06 Jul 2012

Figuring it out

It's law firm numbers season in London, but, reports Jonathan Ames, management teams are increasingly turning their gaze eastwards and Down Under

Stonehendge: Druids expected: mid-summer also brings out law firm financial results

As dependably as the Druids flock to Stonehenge for the summer solstice, this time of year sees the top English global law firms rush lemming-like to air a load of financial performance figures in public.
Motivated by a 21st-century sense of openness and transparency? Not really. Obligations under limited liability partnership rules trigger some of the disclosures, but not all. There is also a perception in law firm partnership boardrooms that if they don’t come clean with official figures, the virulent transatlantic legal press will speculate nonetheless.
‘The rush to release financial figures has just become a convention and, to be frank, I’d be quite happy not to release results,’ a management team member of one leading law firm told the Global Legal Post this week.
‘It is unfortunate that there is a rush to publish financial performance, which skews what law firms should be about,’ continues the partner. ‘The demise of Dewey is in part a product of the arms race that firms have been in. The disclosure of financials has only encouraged that over time.’

Coughing up

As the Post went to press this week, three of London’s magic circle had coughed up their numbers. At first glance, Clifford Chance looked to have the most to crow about with both revenue and profit-per-equity partner figures increasing by 7 per cent.
Allen & Overy announced a 6 per cent rise in turnover with a flat PEP figure. And Linklaters reported a more modest 0.6 per cent rise in revenue and a 1.2 per cent increase in overall profits.
There is general unanimity around the magic circle that the global business outlook remains tough at best, and that the picture varies widely depending on the region involved.
‘Regarding the global economy, we’ll be looking at 3.5 per cent growth for this year,’ comments Linklaters’ managing partner, Simon Davies, ‘but that is very much split between two areas – the West and Asia.’ Within the past few days, Mr Davies was in Singapore and Jakarta, and he reports back that even those relatively booming markets are tempering in terms of growth.
‘But they still are relatively good,’ he adds. ‘Indonesia is growing at about 6.5 per cent, with rich natural resources, and there will be plenty of opportunities for law firms there.’
Indeed, Asia – and China in particular – is viewed by many global practices on both sides of the Atlantic as the antidote to stagnating business in Europe and the US.
Some are increasingly looking to Australia as the jumping off point, with Herbert Smith this week inking in its merger deal with Sydney-based Freehills, and Clyde & Co announcing autumn plans to launch offices in Sydney and Perth.
Clyde’s management board partner James Burns captured the mood of other global, English and US firms when he described the plans as ‘an extremely exciting opportunity’ to bag increased work across the whole of Southeast Asia.

Overblown expectations

But is there a spot of hyperbole about Australia – itself a relatively small market – which could result in over-blown expectations and ultimately disappointment? ‘There’s obviously some cross-border deal activity, particularly between China and Australia, given the natural resources in Australia,’ says Linklaters’ Mr Davies. ‘But one needs to be realistic – firms will win Asia in Asia, not in Australia. It is as stark as that.’
Linklaters itself has resisted merger temptations in Australia, opting instead to strike an alliance deal at the beginning of May with 200-partner firm Allens, albeit a strong alliance that sees the Aussies incorporating the Londoners’ name in their firm’s logo. ‘Our integrated alliance will help in relation to Asia,’ Mr Davies says, ‘but it is one’s strength in Asia that will prevail, not one’s strength in Australia.’
Can he and his Linklaters partners envisage getting more involved Down Under? ‘We are not considering anything deeper than alliance status. What became very clear in our conversations with Allens was that both firms feel comfortable with being independent. But we saw great synergies existing between our client bases, and the fact that they will be able to support our clients better onshore in Australia, and likewise we will be able to assist outside Australia.’

Organic growth

Perhaps not everyone at Allens was as pleased with that arrangement as they might have been. The Clyde & Co launch includes poaching eight lawyers from the firm from the beginning of October. Some commentators also point out that had Linklaters decided to go down the full-merger route, the deal would have instantly boosted the magic circle firm’s annual revenue figures.
But Mr Davies says the Linklaters management team is perfectly satisfied with its current position. ‘We are a firm that is focused on organic growth, internally electing partners, with relatively few lateral hires compared to some of our competitors.’