The big UK law firms that rival their US rivals in the US fall short in one important category: profits.
London’s biggest global companies saw their average profits rise last year, reaching as much as $2.5million each. That’s still far behind America’s most profitable companies, whose profits per partner ranged from $4 million to more than $8 million last year.
“It’s been a challenge,” said Brian Davis, a legal recruiter for Major, Lindsey & Africa, referring to efforts by UK companies to compete in the US. “By most measures, they’re not as profitable by a significant margin.”
Four of the five companies in the UK’s “Magic Circle” – a nod to their elite pedigrees and high-end customers – have already updated their pay structures to attract rainmakers as they seek to expand into the United States and to fight against growing competition from American companies in their own territory. .
Freshfields, Bruckhaus Deringer has been the most aggressive of the bunch, landing heavyweight lawyers from top US firms and launching a bustling office in Silicon Valley. Others, like Allen & Overy, have explored mergers with American firms and brought in experienced lawyers from Europe.
Profit differentials limit what they can do to consistently and successfully compete with the nation’s leading companies for talent.
Freshfields led the Magic Circle in average partner earnings last year, according to self-reported data from four of the five companies.
The company reported profits per partner of 2.07 million pounds ($2.54 million) last year, a 14% gain on the previous year. Profits from Clifford Chance Partners reached £2.04 million ($2.49 million), an increase of 10%.
Allen & Overy and Linklaters each posted single-digit profit gains during the year. Slaughter & May has not made its profits and revenues public.
Direct comparisons with US companies are difficult because fiscal years and exchange rates vary. Yet 23 companies with significant operations in the United States passed the $4 million mark in profits per partner last year.
Elite Manhattan firm Wachtell, Lipton, Rosen & Katz reported $8.4 million in average profits for its partners last year, according to data compiled by the U.S. attorney. Kirkland & Ellis, the world’s largest company by gross revenue, reported average financial partner profits of nearly $7.4 million per financial partner.
More obscure is how much UK companies earn for working in the US. Allen & Overy and Clifford Chance said U.S. operations accounted for about 13% of each company’s total revenue, but Freshfields and Linklaters did not provide a breakdown.
“Playing Our Own Game”
Lawyer compensation has been a stumbling block for UK-based companies looking to attract top talent to the US.
UK companies have responded by relaxing or even removing strict ‘lockstep’ pay systems in which partners are paid solely on the basis of seniority. The moves are designed to attract – or keep – top traders with lucrative client lists.
“Magic Circle firms realized they needed the US market because it is by far the largest, and there are more legal expenses here than in any other,” said firm consultant Kent Zimmermann. lawyers of the Zeughhauser group, in an interview.
Freshfields fueled speculation about its pay rates when it landed Ethan Klingsberg, a top M&A partner at Cleary Gottlieb Steen & Hamilton, in late 2019 who was not used to losing attorneys.
Freshfields “has been the most active and spent the most money over the past year, hiring highly paid people in mergers and acquisitions, private markets and private equity,” Zimmermann said.
The company has had six consecutive years of revenue growth. He is not discouraged by the prospect of an economic slowdown, according to his leader.
“We’re playing our own game,” Georgia Dawson, the firm’s senior partner, told Bloomberg Law. “We have a long-term vision and we have built our footprint on it.
The firm focuses on mergers and acquisitions, capital markets, antitrust and other regulatory work, as well as litigation and white-collar matters, Dawson said.
Allen & Overy first tried to establish its American beachhead by partnering with the American O’Melveny & Myers. After those talks broke down, the firm hired teams of lawyers in the areas of renewable energy, technology, life sciences and leveraged finance, said U.S. senior partner Tim House.
A&O’s decision to transfer Karen Seward, its global head of litigation, from London to the firm’s Silicon Valley office is a signal of its commitment to being competitive in the United States, according to House.
“We’ve engaged nearly 50 partners over the past two years, a significant number of whom are lateral, across our core practice areas,” he said. “Our fundamental principle is to do something in the United States that we are already doing elsewhere in the company. We are trying to create a one-stop shop globally. But we came to the United States to have deep roots on the domestic market, hence the hiring of a number of American lawyers.
“Our goal is to reach 150 partners by 2025,” House added.
Neither fast nor bloodless
The migration of leading British companies to the American market was not quick or bloodless, but took place over decades from the 1970s.
Clifford Chance took it a step further with a merger in 2000 – the first between major US and UK law firms – with New York firm Rogers & Wells to create a global legal juggernaut.
The company quickly moved to the West Coast, opening offices in San Francisco and Los Angeles, but closed outposts within a few years after about 30 partners defected. Clifford Chance blamed weaker-than-expected earnings on a poached securities litigation group from Brobeck, Phleger & Harrison of San Francisco, which folded in the wake of the dot-com meltdown.
Magic Circle companies have since refined their approach, once again migrating to the West Coast for technology, life sciences and other lucrative work.
“We’re moving forward,” said Alan Mason, Freshfields Global Managing Partner for the U.S., “with hiring, expanding practices, not exactly finding new offices, but who knows. there is no reason to alter our growth.