any cuts would need to have been made early on in the financial year. As one law firm consultant puts: “If you haven’t executed by the end of month six, there will be no savings before month 12.”