South Eastern promise

South East firms need to rationalise unwieldy offices and raise profits if they want to rival Bristol firms in attracting City lawyers. By Joanne O’Connor

In a year when many City firms stumbled financially, several of their more humble South East cousins put in largely creditable performances. Most of the region’s firms showed respectable turnover rises of on average 8 per cent, helped by robust volume businesses and balanced practices largely shielded from the corporate downturn.

Yet there remains a gulf between the South East and London firms, both in terms of profits and clients.

South East firms have addressed this issue by cutting costs via a campaign of office rationalisation. DMH, for example, has seen its office count drop from six to three in just five years. Offices in Newhaven, East Grimstead, Lewis and Woking have all closed since 1999, while 2001 saw DMH pick up a small London practice. At the same time, turnover has grown from £6m in 1996 to more than £15m last year. DMH has successfully targeted local authority clients and now counts Croydon, Wandsworth, Kensington & Chelsea and Bromley councils as clients, with contracts to advise variously on real estate and employment.

ASB Law has the dubious distinction of the highest cost per lawyer of any firm in the region at an estimated £191,000. And it is not hard to see why. The firm maintains offices across seven locations: Brighton, Crawley, Croydon, Horsham, Maidstone, Mitcham and Walderslade. If ASB is to bring its cost base down in line with the rest of the region, office rationalisation would be a fine place to start.

Blake Lapthorn Linnell is another firm grappling with office consolidation. At £113,000, the firm’s cost per lawyer is well under control. But, as reported by The Lawyer (23 August), chief executive Walter Cha is contemplating consolidating offices, with Fareham the likely target for closure. Cha insists that the move, if it goes ahead, would result in no redundancies. Furthermore, according to Cha, cost is apparently not a motive, as the firm is understood to own the freehold over its office space. But the economies of scale that can be achieved through office consolidation cannot be ignored. As Cha tells The Lawyer: “We’re examining the exciting opportunities that result from being in fewer sites and capitalising on the synergies that come from working in larger teams. The question for us is, can we work more effectively in larger teams?”

It is a thinly disguised ambition of many South East firms to scoop up City lawyers hankering after a quieter life. There is already a well-trodden path to Bristol’s Burges Salmon and Osborne Clarke. But if the South East is to compete with Bristol as an alternative work-base, profits have to improve. Thomas Eggar is already contemplating ways to lure City talent, one being through a restructuring of the firm’s remuneration process. As revealed in this year’s The Lawyer UK 100 Annual Report, the firm is considering proposals to move away from the current equity structure, featuring a lockstep with a 10 per cent bonus pool, towards a modified lockstep with a more significant merit element. Ranked 66 in turnover (£27.1m), the firm drops to 76 in profit per equity partner (PEP) at £214,000 and to 80 by revenue per partner (RPP) at £475,000.

Cripps Harries Hall, ranked 83 by turnover, slumps to 92 on PEP with £158,000. This is despite an impressive RPP figure of £508,000 and a series of major client wins for the firm (including Land Securities and Wilson Bowden). Meanwhile, ASB, which ranked 88 by turnover, comes in at 97 on PEP (£130,000).

Blake Lapthorn Linnell celebrated a 35.6 per cent rise in turnover, thanks to last year’s merger between Blake Lapthorn and Oxford’s Linnells. Since then, the firm has seen a number of partner departures, and while post-merger pruning can account for some of the attrition, the loss of at least some (such as corporate star Sean Wright, who left for the Southampton office of Shoosmiths) is a genuine blow to the firm. Placed 61 by turnover, Blake Lapthorn Linnell drops to 93 on PPP (£407,000) and 87 by RPP. However, new initiatives, such as a focus on industry sectors and streamlining practice areas, including jettisoning the Fareham-based child law practice, are positive steps, and promise improved profits in years to come.

The region’s most aggressive player remains DMH. In 1996, when managing partner Tim Aspinall and finance director Robert Mojab took the reins, DMH was a high street firm with high street clients and a focus on private client work. Today it is targeting mid-market £5m-£10m-turnover businesses. The firm punches above its weight in both PEP and RPP, with partners bringing in £475,000 each last year and taking home an average of £175,000, the second highest in the region. Volume practice remains a key contributor to DMH’s success, accounting for 26 per cent of total turnover. At neighbouring Lester Aldridge, the LA Fast Track and LA Fast Track Property bulk arms deliver £2.3m to total turnover and an impressive 40 per cent profit margin.

Thomas Eggar aside, none of the top 100 firms in the South East operates a pure lockstep. Cripps Harries Hall moved away from pure lockstep two years ago and the firm now operates a modified lockstep in which top-earning partners can be awarded an extra 20 points on the lockstep and can double-jump upwards or be demoted. “It’s a recognition that all partners do not and cannot contribute equally all the time,” says managing partner Jonathan Denny. Thomas Eggar is contemplating a move away from pure lockstep to a modified system with a significant merit element. ASB, meanwhile, has an entirely merit-based remuneration system.

Finally, while South West players such as Bevan Ashford (soon to be Bevan Brittan), Clarke Willmott and TLT Solicitors have been unashamed about their national ambitions, firms in the South East have contented themselves with staying south of the M25. Until last month, only one, Blake Lapthorn, pushed regional boundaries when it merged with Oxford’s Linnells last year. But ASB, Cripps Harris Hall, DMH and Lester Aldridge have all yet to embark on national merger plans.

Last week, Lester Aldridge announced that it was to pick up seven new partners and its first London base following a merger with 200-year-old real estate, commercial services and private client boutique Park Nelson. According to managing partner Roger Woolley, Lester Aldridge’s strategy is to remain a strong regional player with national niche practices in retail and leisure. It is understood that several partners will relocate to Southampton as part of the firm’s strategy of providing a cost-effective alternative to the City. However, four of the firm’s key real estate partners, including senior partner Eugene O’Keeffe, will not be joining the merged firm and are currently searching for new homes.

South East firms may be content to remain where they are geographically, but unless they control costs and boost profits they will lose ground in the equally important top 100 rankings.