UK 200 financials laid bare in pivotal year for profession
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Beyond PEP: magic circle and silver circle firms extend the gap on every profit metric
Ted Burke
The continuing tightness of the equity at some of the UK’s leading firms is illustrated by figures published today in The Lawyer UK 200 Annual Report 2010.
In particular, The Lawyer’s groundbreaking earnings per partner (EPP) figure reflects the earnings of every partner at a firm, highlighting the gulf between salaried or fixed-share partner remuneration and that of full equity.
Leaving the now-defunct Halliwells aside, it was Manchester-headquartered DWF that last year came bottom of the EPP table with £92,000. In contrast, DWF’s average profit per equity partner (PEP) of £333,000 secured it 54th place in the PEP table. Just 26 of the firm’s 120 partners are full equity.
Hammonds, now in merger talks with Squire Sanders & Dempsey, also posted a low EPP in comparison with its PEP. Hammonds was 94th on the EPP table with £211,000, but 49th on PEP with £364,000. The national firm also has a low equity to non-equity ratio of just 37 per cent.
Slaughter and May, where 97 per cent of partners are full equity, heads the pack at the other end of the table. Slaughters’ EPP was £1.79m in the 2009-10 financial year, just £42,000 per partner lower than its PEP of £1.84m.
Notably this year’s top five by EPP - Slaughters, Freshfields Bruckhaus Deringer, Linklaters, Allen & Overy (A&O) and Clifford Chance - are identical to the top five by PEP.
But on the latter table the firm in sixth place with a PEP of £877,000 drops out of the top 10, its 62 per cent equity partnership reducing EPP to £599,000.
This year The Lawyer also tracked the five-year performances of the UK’s largest firms. Once more it is Slaughters that performs best. The blue-blood firm saw the biggest increase in EPP since 2006 despite posting an 18 per cent drop in PEP during the 2009-10 financial year.
Six years ago The Lawyer introduced EPP to highlight the falling number of full-equity partners among the top 100 firms. It is calculated by adding full-equity partner remuneration to that of all other partners, then dividing the sum by the total number of partners.
Among those that saw the biggest proportional EPP falls since 2006 were Wragge & Co (34 per cent) and Shoosmiths (25 per cent).
Wragges’ performance is particularly interesting considering the firm is an all-equity partnership.
Shoosmiths reflects the downward trend of average profit over five years not hinted at by its 70 per cent PEP increase in 2009-10.
Freshfields, the best-performing firm of the UK big four, was also the one that reduced total costs the most last year, by £132m, from £684m to £552m, and by the biggest proportion at 19 per cent.
In this year’s UK 200 Ted Burke, Freshfields chief executive, said the firm’s performance was partly helped by its large European practice and the depreciation of the euro.
“Around half of our revenue and costs are in euros,” Burke said. “Like all firms we’ve been pressured to be more efficient and adjust to difficult conditions.
“We’ve outsourced some services and looked hard at our internal spend, and we’ve been careful about hiring.”
Alan Hodgart of consulting group Huron said the results confirmed the extent to which several of the UK 200 were “boom players”.
Hodgart added that Freshfields’ performance in particular highlighted the extent to which it was a financially prudently run firm.
“Most law firms talk about managing costs well, but they don’t do it,” said Hodgart. “Freshfields does.”
For the first time this year’s 106-page magazine includes commentary on all 200 of the UK’s largest law firms.
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Readers' comments (17)
Anonymous | 6-Sep-2010 10:36 pm
There is now evidence from Australian pyschology researchers to the effect that the extraordinarily high instance of depression amongst legal practitioners (compared to the workforce generally and other professionals) is significantly contributed to by the profession's obsession with financial performance indicators.
Publications like "The Lawyer UK 200 Annual Report 2010" probably are not helping the situation. Why is material newsworthy?
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Croesus | 7-Sep-2010 10:47 am
For goodness' sake, Anon, you don't have to read it. You can ignore it. The driver here is the materialism of City lawyers, not that someone is revealing the incredibly suprising fact that City lawyers want to earn lots of money and law firms want to make profits. Any lawyer who is feeling the pressure can simply make the choice to go and work somewhere else. They'll just have to drive a smaller car. And drink Cotes de Rhone instead of overpriced Bordeaux.
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Hugey | 7-Sep-2010 12:56 pm
Drivers are found in cars and on the golf course. What on earth are you wibbling on about?
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Anonymous | 7-Sep-2010 2:27 pm
Well, Hugey, according to Webster, it's "something that provides impulse or motivation, as in a driver in this economy". That is a perfectly acceptable whübble (which you misspelt by the way, a common mistake).
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Anonymous | 7-Sep-2010 2:45 pm
Yes - they should be very sorry for wanting to make money. Very sorry indeed!
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Anonymous | 7-Sep-2010 10:24 pm
It's not the making money bit that seems to be the problem. It's the methods they use to make that money. The results are that lawyer job satisfaction has been falling for years, they have poorer health and more dysfunctional family lives than many other professions. Bad behaviour is more likely to be toleranted.
I'd rather see lawyers earn less and be more balanced personally and professionally. These surveys don't help change law firms culturally.
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Elmo | 8-Sep-2010 4:41 am
Perhaps I'm particularly resilient but I'm really looking forward to seeing the EPP statistics.
Coming from the North I'm intrigued as to whether firms like Dickinson Dees have suffered another horrendous year as a result of their policy of keeping expensive underperforming partners in place and making assistants redundant at the first sign of fluctuations in the market.
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Anonymouse | 8-Sep-2010 8:30 am
This highlights the need to publish salaried partner pay in these tables. If people are being held back for longer and longer (or for ever) from equity, they need to know what they are working towards as salaried partner pay and what the competition looks like.
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Bean counter | 8-Sep-2010 11:34 am
What a load of old rubbish.
Partners in Accountancy firm's earn significantly more than partners in Law firms (and they run much better businesses). They are not disfunctional, stressed or forever trying to get one-up on their competitiors..
The Accountancy firms are far more discreet with their financial information - they quietly go about their work in a very business-like manner. Do you find any of this sort of financial information published about PwC or KPMG?
Perhaps that's why we see more Accountants than Lawyers in proper senior management roles in the major companies in this country - because they can rise above these sorts of things.
Or may be it's the attitude of the legal press. The Accountancy journals seem to give incisive comment on real commercial issues that effect the external economy as a whole and do focus on internal performance or tittle-tattle - see 'Accountancy Age' or 'Financial Director'. Perhaps these are the equivalent of the broadsheets to the legal press tabloids.
When lawyers and the legal press final understand this they will all move on and end up making significantly more money which a much more stress free working life.
The only way to run a really successful business is to put your clients first not yourselves.
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Anonymous | 8-Sep-2010 1:50 pm
wait a minute, whats wrong with Cotes du Rhone?
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