Legal Business Blogs

Bangs and whimpers – LB100 performance is a lot weaker than it looks

In the wake of the banking crisis, some commentators claimed the legal industry was set for a bloodbath that would sweep away 10,000 solicitors’ jobs from a flabby trade. As so often, the profession defied the critics, handling its post-Lehman reboot with assurance. Now, after posting on the face of it impressive numbers for 2016/17 in the shadow of Brexit and two major electoral upsets, there is talk of the resilience of the industry. The Legal Business 100 (LB100) has, after all, grown from £12.25bn to £22.06bn over the last decade and this year the group at long last surpassed its record PEP of £703,000 set way back in 2008.

And yet scratch the surface and there is much cause for unease. A good chunk of the long-term growth of the UK’s largest firms is due to consolidation, while the 2016/17 results have been hugely flattered by currency movements. Taken as one year, the numbers are respectable, but the long-term view is ominous, particularly for the City’s traditional leaders.

The term Magic Circle still means something – there is still a distance between them and their rivals – but the once-yawning gap has been slowly narrowing for nearly a decade now.

The group’s results were no more than pedestrian this year, aside from Allen & Overy. On a five-year view, where Clifford Chance, Linklaters and Freshfields Bruckhaus Deringer have all failed to hike income by 20%, the Magic Circle’s performance is just plain bad. The story of the legal market through the 1990s and 2000s was defined by these firms pulling away from the rest. That is still the story of the US market, but it has not been the narrative of the 2010s in the world’s second largest legal market.

It appears that there is something in the formula of firms generating between £250m and £75m that provides a potent mix of scale, focus and market positioning. This band generates a host of strong showings this year, including Mishcon de Reya, Stephenson Harwood, Osborne Clarke, Watson Farley & Williams and Stewarts Law. When a once-dismissed player like Fieldfisher turns into a confident pace-setter you know something is shifting in the industry.

When a once-dismissed player like Fieldfisher turns into a confident pace-setter you know something is shifting.

Outside that group, Clyde & Co, Hogan Lovells and (just about) Ashurst have cause for cheer, as does Pinsent Masons, a firm that looks increasingly like the antithesis of DLA Piper: generating consistently strong financials that translate into little traction for the brand.

Aside from a muscular mid-tier it is hard to discern much of a pattern beyond concluding that it ain’t easy out there. But it has been a particularly poor year for Scots and northern firms and hard on insurance players that cannot position themselves internationally. A post-Brexit slowdown in the domestic economy has likewise stalled the progress of many smaller City firms in the LB100.

That this uninspiring picture is occurring when underlying demand for legal services in a complex and tightly regulated global economy is well supported is all the more unsettling. And all the while Brexit for real looms. The LB100 has spent a decade sharpening its operational rigour. There must be a limit to what more can be wrung from the businesses as they stand. That leaves some very large and largely ducked questions of strategy on the table.

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