LB100 Global Elite – London Stalling

In its first major overhaul since the introduction of peer groups in 2004, the Global Elite table is only five firms long.

Herbert Smith has transferred to the City International table after exhibiting profitability levels far below the elite group average.

But while Global Elite earnings may combine to provide the highest grossing turnover average in the LB100 (at £1,056m that average tops the billion pound barrier for the first time) growth is resolutely meagre. Indeed Herbert Smith’s 3% rise in revenues would have hit the peer group average exactly.

It is a disappointing performance from the country’s premier law firms, particularly when compared to rivals in neighbouring peer groups. Average growth in our new City International peer group is 10% for example. But while the Magic Circle may not be witnessing the spurts in revenue growth seen at Major International firms – many of which are publishing consolidated figures across their international networks for the first time – arguably the long-term prognosis looks a lot more solid.

Profitability at Clifford Chance (CC), Linklaters, Allen & Overy (A&O), Freshfields Bruckhaus Deringer and Slaughter and May is robustly healthy, with those firms boasting profit margins of 33%, 43%, 38%, 47% and 49% respectively. And unlike their more loosely financially integrated competitors in the Major International peer group, these are profit figures you can count on, with one notable caveat: don’t mention the UK.

A&O was the standout performer alongside CC this year. The firm boosted its coffers by 6% to £1,182.6m and net income rose by 8% to £452m. Although worldwide managing partner Wim Dejonghe may be shy about discussing how much of that revenue came from the UK-side of the business, he admits that the firm is not growing in its domestic market.

‘Frankly, our London and Benelux operations are similar – we have leading positions in a market that has very limited growth so you really are looking to protect your position,’ he says. ‘Our focus for growth has basically been in new markets where you can shape the market or in countries where, historically, we’re not in first or second position but where we can deliver growth. So in relative terms you could say London is not growing, but that is not a conscious decision, it is a consequence of the position we are in and the opportunities for growth being elsewhere.’

A&O is the rule rather than the exception. Linklaters saw London turnover creep up by just 1% to £513.5m, while CC announced that its UK revenues grew by 3% to £443m – only half of the growth posted by the firm as a whole. CC’s chief financial officer, Stephen Purse, may assert that ‘the UK remains an important part of the business’ but it’s clearly less important than it was when you consider that global turnover hit £1,303m, with the UK accounting for only 34% of total revenues in 2011/12. It accounted for 35% in 2010/11.

Elsewhere, CC’s Asia-Pacific revenues grew by 28% to £185m while the Middle East, driven by the launch of the firm’s Doha office in 2011, grew by 6% to £39m.

It’s easy to be lulled into a false sense of security by the current size of these international revenues but as European growth dwindles, these offices will play an increasingly strategic role in Global Elite networks.

That said, there are still a lot of relieved faces around. The consensus is that it could have been so much worse.

Slaughter and May posted 2% growth in revenues to £448.8m in 2011/12. Its turnover is only 39% of the total garnered by its nearest Global Elite rival Freshfields and its preference for ‘best friends’ relationships over international offices means that it hasn’t got the geographical hedge enjoyed by most of its competitors. Fortunately, Slaughters’ bankability is protected by its notorious efficiency; profit per lawyer is £304,000 – the highest in the LB100 and £47,000 more than the second-highest figure posted by pensions and employment boutique Sacker & Partners.
‘Generally it’s been a robust year for us, one that we were a little fearful of six months ago,’ says Chris Saul, senior partner of Slaughters. ‘We are keen supporters of the independent model. We have been well served by working with independent law firms, maybe even more so in difficult times. Clients benefit from our high quality and flexible “cover the waterfront” approach and so we see no disadvantage to the model.’

Looking at the statistics, it’s a level playing field. Although some Global Elite firms with international networks secured higher growth (CC and A&O), Freshfields saw revenues remain completely static, while Linklaters only crawled up by 1%.

As Europe continues to struggle, the Global Elite firms face a tough decision: stick or twist? Take a front seat and keep investing globally to secure market share? Or take stock of what they have and make it more efficient? LB

maria.jackson@legalease.co.uk