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Clifford Chance (CC)’s managing partner Matthew Layton spoke of ‘times of investment’ and pointed to his firm’s four-year performance after it followed up on last year’s strong financials with a muted 1% rise in profit per equity partner (PEP) to £1.62m.
Kicking off Magic Circle law firms’ financial reporting season for the second year in a row, CC announced today (2 July) a 4% revenue increase to £1.693bn in 2018/19, meaning it added £70m to its top line, but profit failed to keep pace rising by just 2% to £637m.
This year’s results follow a 2017/18 that saw CC post arguably the best performance in its peer group, hiking PEP 16% to £1.6m amid a 5% revenue growth to £1.623bn.
‘You have to look at the four-year picture,’ Layton told Legal Business. ‘PEP growth will compare very favourably with the market if you look at the four-year results.’ CC has grown revenue 25%, PEP 45% and profit 42% since the introduction of Layton’s global strategy in 2015, built around three key pillars – bringing CC together around key clients relationship, creating an inclusive culture, focusing on tech and best delivery strategies.
Layton described 2018/19 as a ‘very strong year’ for the firm despite some volatility from December onwards amid the China-US trade wars, a slowdown in Chinese and Eurozone growth, the US government’s shutdown and continued uncertainty over Brexit.
He pointed to some ‘important investments’ as part of the firm’s innovation and best delivery programme. They included establishing a separate business entity, Applied Solutions, to develop and market tech tools for clients; launching a legal tech innovation hub in Singapore, Create+65; and injecting money into legaltech services automation platform Reynen Court. The firm also grew the headcount of its nearshoring centre in Newcastle to around 80 from 60 at the time of its acquisition in February last year.
Asked whether he expected a faster profit increase in future as these investments pay off, Layton said he was primarily looking at continued revenue growth: ‘The objective of being the global law firm of choice is about investing to meet client expectations. We look at opportunities to invest as and when they arise.’ However he added: ‘I am confident we will see continued profit and PEP growth going forward.’
He also pointed to the successes in his goal of reducing the firm’s reliance on banks, with revenue coming from alternative financial investors rising by 20% to about £525m in 2018/19 – 31% of the firm’s turnover. Revenue from banks increased by 6% and they now account for 32% of billings compared to about 50% ten years ago, with corporates bringing in the remaining 37%. ‘We have worked hard to see that balance shift,’ said Layton. ‘I would expect financial investors to continue to move up. A third each is the right balance.’
The firm’s 878-lawyer London office grew revenue at a slower pace than the firm globally, its top line rising by 3% to £556m. Its 528-strong Asia Pacific business was the standout performer with a 10% growth in revenue to £307m thanks to a strong showing of its Chinese offices, a busy Hong Kong IPO market and financial investors’ activity in the area.
Another focus of Layton’s strategy, the firm’s American offices turned over £226m, up 5% on the previous financial year and 45% on 2015. The firm now has 77 partners and around 300 lawyers in the region, with 200-lawyer New York as its second largest office globally after London.
Layton singled out the firm’s transactional practice as one of the strongest performers of the year. Mandates included advising Network Rail on the £1.46bn sale of its commercial real estate portfolio and pharma company Pfizer on its joint venture with GlaxoSmithKline. The firm’s antitrust practice also scored a notable victory representing company consortium FairSearch in a case that saw Google fined €4.34bn by the European Commission for breaching competition rules.
Headcount remained stable in 2018/19, with the number of lawyers rising by 18 to 2,923, while the partner ranks grew by four to 562 and equity partners by two to 394.
While adding 13 laterals over the financial year, CC also had to deal with the growing pressure for talent from US firms in the City. Its private equity capabilities were hit by two significant departures: deal star Amy Mahon quit for Simpson Thacher & Bartlett in November and infrastructure specialist Brendan Moylan left for Latham & Watkins in August.
Layton said the mood in the partnership was the best he had seen since starting in his role five years ago and concluded: ‘We have seen a pretty strong start to the financial year, but talking to clients there is a certain nervousness driven by the uncertainties and that brings cautiousness in their investment decisions.’
