Shifts that started with the financial crash galvanised in the decade that followed. Predictions of the rise of US firms were hastened by the reputational demise of banking clients and the acceleration of the private equity market. ‘Clients that were niche pre-financial crisis – the likes of Blackstone, KKR and Carlyle – became the successors of Wall Street. The shift from public capital to private capital helped the US firms. They tracked that change and broke open the market,’ recalls Sebastian Prichard Jones, senior partner of Macfarlanes.
This shook the Magic Circle pedestal. ‘The original Magic Circle no longer had the grip on the market. Instead, the market became broader, more open and no longer concentrated on the FTSE and the investment banks, making it a more interesting and diverse market for firms like ours,’ adds Prichard Jones.
As the US firms made strides in the City, continued consolidation predicted in our 2012 LB100 report come to fruition with transatlantic mergers aplenty. In 2013, Norton Rose finalised its tie-up with Houston firm Fulbright & Jaworski while Squire Sanders traded the LB100 for the Global London table following its merger with Patton Boggs in 2014. Eversheds Sutherland completed its transatlantic combination with Sutherland Asbill & Brennan in February 2017, adding 50% to its headcount, while Norton Rose Fulbright added Bull Housser in Canada, Chadbourne & Parke in the US and Henry Davis York in Australia. In 2018, Bryan Cave and Berwin Leighton Paisner finalised their merger.
Redoubled globalisation efforts saw Ashurst expand into Asia-Pacific with its 2013 merger with Blake Dawson, while Dentons become the world’s largest law firm in 2015 following its combination with 4,000-lawyer Chinese practice Dacheng. Domestically, similar trends of consolidation crystallised, notably with the UK’s largest ever legal merger of CMS Cameron McKenna, Nabarro and Olswang in 2017, which saw CMS become the eighth firm to join the £1bn revenue club. The impact of such consolidation saw combined revenue of the UK’s top 100 firms jump to £24.2bn in 2018, up 10% on the previous year, marking the largest increase in absolute terms recorded post-Lehman.
‘Diversity considerations used to come up annually with a couple of the banks. Now it is across sectors, across geographies. D&I is on everyone’s agenda.’ Georgia Dawson, Freshfields
Though arguably, the biggest merger news of the last decade was of one that never happened. Allen & Overy’s talks with US outfit O’Melveny & Myers, which were aborted in 2019, captured the market’s attention as another Anglo-US combination without legs.
It reasserted the improbability of such a merger of equals. Observes Arun Birla, chair of the London office of Paul Hastings: ‘A&O went on with that dance for a long while and still ended up walking off the dance floor without a partner. It’s just not an easy thing to do.’
While the legal market did not shrink in the way many expected post-2008, the last decade saw several law firm casualties, resulting in a redistribution of UK talent. Shortly after the May 2012 fall of Dewey & LeBoeuf stateside came the winding up of Bingham McCutchen on this side of the pond in 2014. Influential partners jumped to US rivals Morgan, Lewis & Bockius and Akin Gump. In 2017, King & Wood Mallesons’ European arm, which was made up of legacy LB100 firm SJ Berwin, went into administration in 2017. Goodwin Procter, Greenberg Traurig and DLA Piper were among the firms to benefit from the fall-out.
Rob Shooter, managing partner of Fieldfisher, notes: ‘Even for an industry as competitive as ours, there was no schadenfreude when we heard about the demise of these powerhouse law firms. There was: ‘‘OK, what happened and is it but for the grace of God?’’ There was a series of events that led to their downfall, but it reminded firms that they can never be complacent. We need to be on the ball the entire time and look after our clients and our people.’
The decade has also seen the rise of the conflict-free dispute specialist firms, fuelled by anti-bank litigation and spurred by the growth of litigation funding. More recently, the rise of the UK’s class actions landscape has sustained their trajectory. One such firm is Stewarts, which entered the LB100 in 2011 and has since risen the ranks, this year leaving the bottom 50 behind after a 43% revenue boom pushed it above £100m in turnover.
This has impacted defendant firms in the City, says Deborah Finkler, managing partner of Slaughter and May: ‘It has been fantastic for us. They’re not making headway – nor do they want to – in the defendant work but they have created the mass claimant market, which we are getting a huge amount of business out of. It has created the kind of litigation that just didn’t exist ten years ago. We see huge amounts of competition litigation and now they are moving into mass tort claims.’
2012 marked the arrival of alternative business structures (ABS) and allowed for licensed UK law firms to accept external equity investment including through initial public offerings (IPOs.) This led to a string of law firm floats, with mixed results. Spearheaded by Slater and Gordon’s float in Australia, Gateley became the first UK law firm to list, followed by Gordon Dadds and Keystone Law in 2017, Rosenblatt and Knights in 2018 and DWF’s landmark float in 2019.
More recently, Mishcon de Reya’s proposed IPO set the market talking about the benefits of outside investment. But as market conditions thwarted its floatation plans and several listed firms saw stock prices plummet, it’s unlikely other LB100 firms will rush to list on the stock market.
Apocalypse soon?
Even as post-Lehman troubles disappeared into the rear view, the UK legal market was hit with the uncertainty of Brexit in 2016. By the time of the 2019 LB100 survey, the UK’s impending exit from the EU was paramount among law firm leaders, with this apprehension captured by the report’s ominous headline: ‘Apocalypse soon?’
While firms’ financials indicate that Brexit fears may have been overblown, concerns linger.
