For Clifford Chance in 2004-05, it was all about making up lost ground. The previous year's financial performance had been the worst for years, with PEP plummeting to £562,000, or £6,300 profit per point. At some £710,000, plateau partners improved their position from last year's £630,000, but nevertheless this fell short of chief operating officer David Childs' more optimistic target of £850,000 in 2005, followed by £1m in 2006 and then £1.2m in 2007. Clifford Chance partners will still have to be patient.

However, this was a year where management took a series of bold decisions. The most far-reaching was to close the San Francisco and Los Angeles offices at the beginning of the financial year, just two years after they opened. Clifford Chance kept alive its tiny outposts in Palo Alto and San Diego, but closing the majority of the West Coast symbolised the end of the firm's expansionist dream.

Closing an 11-partner operation inevitably made a dent in Clifford Chance's US figures, from £205m (some 25 per cent of total revenue) down to £138.6m (15 per cent of total revenue). That's some drop. Managing partner Peter Cornell's move to New York in January 2005 was designed to bolster US morale. This had suffered following the exit of several rainmakers, including Jim Benedict, who took a book of business worth up to £5m to Milbank Tweed Hadley & McCloy. Other exits included bankruptcy star Margo Schonholz, who joined Kaye Scholer. There is still serious work to be done in New York: in 2004-05 the US business generated £6,000 profit per unit compared with an average of £7,100 across the firm. Part of Cornell's remit will be to hike the utilisation rate in New York, which is running at 85 per cent compared with 95 per cent in London.

By contrast, closing Berlin was less dramatic; the office accounted for around £3m in turnover and focused largely on domestic real estate. This partly accounts for Germany's 2.5 per cent dip in turnover, with revenues falling from £105.6m to £103m. Continental Europe as a whole turned over £301m, with France (£59m), Spain (£25m) and the Netherlands (£34m) putting in strong performances; Paris came in 5 per cent over budget, with 10 per cent fewer fee-earners than the previous year. Clifford Chance's tiny Luxembourg operation, meanwhile, upped its revenues by 20 per cent to £8.5m. Central and Eastern Europe turned over a total of £25m, while Moscow was up 40 per cent to £11m. Asia, meanwhile, signalled a strong recovery with revenues of £64m.

But, as usual, London was again the most successful office in the firm, turning over £402m and averaging over £8,000 profit per point. Underlying this performance was a ferocious examination of costs, led by Childs. This included centralising all internal business services, including HR, IT, property management and global procurement. That drive is slated to yield a saving of £40m in 2005- 06, representing some £100,000 in profit per partner. Other reforms by Childs included the jettisoning of its groundbreaking $150m (£79.6m) private placement ± effectively ending a period of financial experimentation for Clifford Chance. Back in December 2002, the firm made the placement to take advantage of cheaper borrowing rates. The bond issue, led by Barclays, was split into two tranches, including $105m (£65.5m on December 2002 exchange rates) of 10-year bonds with a yield of 5.4 per cent and a $45m (£28m) of 20-year bonds at a 6.5 per cent yield ± both rated `A'. But the inflexibility of the bond issue created internal problems; in July 2003, for example, Clifford Chance did not pay its quarterly profits distribution after slow cash collection brought down its retained profits to its £160m minimum. In redeeming the bond issue early, Clifford Chance also took the opportunity of changing its profit distribution policy to an even more conservative model.

Also under discussion was the proposal to cut annuities to former partners, which would save another £12m. Currently, retiring partners are entitled to 20-35 points for five years, depending on retirement age and length of service. Indeed, the issue of equity points was a feature of Clifford Chance's year.

What will dominate the firm's internal politics next year is the lockstep review. The lockstep review group has recommended a transformation of the partnership to all-equity with three distinct equity ladders ± a radical proposal. The proposals ± yet to be voted on - would see a change from the current one-size-fits-all lockstep, which runs from 40 to 100 points. That basic structure would be stretched downwards to 10 points, which would enable the firm to bring the entire salaried partnership into the equity. There is also a proposed lower ladder of 30-70 points and a higher ladder of 110-150 points.

The review proposes that offices will be given the chance to opt into the lower ladder where appropriate economically, while individuals will have to justify moving onto the top ladder by reference to how they perform against the firm's four core values of ambition, commitment, quality and community.

The partner appraisal system, which is also carried out by reference to the core values, will run on a three-year cycle. Partners can be moved up and down the lockstep accordingly.

Expect great debate over the coming year. That boil is not yet lanced.