Firm economics for the magic circle

Economics can be a confusing subject at the best of times, but on a Monday morning it can easily leave the brain throbbing and begging for mercy.

So let’s keep it simple today: if your turnover goes down, you could reasonably expect your profits to head in the same direction, right? Err, wrong apparently. As this week’s feature points out, it’s all about how one cuts one’s costs these days (see story).

As aptly demonstrated by a number of firms this year, a flat or even slightly falling revenue figure can now sit neatly alongside a wallet-busting rise in PEP as long as the right cuts (read: redundancies) are made at the right times.

But what’s going on at Linklaters then? Have the accountants over at Silk Street not learnt the creative alchemy practised by some of their peers? For here we find a firm whose PEP and turnover have taken roughly equivalent body blows (see story).

Revenue was down almost 9 per cent, while PEP fell by a touch under 7 per cent. Admittedly, the firm’s overall pre-tax profits held up better, suffering only a 1.2 per cent fall.

But why should Links be bucking the trend? Is it perhaps because, instead of pumping the headline-grabbing PEP figure by de-equitising its partnership, the firm is actively working to increase the number of partners sharing the lolly?

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Also inThe Lawyertoday: the inside story at Halliwells; what Kirkland did on Coral; the strategic options left for firms that aren’t growing any more; and a special report on Hungary.