LegalWeek has released their annual “UK Top 50” ranking and it paints a rosy picture of strong revenue and profit growth in the teeth of global economic headwinds. Specifically:
- Total revenue of the Top 50 hit £12.96-billion (US$20.25-billion)
- This was a 5.6% increase over the prior year;
- While total profits grew 7.7% and PEP by 4.2% to £587,000 (US$918,000), just shy of 2008’s all-time high of £616,000 (US$964,000)
But under these headline numbers, I perceive a much more schizophrenic picture; this is a situation, in other words, where averages can be quite misleading.
To begin with, much of the revenue growth came from mergers, including four of the fastest-growing firms by revenue (DLA Piper and Clyde & Co among them).
For the third year in a row, the Magic Circle underperformed the Top 50 trend line, averaging revenue growth of 2.1% and PEP growth of 1.6%. The story was similar for the next 10 largest UK firms, with revenue growth averaging 3.2% and PEP 7.1%.
The always perspicacious Alex Novarese seems to hold a view similar to mine, calling the state of the industry “oxymoronic,” and pointing out that 16 of the Top 50 saw PEP actually drop (six falling more than 10% on that measure), while six at the opposite end of the distribution grew PEP more than 20%.
I read it this way: Increasingly since the Great Reset, both managing partners and industry observers seem to have polarized into two groups. One, whose numbers seem continually diminishing, hoping we’re on the bring of a return to the ruddy glow of careless health and that not even a eurozone engaging in roving firefights can threaten the industry’s continued economic ascension, and another group seeing a once in a Century threat to our most fundamental business assumptions—or at the very least a requirement to entertain some largeish strategic bets.
I think both might yet prove to be right, it just depends on the individual firm you’re talking about.
Here’s my scatterplot of the UK Top 50 mapping percentage change in revenue vs percentage change in profits:
I submit there’s no way to read this other than to conclude it displays an industry with winners, losers, and muddling-through’ers, but no tightly packed consensus performance by the “average” player.
One way it cannot be read, I believe, is to think it reflects a distribution where autopilot, “do no harm” management is a successful or even a responsible approach.
Are we a hitherto highly-profitable industry with fiercely intelligent people by and large at the top? Yes, which is promising. Have we ever had to go about, or had an iota of training in how to begin, changing strategies root and branch? No, which is perilous.
So promise or peril? Where are we?
See above: Both may be right. But it depends who you’re looking at.