Welcome to the weekly round up of news from the UK’s legal sector.
Clifford Chance leads the UK’s Top 50 law firms ranked by revenue
Law.com International has published its list of Top 50 UK law firms ranked by revenue. The top 5 firms are:
1) Clifford Chance
2) Allen & Overy
4) Freshfields Bruckhaus Deringer*
Despite increasingly adverse economic and geopolitical conditions, the UK’s largest law firms recorded the strongest average revenue rise since before the financial crisis. The firms grew their fee income by an average 10.9% in the last financial year, a marked improvement on the average rise of 5.9% the previous year. Nineteen firms in total posted double-digit revenue growth, compared with 11 in the previous year.
However, these rosy figures are not mirrored by similar increases in PEP: according to Law.com International’s Top 50 ranking by PEP, average profits per equity partner rose by only 7.7%, down from 18.7% growth last year, which marked one of the largest ever rises. This sluggish growth in PEP can in part be ascribed to surging costs, not least due to the pay war for junior talent.
It must also be noted that the UK firms were outperformed by their US counterparts in terms of revenue growth, with the Am Law 100 recording a collective revenue growth of 14.8% for 2021, led by Kirkland & Ellis and Latham & Watkins.
Average revenue per lawyer across the UK Top 50 rose by 2.8%, from £394,960 to £406,100, a similar increase to the previous year. Average profit per lawyer reached £135,100, a 3% rise. In comparison, the Am Law 100′s average revenue per lawyer rose 12.5%.
Despite the strong performance highlighted in the Top 50, many law-firm leaders are looking to the future with caution: the energy crisis, rising inflation and interest rates, increasing regulatory scrutiny and disruption to the global supply chain are just some of the major hurdles looming for 2023.
Yet there is also some optimism. Law.com International quotes Eversheds Sutherland International CEO Lee Ranson as saying that “firms that are prepared to seize the opportunities that come from [the current situation] will do well.”
What does the new Cabinet have in store for the legal industry?
With Liz Truss appointed as Prime Minister, lawyers will be keeping a close eye on how the new Cabinet will take on the crisis facing the legal system. Chronic underfunding has come to a head with the CBA’s indefinite, uninterrupted strike, and huge backlogs in the courts mean that thousands are still awaiting justice. Whilst the MoJ has offered a pay increase of 15%, it will apply only to new cases and, given a backlog of about 60,000 cases, it could be up to four years before CBA members benefit.
Time will soon tell if the MoJ will be able to mend this fractious relationship and make the criminal justice system sustainable – or whether stress, low pay and uncertain hours will drive even more advocates out of criminal practice. Without change, reports suggest that women, people of colour and working-class barristers in particular are set to forgo the profession and the crisis will deepen. The opposite of a diverse working barristers population.
In particular, the appointments of Michael Ellis to Attorney General, and Brandon Lewis to Lord Chancellor and Justice Secretary, presents an opportunity to re-energise strained relationships and restore people’s faith in the justice system.
We’ll also be looking out to see Truss and her Cabinet’s next moves with the Bill of Rights, after announcing recently that she would be shelving it until further notice. The sudden disappearance of the bill will raise questions over how the government intends to move forward with its Rwanda deportation policy, which is on hold after the European Court of Human Rights (ECHR) issued last-minute injunctions to prevent asylum seekers being sent there.
On top of all that, the current cost-of-living crisis is of course also affecting law firms – particularly small firms with rising energy costs and hikes in professional indemnity insurance. Lawyers working in high-street firms and as sole practitioners are the backbone of the legal services industry, and the prime minister’s next steps in addressing the cost-of-living crisis will have a big impact on the legal and financial challenges caused by spiralling costs.
Quote of the week
This week, I got to hear Sarah Walker-Smith, CEO of Ampa and Shakespeare Martineau speak again on the state of the economy and what it means for the legal sector.
One slide in particular leapt out at me:
“Be positively disruptive”
There are a lot of economic, geopolitical and societal challenges out there and it’s probably a really good idea to step back for a moment and consider how you and your firm are going to emerge stronger from the next period.
Oh, and if you do get a chance to hear her speak, please do.
Post of the week
On a slightly lighter note, our post of the week comes courtesy of Len Markidan, who highlights the importance of keeping professionalism human and lighthearted. On the one hand, it’s a great reminder that so much of how we come across online depends on our ability to spin the mundane into something engaging; on the other, how a bit of humour can go a long way in catching someone’s attention.
You’ll certainly have experienced the digital version of cold calling if you’ve spent any time on LinkedIn – when you receive an impersonal message out of the blue that has clearly been copied and pasted. Inject some personality, and personalisation, into your chat and you may get more than somebody rolling their eyes on the other end of the screen. What’s the best message you’ve been sent by a stranger?
Alternative Law Firms report
“Alternative legal service” has become a catch-all term for the delivery of legal services outside of the traditional model of lawyers working in a law firm – and this model is rapidly on the rise. Alternative law firms (ALFs) which operate consultancy models are growing at a significantly faster rate than their traditional competitors, with new data from ATLAS suggesting that at current rates of growth, up to one-quarter of lawyers could work at ALFs within the next three years.
How does the business model work? Normally it works on a split-fee basis, where fees paid by the client are shared between the regulated firm, the lawyers that service the client and the lawyer that introduced the client. You can expect around 70% to go to the lawyer and the rest to the firm, while approximately 10 or 15% in referral fees goes to a colleague, with the recipient of the new work taking 60 or 65%. Whilst the model usually requires lawyers to have built up a personal following and have the ability to attract their own clients and work, there are now more women working at ALFs than there are men – meaning it could be a key force for change in an industry that has significant gender pay gaps.
Please contact Graham Wood at Atlas if you’d like to see a copy of the full report.
This week was ESG and Climate Risk Week
With almost every major law firm running an ESG campaign, this week was an important one for the topic of climate change and ESG.
Economist Impact’s ESG and Climate Risk Week discussed the best ways to identify, measure, manage and report on ESG issues and climate-related risks. The event provided an intellectual agenda for managing risks and opportunities, with practical lessons that can be immediately applied to organisations. It also underscored why a siloed approach to managing ESG issues will no longer work in 2022 and beyond.
Likewise, the University of Exeter hosted a conference on global warming, where experts discussed catastrophic climate “tipping points” and the potential power of positive tipping points to avert the climate crisis. Over three days, participants engaged with the risks from climate change tipping points and were empowered by the opportunities in triggering positive social tipping points.
If you get the chance, please take a listen to this Greenwashing episode of the Clifford Chance ESG podcast series. I know that it’s a topic that’s close to the heart of CC’s Senior Partner Jeroen Ouwehand as well as his colleagues Rich Kim, Karina Bashir, and David Adams.
Next week: the Bank of England’s interest rate decision
The Bank of England’s Monetary Policy Committee has confirmed that it will be meeting on 22 September – originally scheduled for 15 September, the event has been delayed by a week due to the period of national mourning. At its meeting last month, it came together to deliver on its pledge that it would react forcefully in response to more persistent inflationary pressures. It also voted to raise interest rates to 1.75%, the highest since 2008 in the face of double-digit inflation, and will decide on the path for interest rates at its meeting next week. Despite inflation dipping into single figures this week, all eyes will be on the headline rate to see how businesses will be affected
Goodbye to the Queen (and her counsel)
On Monday, we’ll get to say a final goodbye to Her Majesty as the nation mourns.
It had never occurred to me that QCs would need to become KCs overnight and I have to say I was impressed with quite how quickly everyone adopted their new status.
Long live the King!