It must be pretty galling for an equity partner at a top 20 City firm to see a counterpart in a niche or regional firm take home a bigger share of the firm’s profit. Especially if that partner is at a firm in the lower half of The Lawyer’s UK 200 and with a revenue less than 10 per cent of that of the big boys in the City.
The lower half section of the top 200 firms has thrown out some real gems, and they have as much to teach the bigger, established national firms as they have to learn.
For example, AIM specialist Memery Crystal
might only make £13.9m in revenue, but the firm’s equity partners take home around 4 per cent of that each, at around £520,000.
They made an average of £512,000 and £502,000 last year, handing the bragging rights over to the niche firm, despite the long hours.
It takes an equity partner just five years to make it up to the top of the lockstep ladder at Memery Crystal, which is worth a solid £700,000. The firm’s pure lockstep lasts just five years, so the ride to the top is quick –
twice as fast as at most City firms with a
lockstep – once you make it in.
Even more galling for the partners at larger firms is the fact that Memery Crystal likes to focus on the work-life balance.
Managing partner Harvey Rands says: “We see ourselves as a partner-led firm offering a premium service. We don’t have a high hourly rate and we’re not overly aggressive on
chargeable hour targets. This helps strike a balance between work and life: it gives a few minutes for people to actually feel good rather than be flat on their back.”
Hourly targets at Memery Crystal are around 1,500 for a fee-earner and 1,350 for a partner.
As in many larger firms, the players in the bottom half of the top 200 with high profit tend to keep their equity closely guarded. Memery Crystal has nine equity partners out of a total of 21.
Midlands firm Flint Bishop & Barnett is at
the extreme end of the scale. This year the firm restructured its equity partnership, sending its average profit per equity partner (PEP) rocketing past the £500,000 mark in the process.
Flint Bishop’s six equity partners each took home a hefty £530,000. Five years ago the firm’s profit would have been shared by 15 equity partners.
Now Flint Bishop has 22 partners in total, including the six equity partners, with total partner remuneration standing at £4.4m.
But in a long-term strategy PEP is not
always the main target figure. Leeds-based
commercial firm Lupton Fawcett, for
example, has made steady progress this year, growing by just under £1m to hit £11.7m.
But it has bucked the market trend by opening its equity up rather than restricting it. It is all part of a plan to attract partners from much bigger firms in Leeds and to
double its overall revenue within a few years.
Although Lupton Fawcett declined to give a PEP figure, it is likely to be dramatically lower than those at the firms mentioned above. Almost all of the firm’s 32 partners are
now in the equity following a strategy review.
Over the past 12 months the firm hired Gordons insolvency head David Smyllie, as well as senior lawyers from DLA Piper and Cobbetts who have moved straight into the partnership.
The bigger firms such as DLA Piper are fertile territory for Lupton Fawcett because their former firms are more likely to withhold equity to junior partners, despite expecting them to work the same hours.
Lupton Fawcett offers the chance to get some equity in a growing firm and there is a good chance that the partners will still recognise their families when they retire.
The equity partners at Flint Bishop enjoyed their profit despite the firm’s turnover dropping by £200,000 to £12.8m.
The downturn has been attributed to theloss of Flint Bishop’s place on Royal Bank of Scotland’s panel, which caused a shortfall in fees of almost £2m this year.
The firm’s alcohol licensing practice, however, came to the rescue to make up much of this shortfall, processing 3 per cent of the nation’s applications last year.
The use of a niche – in Flint Bishop’s case the alcohol licensing practice – is something that firms in this group are particularly good at.
Whereas niche firms in the regions often focus on volume work, such as personal injury or alcohol licensing, the small practices in London can have client rosters to rival the established City players’.
Kemp Little, despite being one of the
smallest firm’s in the top 200 with a turnover of £5.4m, is also one of the most rewarding for its equity partners.
Its PEP stands at £360,000 this year, which represents a massive increase of 44 per cent and compares favourably to many larger firms’, thanks to a top reputation for IT
outsourcing work, counting Microsoft as one
of its main clients.
Compare to top 100 firm Bristows, which
also handles a technology and IP client base, and which saw revenue and PEP remain static. Members of the firm’s all-equity partnership each took home £242,000, which is two-thirds of the PEP of Kemp Little.
Kemp Little operations partner Siobhan McElhinney says: “I think it’s to do with the position of the firm and that we’re a specialist practice.
“We do leading-edge work that’s high value for the clients. And they’re pretty sophisticated clients, so they’re very happy to pay for the work.”
It is possible that the Legal Services Bill could change the market and disturb the peace of the City’s niche practices, which have been motoring along steadily and silently.
One of David Clementi’s key proposals is the
allowance of external equity into law firms and alternative ways of funding. This could include
floating on the stock exchange or gleaning
straight investment from external sources.
In this market, where a few million pounds
could be used to set up an office or start a new
practice area, funding is key.
McElhinney says: “We’re thinking about it all the time. Some of the observations in the market are about the ability to hire aggressively with the access to new capital.”
The bill will allow non-lawyers, such as finance directors, HR heads and IT specialists, to become part-owners of the business. The effect will be to give the law
firms a corporate feel.
Long-established firms may have to change the way they do business to keep up with a changing market and client perceptions.
Branding, advertising and corporate ethos may take over where a cigar and large whisky used to work for some of the firms at the smaller end of the market.
If the reforms do open up the legal market to other sources of investment and funding, then the more traditional practices could find themselves being left behind. But not everyone in the City is concerned.
Memery Crystal’s Rands says: “We’re looking at Clementi, but we think our USP [unique selling point] is that we’re a
profitable, independent niche City firm, and that’s the focus of our attention. Clementi could play out in all sorts of ways, but we’re here to deliver value for clients. We’re not looking at other models of financing.”
If there is anything that the bottom 100 firms can teach the big boys, it is to be in a position in which the clients are happy to pay for the work, the partners get rewarded and everyone knocks off at 5.30pm.
But the challenge for these firms in the future will be to find ways to keep that identity while staying competitive if market regulation changes dramatically.