We’re not fooled, you know. We do realise that profit figures have become a brand extension exercise. It’s the time of year when firms all over the UK cunningly reveal that, a) their profits have shot up, b) they’ve managed their costs, and c) they’re now looking at work-life balance or diversity or something. Because financial reporting has become key to law firms’ overall positioning, a few have tried some presentational tricks. For a closer look, see Matt Byrne’s analysis on page 23.
So what of Linklaters? Last month The Lawyer reported that it was posting an average profit per equity partner (PEP) figure of £1.06m – a 26 per cent increase from last year’s £843,000.
This is all too much for its competitors. A&O hasn’t announced yet, which has led to entirely unfounded speculation in the City that it wants to bury that bit of news. Meanwhile, Freshfields’ PEP rose by 19 per cent to £830,000 and Clifford Chance‘s was up by 24 per cent to £810,000. Great performances, but these two are still undergoing their own restructures.
The situation is not helped when a source close to Linklaters claims that the real reason PEP is so high is that the figures do not take account of severance payments for partners that have left or been managed out. “The true profit available for distribution is, therefore, smaller,” argues the source.
Linklaters is not a limited-liability partnership (LLP) and is under no obligation to report profit figures. It also has flexibility in how it accounts for revenue and profit in its internal accounts.
However, the firm is adamant that it is not playing with presentation. The line from Silk Street is this: the policy is to expense in full all its costs of severance and all related annuities as they crystallise in accordance with UK GAAP.
“Nothing is spread over more than one year,” says a spokesman. “So we wouldn’t expect our accounts to show a different profit if we were an LLP.”
In fact, Linklaters’ figures hardly come out of the blue – they are the fruit of a painful three-year clear-out. (That said, Linklaters does not have the best track record when it comes to transparency: the firm denied to The Lawyer for 18 months that there was an internal restructuring going on at all.)
The reason other firms don’t believe Linklaters’ figures? Because they’re jealous. As a magic circle partner said last week: “We thought we were doing well, and then those bastards put on another spurt.” Which pretty much sums it up.