Clifford Chance (CC) has become the second Magic Circle law firm to raise the starting pay for its associates to £100,000, a month after City rival Freshfields Bruckhaus Deringer announced a similar increase.
In a move signalling the widening impact of the pressure for talent from US firms on the City elite, CC has raised its compensation for newly qualified (NQ) solicitors from £91,000 including bonuses.
Freshfields’ NQs still have the potential to receive higher compensation, with discretionary premiums on top of the £100,000 base salary while the new figure at CC includes bonuses.
Freshfields’ hike from £85,000 has been linked to the increasing pressure to retain junior talent. The much-cited departures of heavyweight partners David Higgins and Adrian Maguire to Kirkland & Ellis has been cited by observers as a catalyst for London’s elite players to attempt to protect their stock at all levels and CC’s latest move confirms this. All eyes will now be on Slaughter and May, Linklaters and Allen & Overy after the trio set their NQ rates at £83,000 in their most-recent reviews last year.
The associate pay increases at Freshfields and CC, by £15,000 and £9,000 respectively, echo the steep pay rises of the early 2000s. After the banking crisis, the starting rate at Magic Circle firms was reset downwards from around £66,000 to £60,000. Real-term increases had generally been modest since – until now.
The need to absorb the cost of the resurgent associate pay wars is likely to push the City elite towards the US model: smaller pools of associates with higher billing targets, more outsourcing to regional firms or use of low cost centres and technology for due diligence and other lower-value tasks.
Yet despite the latest increases, several US firms are still able to offer their NQs a more remunerative package alongside a faster track to partnership. Kirkland’s starting rate is £143,000, while Latham & Watkins offers its City associates $190,000.
Two opposite developments in the UK high street have seen City and US firms advise as food chain Pret A Manger acquired rival Eat and high-profile British chef Jamie Oliver’s restaurant business went into administration.
Also keeping City insolvency practitioners busy was the news today (22 May) that British Steel has been put into compulsory liquidation.
Skadden, Arps, Slate, Meagher & Flom advised Pret as it agreed to acquire all of Eat’s 94 shops for an undisclosed sum, with plans to turn most into ‘Veggie Prets’.
The US firm’s team was led by London corporate partners Richard Youle, Katja Butler and Linda Davies. Freshfields Bruckhaus Deringer partner Alex Potter is advising Pret on antitrust.
On the other side of the table, Travers Smith’s head of private equity and financial sponsors Paul Dolman led the team advising Ardian, Horizon Capital and the other selling shareholders of Eat.
‘I acted for Horizon when they acquired Eat [in 2011] and we have acted for them ever since, so we were the logical people to advise on the sale,’ Dolman told Legal Business. ‘Travers has in-depth expertise in this sector.’
The deal sees Travers’ and Pret’s paths cross again after the City firm advised previous owner Bridgepoint on the £1.5bn sale of the food chain to JAB Holding Company one year ago, with a team including Dolman and private equity partner Ian Shawyer.
Under Bridgepoint’s ownership the company, founded in London in 1986, expanded its presence in the UK and US, and launched in France, China, Dubai and Singapore, quadrupling its revenues to £879m. It now counts over 500 shops in nine countries.
Eat was founded in 1996 and bought by Horizon in 2011 with plans to build hundreds of shops. But it has struggled in recent years and reported pre-tax losses of £17.2m in the year to end of June 2018.
Meanwhile, Daniel French, an insolvency partner at listed firm Gateley, is leading the team acting alongside administrator KPMG after Oliver’s business became the latest victim amid difficult times for the UK high street.
Jamie Oliver Restaurant Group will see 22 of the 25 eateries it operates close, resulting in 1,000 job losses.
This is the second prominent high-street insolvency Gateley has acted on this year. The firm also advised KPMG on the administration of Patisserie Valerie in January.
Elsewhere, Clifford Chance (CC)’s insolvency team is advising as British Steele entered compulsory liquidation, putting its 5,000 employees at risk of redundancy.
