The combined turnover for the 19 London firms that sit in the second half of this year’s Legal Business 100 (LB100) is £894.1m, an increase of 6% but the addition of one extra firm in this group compared to last year has seen average revenue grow just 1% to £47m. However, it is in profitability terms where this group really excels: comprising Stewarts, Sacker & Partners (see case study), Fladgate and Harbottle & Lewis, this is a collection of firms that truly punch above their weight. Average profit per lawyer (PPL) is £83,000 and profit per equity partner (PEP) stands at £460,000 – an increase of 8% on last year and bucking the trend of suppressed PEP growth in other parts of the LB100.
And it is the firms that have focused practices that have excelled once more. Technology and IP firm Bristows recorded double-digit revenue and PEP growth up 12% and 16% to £50.9m and £486,000 respectively. Harbottle & Lewis, which has a large number of private clients and was again shortlisted for Law Firm of the Year at the Legal Business Awards in 2020 on the back of a striking run that has seen turnover grow 91% in five years, had another strong year in 2019/20. Turnover was up 6%, meaning the firm has moved past the £40m-revenue barrier, while PEP was up 14% to an impressive £718,000.
Disputes specialist Stewarts is the highest-ranked London firm in the second 50 of the LB100 and its consistent performance over the past five years (revenue growth of 46%) and being the only firm in the second half of the table to have a PEP that comfortably tops £1m means that its natural competitors are disputes teams in the top half of the table.
Stewarts’ focus on disputes means that it is very likely to enjoy a good run into 2021 as a pandemic-stricken corporate Britain becomes increasingly contentious. For the time being, however, it hasn’t fared at all badly. It has posted double-digit revenue growth for two years on the spin, posting an 11% increase in turnover to £76.7m for 2019/20, up from £68.8m in the previous financial year when it increased just shy of 11%. PEP, meanwhile, saw a solid 5% increase to £1.25m; a needed rebound after the figure plummeted 13% in 2018/19.
The results show Stewarts’ continued recovery after its 2017/18 setback, where ‘non-linear’ income patterns from contingency work accounted for revenue falling by a fifth. The firm also stressed it has widened the equity across the partnership in a bid to remunerate future talent. Currently the firm’s equity spread stands at £610,000 – £1.72m.
‘The crisis has highlighted the difference between good management and bad management.’
Stephen Parkinson, Kingsley Napley
Managing partner John Cahill says Covid-19 will have a negative effect on the firm’s financial results next year, regardless of any suggested uptick in contentious work: ‘We are pleased to post another good set of financial results. During the year we have made substantial investment in strengthening existing practice areas and in our book of contingency fee cases. In previous years I have indicated that our revenue patterns would be non-linear and that remains the case. We expect that Covid-19 will have a negative impact on both revenue and profit in the financial year 2020/21.’
Another specialist London firm with reasons to be optimistic is Kingsley Napley, with revenue up 13% year-on-year – the highest in the group – to hit £48.2m. This means the firm has met the target of 30% growth it set itself in 2018 and is on course for achieving its revenue target of £60m by 2023.
Says senior partner Stephen Parkinson: ‘We had a strong year economically but would have finished even better if not for Covid. However, we’ve come out fundamentally strong and healthy.
‘The crisis has highlighted the difference between good management and bad management. This is a happy firm and we have a good culture. Our commercial team has been overwhelmed with people wanting to join the firm in response to a recruitment drive. We have heard that lawyers have been dissatisfied with firms that have immediately made their people redundant or cut them to part time. This is a mobile profession and people will move if they are disaffected.’
He points to the firm’s commitment to diversity as indicative of its successful culture. ‘We have three black partners – that’s quite unusual. We’ve got a lot to shout about. It’s something I’ve concentrated on as senior partner. The message is that it’s the right thing to do. It’s good for business – it’s been proven that the more diverse an organisation the more profitable it is. You get more challenges and different perspectives.
‘From September, 60% of our partners will be female. Crime and family work attract females and we as a firm are known for being gender diverse, and that also attracts women. We’ve made a real effort to keep women. It’s really important to be flexible and our colleagues repay it two or three-fold in terms of commitment.’
But the picture is not entirely bright for mid-tier London firms. Winckworth Sherwood was the only firm to experience a revenue drop, by 4%, and Lewis Silkin, while managing to grow turnover by 3% to break the £60m threshold, saw PEP fall by 15% to £331,000. Joint managing partner Richard Miskella says that the dip in profitability came on the back of a bumper year for profits the previous financial year, and the firm decided to invest heavily in IT transformation and business services. ‘We rolled out our new software just before lockdown, so that seems like a good investment!’
‘We’ve been doing all our planning against the worst-case scenario, but so far it has fallen somewhere in the middle.’
