BY:
Caterina Conti
Media Operations
PROJECT COUNSEL MEDIA
30 July 2020 (Paris, France) – Against the backdrop of a looming recession many lawyers were worried about the prospects for firm financials this year. But early indications are that the profession has weathered the storm thus far, with all 14 of the Top UK 100 firms to have published results posting positive revenue growth.
NOTE: the following information was compiled by The Lawyer and by the Office for National Statistics, the executive office of the UK Statistics Authority.
The 14 firms, which include all the magic circle, Clyde & Co, Herbert Smith Freehills and Pinsent Masons among others, have seen combined revenue for 2019/20 increase by 5.5 per cent from £11.2bn to £11.8bn. Growth has been driven largely by two firms: Clifford Chance which posted revenue increases of 6 per cent to £1.8bn from £1.69bn; and Shoosmiths, where revenues rose by 12 per cent from £138m to £154m.
While revenues are up, the outlook for profits per equity partner (PEP) is less rosy. Of the 14 firms to post PEP figures, only Clifford Chance, Holman Fenwick Willan, Simmons & Simmons, WFW and Shoosmiths have pushed PEP upwards. Of course, there’s been plenty of investment during 2019/20, with firms expanding office bases and investing in technology – no one could have been accounting for a pandemic which effectively closed the UK economy in the fourth quarter.
So, while PEP numbers may be down it’s worthwhile remembering that the broader economy has taken a bigger hit – with UK GDP dropping by 20 per cent annualised in April, and down 1.8 per cent across the firms’ accounting period.
With their counter cyclical practices, firms are well placed to weather a storm. This may explain why when surveyed by LexisNexis, only 10 per cent of respondents saw Covid-19 as a bigger threat to their business than to that of their clients. The very notion of this may seem counterintuitive; after all if a client’s business goes down the Swanee it does little to help the revenues of its legal advisers. Nevertheless, revenue growth across the board suggests firms are better placed than anticipated to manage the downturn.
In 2008 there was a lag between the output drop of the legal industry and the wider UK economy
However, it’s unwise to let complacency set in. Counter-cyclical work is profitable in the midst of a crisis but if the economy stays suppressed, then law firms’ top lines will begin to suffer. For the accounting period ending April 2009, UK GDP fell by 2.9 per cent, and at the same time this group of firms saw revenue increase by 3.3 per cent. Over the next year, the economy stayed suppressed, and the same group saw income fall by 6.1 per cent.
Of course, most of these firms now have more international diversity, meaning they aren’t as dependent on the UK economy as they were in 2008. But the warning is clear: this year’s results will pass with fairly little damage but next year is when they will feel the squeeze.
If partners are tempted by these results to take home a healthy pay packet, they should think again. Some extra cash will be needed for the rainy days ahead.