The government’s official receiver has taken control of the company and together with Big Four accountancy firm EY is looking for a buyer, while it continues to trade normally.
CC’s restructuring head Philip Hertz and partner Iain White are leading the team advising on the process.
The Magic Circle firm was previously among the advisers in one of the largest UK insolvencies to hit the construction industry in recent years, when construction giant Carillion collapsed in January last year.
Clifford Chance (CC) is piloting a radical reform to the way it assesses the performance of its associates and counsel, removing utilisation as a metric when reviewing compensation.
The firm announced today (2 May) it has launched a year-long trial of the new system for 65 lawyers in its Dubai and Abu Dhabi offices, whose base salaries and bonuses will be reviewed based on criteria including time spent on business development, professional growth and engagement with the firm’s innovation strategy.
The review process will drop the target of 1,800 billable hours to allow for a broader assessment of each lawyer’s contribution to the firm. The goal is to incentivise efficiency and improve the way the firm delivers its services.
Chief operating officer Caroline Firstbrook said the focus on utilisation had ‘a number of broadly acknowledged limitations, most notably that it does not directly incentivise efficiency or contributions to non-billable work that may be invaluable to the firm’s overall strategy’.
Managing partner Matthew Layton (pictured) added: ‘With this pilot, we are trying to break the dominance of that single metric and allow our teams to think more broadly about where their time is best spent. This may mean investing in time spent developing and applying process improvements to matters, rather than straightforward matter delivery.’
The pilot will not, however, mean that CC’s Middle East lawyers will no longer be recording their time: they will have desktop dashboards showing how much of their time has been spent on different sets of activities, including financial information about the matters they are working on. The firm said this was done in order to ensure the evaluation of the pilot was based on comparable data.
Firstbrook concluded: ‘By running a pilot on this scale, with a large number of data points, associate input and partner and management feedback, we expect to be in a position to draw informed conclusions on the way ahead for the firm.’
While CC claims to be the first large law firm to explicitly advocate taking billable hours off the equation, a number of firms have in recent years proposed reforms to the way they assess lawyers’ performance.
After a one-year pilot, Hogan Lovells last year replaced formal annual reviews of its associates with a programme of continued feedback. Called Pathways, the system assesses performance in quick sessions with partners.
In 2016/17, Allen & Overy piloted a similar scheme to ditch annual appraisals for 500 of its fee-earners and business support staff. Linklaters also ditched individual partner targets and annual assessments two years ago to focus on team performance.
Clifford Chance has promoted 30 lawyers to partner, confirming a trend which saw Magic Circle firms increase their partner intake this year.
Announced today (25 April) and effective next month, women make up a third of this year’s intake, bringing the total proportion of female partners at the firm to 20%. It is the firm’s largest global promotion round since 2008, when 35 were promoted.
Global promotions are up by four on last year’s 26, with nine minted in London compared to seven last year. Asia-Pacific also saw nine given the nod including five in Hong Kong and one in Beijing, Shanghai, Singapore and Sydney respectively. Eight were promoted in continental Europe and three in the States, two to the firm’s New York finance and one to its Washington litigation team.
In the City, Andrew Kelly and Kate Vyvyan were promoted in the firm’s capital markets practice; Jennifer Mbaluto and Alexander Chester in corporate; Peter Chapman, Nicholas Kinnersley and Caroline Dawson in finance; Kate Scott in litigation and Richard Kalaher in tax.
Managing partner Matthew Layton said the promotions ‘underline our continued investment in those areas that are increasingly important to our clients, such as regulatory and internal investigations, tech and sector specialisms such as funds and investment management’.
With the exception of Slaughter and May, which only promoted one of its lawyers to the partnership this year compared to four last year, all Magic Circle firms have increased their partner intake this year.
Linklaters announced its largest intake since the banking crisis last month, promoting 33, while Allen & Overy minted 34 this month compared to 20 last year and Freshfields Bruckhaus Deringer announced 22, up from 12.