Richard Miskella, Lewis Silkin
However, he also points out that the firm’s financial year ends in March and therefore only overlapped with lockdown for eight days. ‘Because of when our financial year ends we will be an interesting case study, as we will have an entire year of Covid while most firms have managed to spread it across two financial years. Being frank, it has been traumatic for a lot of people and our clients, half of our firm is employment lawyers so obviously they have been heavily involved in the furlough scheme and the downsizing we have seen.’
Miskella adds: ‘We basically had to tear up our business plans for this year. After March, we realised that the investments we had planned seemed reckless. Revenue is down 3% for the first four months of the year compared to last year, but we have adjusted well. We outlined three scenarios: A best-case scenario, a worst-case scenario and something in the middle. We’ve been doing all our planning against the worst-case scenario, but so far it has fallen somewhere in the middle.’
Overall, London’s staying power as a legal and financial hub continues to impress and seems to provide for City firms in the second 50, while often their precise focus on a specific client base is their greatest strength. However, in the current post-apocalypse landscape, it is far, far too early to say. LB
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Fastest-growing LB100 firms: revenue 2015-20
Slowest-growing LB100 firms: revenue 2015-20
Fastest-growing LB100 firms: PEP 2015-20
Slowest-growing LB100 firms: PEP 2015-20
Case study: Sacker & Partners
At 50 years old, the UK’s original boutique law firm is still the benchmark for every one that has followed – and it is no hyperbole to say that Sackers is still the definitive boutique. Not only was the firm recently crowned Boutique of the Year in the 2020 Legal Business Awards but it has been a standout performer in the LB100 for a long time – consistently ranking among the top five firms across key profitability metrics of profit per lawyer (PPL), profit margin and profit per equity partner (PEP). This year is no exception: a PPL of £293,000; PEP of £947,000 and a margin of 50% is only bettered by a handful of high-grossing firms in the top half of the table. A top of equity of £1.2m shows that being small does not mean unprofitable.
All the boxes are ticked: a highly specialised pensions practice with a client base that is the envy of the global elite; with the most respected partners in the business who enjoy profit shares that match the Magic Circle. It acts for 30 of the biggest 100 UK pension schemes, more than twice as many as nearest rival Linklaters which has 14 appointments – most other leading firms have just a handful.
Sackers’ retention rate is high with an attrition rate of around 4% per year. Part of that strong retention rate is down to 57% of the partnership being female as well as 67% of the remaining fee-earner population. The firm is fully supportive of flexible working with more than 50% of partners and more than 30% of associates in flexible working arrangements. And Sackers is proof that a firm does not have to be a patriarchal sweatshop to succeed financially: with a PEP figure of £906,000 for 2018/19, it is the fifth most-profitable firm in the UK.
One area where the firm has work to do is on ethnic diversity – like many others the firm did not disclose what proportion of its 55 lawyers identify as BAME.
What has been the effect so far of Covid-19 on the firm’s performance?
David Saunders (partner): Despite Covid-19, we have had a strong year to date and clients are still looking for our support both with new projects and business-as-usual work. We moved to remote working just before lockdown and continue to provide consistently high-quality advice and service to all our clients. Buy-in/buy-out activity has remained healthy, DC consolidation is gathering pace, ESG is still high on trustees’ agendas and we are working on the pensions aspects of a number of restructurings where the employer is in difficulty.
What goals are you setting yourself for the next 12 months?
We have always evolved our offering, expanding our specialism as necessary, and the continuing challenges of Covid-19 require us to continue to demonstrate that same flexibility and adaptability – both in terms of how we help our clients and how we work with and, importantly, support each other in this challenging environment.
We will continue to follow the government’s guidelines in relation to working from home, while monitoring and assessing any developing client demand for face-to-face meetings which can be safely and responsibly accommodated.
How do you assess the firm’s approach to diversity and how will you improve?
Diversity and inclusion has been a longstanding part of our culture. We believe passionately that our staff will be most successful when they bring their authentic selves to work and that, in turn, our firm and its client offering will be successful too. Diversity and inclusion is a standing agenda item at our partners’ meetings. We have a diversity and inclusion policy and two of our partners have been appointed as diversity champions to ensure that our policies and practices in this area are kept under review and we continue to evolve our approach.
When benchmarked against comparable law firms, we have a high female representation, particularly at the senior level. Since 2015, under the guidance of the National Apprenticeship Service, we have provided apprenticeship opportunities for individuals to work alongside experienced staff to gain job-specific skills, to earn and to be given time to study at the same time. We also sponsor the Law Society Diversity Access scheme, which supports people from lower socio-economic backgrounds who want to become solicitors.
Mark McAteer