Law: How can you put a price on a good lawyer?
With more legal publications producing profit league tables we risk forgetting what lawyers are for. By Linda Tsang
Friday 11 September 1998
On the solicitors' side, the findings that the law firm Slaughter and May is the most profitable in the City merely confirms what most lawyers - and their clients - already knew. One publication, Legal Business, in its Top 100, estimated that the equity partners are entitled to an estimated pounds 875,000 each, and, according to the weekly The Lawyer, in its Top 50 the figure is pounds 950,000. And Commercial Lawyer calculated that profits per partner at the firm were pounds 630,000. Next, in descending order, are Allen & Overy, Freshfields, Linklaters and Clifford Chance, according to both The Lawyer and Commercial Lawyer. But according to Legal Business, after the City firms Slaughter and May and Allen & Overy comes the niche commercial Scottish firm Dickson Minto, followed by the City firms Richards Butler, Freshfields and Linklaters.
But why publish such figures? Borrowing a concept from the business world - because law firms are partnerships, they are not required to publish their accounts - the legal magazines have been involved in a battle of using their contacts - and insider "moles" - to get the figures for gross fees and calculate the profits per partner for the firms. Some firms are prepared to give precise figures while others will only confirm a ballpark figure, and a number simply do not co-operate at all. The gross figures do not show what the highest paid take home, as a significant amount will be paid back to run the firms' business. And for the Bar, there is the caveat that the million-a-year barristers also have to deduct overheads from the headline figure.
There are a few exceptions - most recently, the Scottish firm McGrigor Donald published its pounds 20.6m turnover figures in an annual review last month, with the managing partner Kirk Murdoch commenting: "Although the review is a long way removed from all the information contained in company accounts, it is a step in the right direction. It lets clients see that the firm is successful with their support and not at their cost".
The first publication to do the "unthinkable" was Legal Business in 1993. Editor Martha Klein explains that the initial reason for publishing the figures was that "given the amount of money that corporate clients pay to their lawyers, those figures should be in the public domain so that corporate executives can get a better handle on the market; and also it lets the law firms measure themselves against their competitors. Greater transparency helps both the lawyers and their clients in their businesses."
There is also a more compelling reason, according to The Lawyer's City editor, Robert Lindsay: "As legal high-flyers become more mobile, the profits which each firm can dole out to its partners are becoming much more important. Lawyers use these figures to make decisions about their careers."
The general view of in-house lawyers - who effectively instruct those law firms - is that the league tables are a good excuse to get publicity in the general press. The totally expected reaction has been in the middle- market tabloids, with the Labour MP Paul Flynn being quoted as having accused top commercial lawyers of being parasites: "These people contribute nothing at all to society."
The tables also give the Bar an opportunity to defend its own corner. Heather Hallett QC, chair of the Bar Council, says: "What the tables show is alarming. With City solicitors pushing to do more advocacy work, it will mean that they will be charging at those City firm rates, which can be much higher than the Bar - it shows that, pound for pound, barristers are better value".
Stephen Ball, managing director and chief general counsel at Nomura International, is another in-house lawyer who does not use the tables to pick lawyers: "As experienced users of legal services, we like to think that we use only the best," he says, "and we also like to think that we already know who they are. But it is good to have our choice as the best confirmed in the league tables".
One leading in-house lawyer, who uses a panel of five City law firms, says that the tables do not go far enough: "From my point of view, I am more interested in the service levels - and I would expect the good firms to be making healthy profits. The figures given in the various league tables are gross figures; the more interesting question to ask is what is being reinvested in the business - in technology, and in the most important resource - the people".
So the view from the business world is that "obviously, knowing the gross fees figures can be useful when negotiating the legal fees. But it is the law firms' business how they cut up the pie - what we want are happy lawyers, not knackered ones because the business is not properly managed or not properly resourced". And the legal press, in publishing those league tables and their analyses of those figures, has also borrowed another concept from the business world, which applies to even the most profitable of the successful law firms - the profits warning.
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