The Lawyer Annual Report 2008: The Silver Circle

The shine comes off the silver circle as work goes global.

The Lawyer Annual Report 2008: The Silver CircleWhile the magic circle appears to have weathered the first stages of the economic downturn, the firms just below them in the silver circle have not been so lucky.

This elite group of firms, smaller and less international than the magic circle but highly profitable nonetheless, is inherently more vulnerable to the ravages of the credit crunch.

The silver circle is characterised by top-end UK clients and a love of all things corporate, whether it be AIM business or private equity. Not the place to be since August of 2007 when some duff American mortgages sent the markets into turmoil.

So while all of the top four posted impressive results, it was a mixed bag for their smaller rivals in the silver circle. Those with global reach were best equipped to defy the economic cycle; for those without, it was a bleak picture. (Continues below table)

Travers Smith and Macfarlanes, corporate-focussed and with no foreign offices to boost revenues, were hardest hit. Neither managed to increase PEP and had it not been for a barnstorming start to 2007, turnover would have dropped as well.

Travers Smith managing partner Chris Carroll was gloomy about the future, warning that his small independent firm could be a microcosm of the whole legal market and that worse was to come.

For Berwin Leighton Paisner (BLP) and SJ Berwin, large City practices which have just started down the road to internationalisation, it was a story of modest growth. Both saw turnover rises of around 10 per cent but struggled to raise profits.

The remaining silver circle firms – Ashurstand Herbert Smith – were the star performers of the group. They were boosted by lucrative offices abroad, in Europe and emerging markets. Herbert Smith, for example, has seen income from its Moscow practice double since last year.

“Quite a few firms are still very much dependent on the strength of the UK economy,” said senior partner David Gold. “We are moving away from that.”

When times are hard it pays to have international ambitions ,and judging by the performance of the silver circle, the bigger the better.


Two years ago, the silver circle was outperforming the rest of the market in the City. It was the height of the M&A boom and these London-focussed firms were the main beneficiaries of a rampaging private equity market.

Those halcyon days are long gone. Meanwhile the decline of the real estate market has been an added blow firms like SJ Berwin, BLP and Macfarlanes. So how did the silver circle as a whole fare this year when measured against firms above and below it on the UK200 table?

For the purposes of comparison, it is worthwhile looking at the firms the silver circle is most likely to encounter on the other side of the table – those in the magic circle and larger City practices like CMS Cameron McKenna, Lovells, Norton Rose and Simmons & Simmons.

In terms of revenue growth, the silver circle held its own despite being the weakest performer of the three groups. The six firms increased turnover by an average of nearly 13 per cent, compared to 15 per cent in the magic circle and nearly 19 per cent for London large. So far so encouraging.

But look at the figure for average PEP increase and it is a different story. Here the silver circle lagged far behind the rest, with growth of just 3.7 per cent. In contrast PEP within the magic circle and London large soared by more than 20 per cent.

The reason for such a yawning gap? The firms in the London large and the magic circle have invested abroad to such an extent that many have more than half their lawyers based overseas. Not so the silver circle, where only Ashurst and Herbert Smith have significant international practices. Even for them, international work makes up between a quarter and a third of the firmwide total.

It is hard to raise profitability by a staggering amount in the City, but in new jurisdictions like Russia and the Middle East, after some initial investment, the potential for growth is huge. Being UK-focussed was a strength during the boom years, with no costly overseas offices dragging down profits. Now the reverse is true for silver circle firms.

Click the individual firm names above to read more detailed analysis of their 2007-08 financial year. Or to read the UK 200: Magic Circle feature, click here.