‘If you took a lawyer from 1996 and dropped them into a law firm now, they would think they were in Star Trek.’ John Wood, TLT
As Simon Nicholls, co-head of Slaughter and May’s corporate practice, highlights: ‘The thing that always worried me about Brexit was not some big one-off impact but the risk of a long-term chilling effect on the UK and London as a financial centre. You do occasionally just see the beginning of that – new listing stats in London, for example, despite government ambition to make London a more competitive capital market. But it’s impossible to be sure about attributing that to Brexit with everything else going on in the world. The longer-run chilling effect remains the worry, even if the blame game can’t be played accurately.’
However, Richard Smith, who runs the practice alongside Nicholls, is sanguine: ‘One positive of Brexit is that the government does have an opportunity to differentiate some parts of our economy from Europe to try to make us more competitive with the US. Deregulation generally is on the agenda for the new prime minister. I was surprised to hear in the first leadership debate the words ‘Solvency II’ and ‘MiFID’ coming out of Liz Truss’s mouth, but she’s talked a lot about liberalising the capital requirements for insurers, for example, to try to drive investment in UK infrastructure in particular.’
Clearly come 2020, Brexit concerns had been eclipsed by the Covid-19 pandemic. While few LB100 firms’ financials faltered in the immediate aftermath, shades of delayed law firm collapses post-2008 still loom.
The unique challenges of the pandemic brought fresh concerns. Says Ashurst’s managing partner, Paul Jenkins: ‘The change in the way we work over the last 24 months has impacted the changing expectation of partners and staff in terms of work/life balance, flexible work and the recognition of family responsibilities. Law firms are expected to have the right policies in place to cater for that.’
Turning the tide
This is arguably the decade of diversity initiatives, and when environmental, social, and governance (ESG) really took hold. ‘In the last ten years law firms have got the memo that they can no longer be a closed shop and pay lip service to those things that matter to so many people, and it’s no longer acceptable to not have a really strong ESG and EDI agenda,’ notes Sarah Walker-Smith, chief executive of Shakespeare Martineau.
Regulatory pressure demanding mandatory gender pay gap reporting and the explosion of the #MeToo movement – which saw a crackdown by the Solicitors Regulation Authority (SRA) – contributed to this, but internal pressure from lawyers and client scrutiny also galvanised this.
Freshfields’ Georgia Dawson, who in 2020 became the first woman senior partner at a Magic Circle firm, recalls: ‘When I was first a partner, diversity considerations would come up maybe in an annual review discussion with a couple of the banks. Now it is across sectors, across geographies. It’s not absolutely uniform all around the world – there’s a spectrum in terms of how people are dealing with it – but D&I is on everyone’s agenda.’
According to Paul Clements-Hunt, director at Mishcon advising on sustainability, climate and ESG strategy and former adviser to the UN on sustainable finance (and who is credited with coining the phrase ESG), it was around 2016/17 when firms ‘woke up’. ‘You had the principles for responsible investment in 2006, but then you had the global financial crash, when a lot of trust went out of the system. Then you add into that people starting to understand, not just climate change but also the impact on the ocean. Whether it was from David Attenborough films or elsewhere, all that common perception saw the zeitgeist shifting. Then we saw the focus in and around climate in 2015 with the Paris Agreement. Then you can add to that the pandemic and then a war.
‘ESG concerns are now intrinsically linked with the competition for attracting and retaining top talent. And it’s no surprise that the next generation is demanding change in law firms. If you were born in 2000, you’ve had a hell of a ride. You’ve already seen four or five major systemic risks.’
Back to the future
‘If you took a lawyer from 1996 and dropped them into a law firm now, they would think they were in Star Trek,’ jokes John Wood, managing partner of TLT.
Undoubtedly, tech has transformed how lawyers work in the last ten years, whether it is the use of AI in mass claims, virtual trials in disputes or smart contracts and remote negotiations in deals.
John Cleland, managing partner of Pinsent Masons, recalls: ‘My old practice was transactional and banking. Deals would be thrashed out in meeting rooms over a huge number of hours. In the last five years, and particularly since the pandemic, some of the biggest deals in the world aren’t done face to face. Rather, we use technology to conduct the meetings. This was science fiction 30 years ago.’
This development has arguably been a double-edged sword. Notes Shooter: ‘Everything has to be done yesterday. When I started out, the small firm that I was a trainee at had one computer and if you wanted to send an email, you’d have to somehow get it to this computer and at the end of each day the emails were sent. Often, you would put something in the DX for next day delivery and it didn’t matter what it was or how urgent it was, nothing was going to get turned around for about four days. Now, you cough and the stuff that you just sent off comes shooting back to you.’
While technology offers plenty of opportunities, particularly after a pandemic-induced expediting of tech into daily life, it will be up to firms to manage the associated risks.
Notes Slaughters’ Smith: ‘More pay for much more work seriously risks burnout and job dissatisfaction which may well mean that the profession loses lawyers over the longer term. This is an issue for law firms and it’s also an issue for clients, because those lawyers will not be going from private practice to be the top in-house lawyers and the GCs of the future. They will either monetise their careers early or burn out or both, and leave to go and do something totally different, creating a real talent gap.’
In the short team, firms have got their work cut out in traversing the world post-Covid, post-Brexit and amid a likely recession. But if there is one thing the LB100 group has proved over the last 30 years, it is its resilience. LB