The Lawyer is out with
their annual "UK 100"
(for 2005), and it shows that while the Magic Circle is
pulling away ("going galactic," as they gaily
put it), the interesting action is in what they newly dub
the "Silver
Circle," or the just-trailing firms. First,
this being a blog about economics, to the numbers:
"Average PEP for the big four of Allen & Overy
(A&O), Clifford Chance, Freshfields and Linklaters was
up a healthy 13.5 per cent from £630,000 to £713,000. Average
magic circle revenue per lawyer was up 1.4 per cent from £353,000
to £358,000."
The divergence between revenue increases and profit increases
is explained (but you knew this) by cost decreases, as well
as by a near lockdown on equity partner
headcount growth. (To translate £ into $, multiply by 1.8: So
the average PEP of £713,000 equates to US$1,283,000.)
And recapping the performance of the entire group (where
"RPL" stands for revenue per lawyer and "CPL" stands for
costs per lawyer):
- Average PEP for magic circle was up 13.1 per cent to £713,000
from £630,000 in 2004 - Average PEP for top 50 was up 10.6 per cent to £431,000
from £390,000 in 2004 - Average PEP for top 100 was up 10.5 per cent to £343,000
from £311,000 in 2004 - Average RPL for magic circle was up only 1.3 per cent
to £358,000 compared to £353,000 in 2004 - Average RPL for top 50 was up 2 per cent to £270,000
compared to £263,000 in 2004 - Average RPL for top 100 was up 0.4 per cent to £233,000
compared to £232,000 in 2004 - Average CPL for magic circle was down 1.7 per cent
to £230,600 compared to £234,600 in 2004 - Average CPL for top 50 was down 1.2 per cent to 184,300
compared to £186,500 in 2004 - Average CPL for top 100 was up 0.3 per cent to £168,100
compared to £167,600 in 2004
The full table of PEP results is here, and the full table of revenue-by-lawyer (one of my favorites, because it never tracks the PEP table very well) is here.
If this were a study in biodiversity instead of in law
firms, one would say the Magic Circle had all adopted the
same evolutionary survival strategy: Go global, and
get bigger than everybody else in the room. The Silver
Circle, by contrast, has no monolithic approach. What
has happened?
"Ten years ago the dominant firms outside the
magic circle (which then firmly included Slaughter and
May, of which more later) were the chasing pack of Ashurst,
Herbert Smith, Lovells, Norton Rose and Simmons & Simmons.
Of that five, only Herbert Smith still appears in the top
10 in the PEP table."
In other words, the "chasing pack"’s erstwhile
strategy of following the Magic Circle into international-land
has come a cropper, and the variety of "Plan B’s" being
launched is fascinating to behold. It’s being driven primarily
by "focus and sheer ambition." Emblematic of the niche’s
being pursued:
- Ashurst has now embraced "small is beautiful," following
two failed attempts at US mergers. - Macfarlanes, "Law Firm of the Year"
in 2000 for its rigorous management, has "not faltered"
and its PEP remains in the UK’s top 5. - SJ Berwin is on a cost-containment tear, with its CPL
down 17% this past year alone. - Herbert Smith caters to global, multinational clients
not through its own offices abroad but through a thick
network of alliances and affiliations. - Berwin Leighton Paisner has the strongest managerial
culture of all, with "an entrepreneurial, unbureaucratic"
culture, and the greatest proportion of lateral partners
of any Silver Circle firm; accordingly, it has also enjoyed
the fastest recent growth, and now the danger may be
more one of expectations (how high is up?).
For us on this side of the pond, the lessons are clear: You
can be part of law-firm-land’s equivalent of the New York-based
"bulge bracket" of investment banks (roughly, that would
probably include Cleary-Gottlieb, Cravath, Davis-Polk,
Milbank, Shearman & Sterling, Simpson-Thacher, and Sullivan
& Cromwell), or you
can be a newly bulked-up global player (Jones-Day, Latham
& Watkins, Orrick, many emulators) or you
can find your own niche.
The problem is that membership in the bulge bracket is,
except over glacial time-frames from the perspective of
any individual’s career, closed, and that the ranks of
the global powerhouses also has some intrinsic economic
ceiling on it—which we will only discover when some
unlucky firm (and it wasn’t Coudert, by the way) powers
up right out of the atmosphere and dies of oxygen starvation. In
other words, those strategies are, respectively, unavailable
and all-but-unobtainable.
Which leaves finding your niche: A tall order. Volunteers
are now being recruited nationwide.
