Clifford Chance's PEP slides to £733,000 at end of turbulent year
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Clifford Chance’s average profit per equity partner (PEP) figure plummeted by 37 per cent in the last financial year, down to levels last seen at the firm eight years ago.
After hitting a PEP of £1.15m in the 2007-08 financial year, the firm saw its average figure drop to £733,000 in 2008-09. While the firm had a difficult two years in terms of profits in 2003-04 and 2004-05, when PEP dropped to £562,000 and £651,000 resepectively, the last time PEP was at a level similar to last year’s figure was in 2000-01, when it stood at £721,000.
Revenues at the firm were also hit in the last financial year, dropping 5 per cent from £1.33bn to £1.26bn. As has been the case for all firms with a large international footprint, the fluctuation of dollar and euro strength against sterling over the course of the year enhanced the final turnover figure.
In the 2000-01 financial year the firm’s £721,000 PEP figure was against a turnover of £937m.
Admitting that the last 12 months have been exceptionally difficult for the firm, Clifford Chance managing partner David Childs (pictured) said reducing headcount across the firm had had a significant impact on profitability.
“For us, what characterised the last year was taking difficult decisions around headcount,” he said.
As reported by The Lawyer, the firm okayed plans to dramatically restructure its partnership at the beginning of the year (4 February 2009), having already agreed to cut its junior lawyer headcount earlier in the year (8 January 2009).
The restructuring is understood to be nearing completion.
Childs said that the firm took most of the hit of funding the restructuring in the 2008-09 balance sheet, with a small cost likely to hit the firm’s bottom line in the current financial year.
Other costs during the year included the launch of offices in Kiev and Abu Dhabi. Childs said there was also a small cost incurred when the firm signed a best friends relationship with Indian firm AZB & Partners.
In terms of turnover, Continental, Central and Eastern Europe were the biggest contributors over the course of the year, accounting for 41 per cent of total revenues between them.
London, which includes the Middle East, generated 39 per cent (£491.4m) of revenues while the US accounted for 11 per cent and Asia 8 per cent.
Admitting that the firm’s New York practice had suffered over the course of the year, Childs said the intention for the coming year is to build up the litigation practice in the city.
“We’ve downsized the US litigation practice,” he said. “Litigation had been quite problematic for us but that problem now lies behind us.
“We’ve got a good quantity of litigation resource in Washington DC, but are now smaller in New York than we should be. We’ll build on that and want a litigation practice that will be aligned to the rest of the network.”
The firm has lost a number of its US litigators in recent months, most recently seeing its former global head of litigation Mark Kirsch join Gibson Dunn & Crutcher along with partners Joel Cohen and Christopher Joralemon (10 June 2009).
Readers' comments (10)
mary | 1-Jul-2009 3:18 pm
Only £730,000????? That's got to really hurt...... Actually, given the year CC has just had I'm surprised it isn't lower. And turnover isn't too bad either - didn't all their clients go bust in the last year? Have they actually been doing loads of work we've never heard about or has the effect of the weak pound and their massive international network really boosted the numbers? Interesting.
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Anonymous | 1-Jul-2009 4:15 pm
So you mean they got rid of all those associeates and still didn't manage to keep their profits over a mill? Shame.
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Indiana Pwns | 1-Jul-2009 4:42 pm
Wonder what the PEP would be like if they hadn't sacked all those staff.
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Anonymous | 1-Jul-2009 5:39 pm
It will get worse before it gets any better. Really glad I dont work at CC anymore. Far too many internal politics to deal with.
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Anonymous | 2-Jul-2009 3:40 am
Ho hum, the bigger they are the harder they fall eh? Problem is all their clients are now state owned....i know a lot of firms like CC who refused to take on many clients because they were not deemed to be worth their time. Including one who had a top 30 list of clients which comprised only big banks. Those banks are now gone, merged or state owned. Bye bye to fat cat legal fees. Hello to reality. Never mind, they can perhaps try their hand at gardening.
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Anonymous | 2-Jul-2009 9:30 am
CC can't blame their losses simply on the economic downturn and the problems their clients face. They should have operated like investment banks do and have a leaner headcount. Instead they just keep on all this deadwood, staff who are bitter about being at CC and make everyone elses like simply miserable. I know of some support staff in the litigation department (London office) who have simply done nothing for the last 2 or 3 years.
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Anonymous | 3-Jul-2009 11:03 am
In response to the previous post, there are a few good reasons why support staff in litigation departments are often short of work: litigation teams are involved in a lot less pitching than corporate/commercial and finance teams. But, for political reasons, litigation partners want the same size of fiefdom as their corporate colleagues. I know of one marketing exec at a major City firm (not CC) who was reduced to pleading with her partners for something to do, before she gave up and left. The equivalent people in other departments are often working stupid hours to get through their workloads. So this sort of problem is a management issue with its roots in the partnership structure - investment banks, I imagine, find it easier to run a leaner ship because they can allocate resources to where they are needed without worrying so much about putting backs up in the process. (Of course, this isn't to say they always get it right - bulge bracket banks as exemplars of efficiency and frugality... hm...)
Anyway, as for CC, it will bounce back. For me, though, the really surprising fact to emerge from this article is that only 8 percent of its revenue comes from Asia. I'd always thought CC's Asian practice was stronger than that. That and the fact that, although its US practice is still shakey, it has a stronger presence in Latin America than its magic circle rivals, and had done a better job than A&O of diversifying away from finance, led me to think it had quite a coherent strategy. Now I'm less sure. Opening in Kviv - one of the more troubled countries of the CEE - when Linklaters has decided it can run its operations in the region from a small number of hubs is odd too. Perhaps its time for a more far reaching review of strategy.
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lawyer | 4-Jul-2009 11:58 am
Why is CC's profitability so low compared to the other magic circle firms? Huge alarm for its management!
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sarah | 6-Jul-2009 10:10 am
I echo what someone said above about firms needing to be leaner. Anyone working in City law for the past few years knows that larger firms carry plenty of people who shouldn't be there, whether because they don't pull their weight or because they don't have the ability. Those not in these categories will shed no tears to see the lazy and the dim thrown overboard.
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Anonymous | 6-Jul-2009 2:38 pm
I think it reflects the amount of support one gets from the CC partners as a client - they really just dont care if they dont think the deal is big enough they put a junior on it who has to run to the partner every time and then they send a whopping big bill. Not cool - clearly never heard of client service and when there are other choices around people are more likely to NOT go back.
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