If the City is a law unto itself, it needs lawyers more than ever

Nigel Knowles has grown DLA Piper from Sheffield legal firm to global giant – a feat shortly to be recognised on a visit to the Palace. He tells Simon Evans why a knighthood won’t go to his head

The soon-to-be Sir Nigel Knowles, chief executive of DLA Piper, is unlikely to be overawed by his new-found status. The man who has masterminded the 30-year ascent of DLA – from humble beginnings as a small regional law firm in Sheffield, to the largest in the world with offices from Shanghai to Saudi – laughs off suggestions that an upcoming trip to Buckingham Palace to receive the accolade from the Queen will change him.

“How can you be seduced by a knighthood in this environment?” he laughs. “I’ve seen so many people get knighthoods and then fall apart. You can become very accident prone if you don’t watch it.”

Knowles’ knighthood will mark quite a turnaround from the days in 1996 when he first came to London with the burgeoning business, only to be greeted with indignation and no shortage of snobbery among his peers. “There’s no doubt people in the City hadn’t a clue how to take us back then,” he recalls. “I think we’ve certainly proved ourselves since and, ironically, a lot of those people, wary of us back in the 1990s, have become good friends.”

Sitting in DLA’s headquarters, metres away from the offices of the troubled Lloyds Banking Group where banks of photographers are camped out, it’s easy to think of plenty of knights of the realm who have fallen on harder times of late.

But unlike many of these people, Knowles has reasons to be cheerful. During 2008 he plotted a course for DLA Piper that, he says, “left us relatively speaking unscathed – flat was a good result”.

So far redundancies at the firm have been kept to a minimum, with around 40 job cuts made so far. A consultation period means more will follow in the coming months. In comparison, other so-called “Magic Circle” rivals, such as Linklaters and Clifford Chance, have made much deeper incisions into their workforces, contributing to the 3,000 lawyers so far who have lost their jobs in the UK during the credit crunch.

“I think the legal press has sensationalised the redundancies across the industry in a disgraceful manner,” says Knowles. “Of course firms like Clifford Chance are having a tough time. They service the global financial services industry. But they haven’t suddenly become a bad firm overnight. They can’t magic up business if it’s not there.”

Knowles predicts that 2009 will be the most challenging year ever for the professional services industry. And given that DLA gorged itself on the spoils of the bull market to a greater extent than most – it worked on more flotations than any of its rivals in 2008 – it too is set for the toughest year in its comparatively brief history.

“Clearly corporate finance is an important part of the business,” says Knowles. “But of course it is going to drop off a bit this year. However, there are other parts of the business that are prospering at the moment.

“By being so big, we enjoy a diversification of sector and geo-graphy that other firms don’t. When one part of the business is suffering, another is doing well.”

DLA has a large restructuring unit that is in overdrive at the moment, he says. The firm’s lawyers have worked on the recovery and administration of a raft of retailers, including Zavvi, the DVD and music chain, and the clothing group Mosaic, owned by failed Icelandic investment group Baugur.

Indeed, the collapse of the Icelandic economy has provided DLA Piper with a healthy stream of work across continental Europe. The firm is currently working for the Belgian government in assessing the impact of the failure and bailout of Fortis, the country’s largest bank, which was rescued in the wake of its purchase of a large chunk of Holland’s ABN Amro in 2007.

Alongside the restructuring boom in retail, Knowles predicts that the full of extent of the property collapse has yet to be realised.

“We’ve only really seen the tip of the iceberg in property,” he says. “You’ll never know this but there are probably lots of tenants paying their rent in monthly instalments at the moment. When the March quarterly rent review comes around and trading has not picked up, then their ability to make monthly payments will be tested. That’s when lots more fallout will be evident.”

Away from restructuring, DLA’s litigation practice is booming, although Knowles thinks that talk of a “wall of litigation and class actions” is rather overdone.

“There’s not as much unravelling of derivatives and corresponding litigation as is being made out,” he says. “I think the banks are trying to sort all this out themselves. They are not running to lawyers for everything – it’s too expensive and takes too much time.”

He adds: “What we are seeing is a lot of work surrounding regulation. Many firms are coming to us to look at regulatory problems, where they perhaps haven’t complied with regulations. Most clients don’t want to be known for having a big regulatory problem so it’s not in the public domain. But certainly this is an expanding area of the business for us.”

Work may be expanding in some areas but fees are certainly contracting in most. Expensive legal costs, masked in more prosperous times, are now being driven down like never before. So does a price war beckon in the legal world?

“We’ve never been at the top end of the chargeable hour anyway, but I think that if clients focus solely on price they are missing the point,” he says. “Not everything from a law firm has to be chargeable. Everyone just has to be a little smarter.”

Being smarter for some clients and corporates has meant “partnering up” with big law firms such as DLA Piper, which itself struck a deal with Germany’s Linde back in 2007.

The theory goes that by consolidating a company’s legal back-up to one firm – rather than tens or hundreds around the globe – costs are driven down for the corporate client, and the law firm benefits from a global relationship.

Unfortunately, theory often doesn’t match reality. DLA’s relationship with Linde “didn’t work out as originally planned”, says Knowles, while Eversheds’ exclusive £10m partnership with America’s Tyco, in which the American electronics giant ditched 150 law firms for one – a move described at the time as revolutionary – has since been alleged to have been fraught at best, and looks likely to come to an end soon.

“When life is tough, as it is now, it makes a lot of sense for a corporate client to focus attention on one law firm,” says Knowles. “But if a client is doing it for price alone, they’ve not got it quite right. Any relationship has to be right for both sides.”

The relationship between lawyers and bankers is perhaps likely to become fraught in the coming years too, warns Knowles.

“We are in an environment where there are fewer clients, and clients want to pay less,” he says. “In the current market, the old investment banking model of pay with small salaries and giant bonuses has disappeared. If these bankers are being paid a lot less, they certainly aren’t going to want to see lawyers getting paid more than them, with big fees.

“Maybe there will be a backlash from clients over the money they pay their lawyers in the City. It’ll be interesting to see what happens.”

Alongside building up DLA Piper to its current position towards the top of the legal tree, Knowles is a keen supporter of environmental issues and sits on the Legal Sector Alliance, which is urging the legal profession to sign up to a new green code to combat global warming.

Perhaps Knowles’ relative calm at the prospect of visiting Buckingham Palace to meet the Queen can be explained by his friendship with Prince Charles, who backs the LSA in its endeavours.

“Prince Charles is without a doubt one of the most inspiring men I have ever met, and I say that after meeting Barack Obama last year,” he says. “Companies need to realise that becoming environmentally aware on issues such as climate change and sustainability can actually save you money.”

He has led the implementation of a new programme within DLA in an attempt to shrink both the company’s carbon footprint and his own. Staff jetting across to DLA offices abroad now need to meet a set of criteria before flying. The firm is also trialling a new video teleconference system to reduce its carbon footprint further.

“I have personally cut down on my own travel a lot,” says Knowles, dismissing suggestions that corporate social responsibility programmes are likely to be ditched amid the austerity of a recession. “I think the biggest obstacle is getting individuals to realise that they can each make a difference. I can’t remember the exact stats, but if we all unplugged our mobile phone chargers overnight, it would power something like 50,000 homes for a week. The individual can make a difference.”

If the mark he has made on the legal sector is anything to go by, they most certainly can.