Andrew Kelly, Capital Markets, London
Kate Vyvyan, Capital Markets, London
Jennifer Mbaluto, Corporate, London
Alexander Chester, Corporate, London
Peter Chapman, Finance, London
Nicholas Kinnersley, Finance, London
Caroline Dawson, Finance, London
Kate Scott, Litigation and Dispute Resolution, London
Richard Kalaher, Tax, Pensions and Employment, London
Madalyn Miller, Finance, New York
Guido Liniado, Finance, New York
Michelle Williams, Litigation and Dispute Resolution, Washington
Tianning Xiang, Corporate, Beijing
Mark Chan, Capital Markets, Hong Kong
Rocky Mui, Corporate, Hong Kong
Christine Xu, Corporate, Hong Kong
Vicky Ma, Finance, Hong Kong
Tom Walsh, Litigation and Dispute Resolution, Hong Kong
Lei Shi, Litigation and Dispute Resolution, Shanghai
Gareth Deiner, Capital Markets, Singapore
Nadia Kalic, Corporate, Sydney
Jan-Hendrik Horsmeier, Corporate, Amsterdam
Dorothée Vermeiren, Litigation and Dispute Resolution, Brussels
Stefan Bruder, Corporate, Frankfurt
David Pasewaldt, Litigation and Dispute Resolution, Frankfurt
Kristof Meynaerts, Corporate, Luxembourg
Martin Wurth, Finance, Luxembourg
Ignacio Díaz, Litigation and Dispute Resolution, Madrid
Gauthier Martin, Litigation and Dispute Resolution, Paris
Tariq Imam, Real Estate, Dubai
According to a source, one other lawyer is due to be joining WFW from CC as part of the same move, but this has not been confirmed by either firm. He is set to start at WFW on 1 April.
Edjua’s arrival will enhance WFW’s already-standout project finance practice, which in London includes heavyweight partners such as Evan Stergoulis and David Osborne, both of whom have considerable clout in the sector.
Edjua brings his own wealth of experience: in his 13 years at CC, he advised on a range of notable mandates, including representing Overseas Private Investment Corporation on the project financing of the expansion of the Olkaria III geothermal power complex in Kenya. In terms of other key work, he acted for a number of sponsors in connection with a 50MW solar PV project in Uganda.
For CC, it is another blow to its infrastructure offering. In August last year, the highly-regarded Brendan Moylan left the firm to join Latham & Watkins, after a 19-year tenure at CC.
Then in November, highly rated infrastructure private equity partner Amy Mahon left for Simpson Thacher & Bartlett in another knock to the Magic Circle firm.
As one key hire comes through the door for WFW, another exits. Latham & Watkins announced today that it has hired WFW’s employment partner Anne Kleffman in Germany. Kleffmann, who had been a partner with WFW since 2013, will join Latham & Watkins’ Munich office.
Both WFW and CC declined to comment.
The success of Simpson Thacher & Bartlett where others have failed in luring Clifford Chance (CC)’s Amy Mahon to the other side has dealt a blow to CC’s corporate practice and other US firms vying to hire her.
Mahon – who in Legal Business last year told of her long-standing grievance with popstar Adele after a row over a nanny – told CC words to the effect of ‘that’s it, I quit, I’m moving on’ and surfaced at Simpson Thacher in January.
Clifford Chance’s (CC) 13-strong executive leadership team took home £22m in the 2017/18 financial year, according to the firm’s filings with Companies House.
It means the firm’s leaders have seen remuneration swell by 38% since last year, when the group of 13 pocketed £16m.
It also represents a drastic leap given that CC’s executive remuneration only inched upwards in £1m increments between 2014/15 and 2016/17.
The considerable financial package is likely related to CC’s healthy overall performance – the Magic Circle firm added £83m to its top line last year, bringing turnover to £1.623bn. This was accompanied by an above-trend increase in profit per equity partner (PEP), growing 16% to £1.6m.
Despite these highlights, the firm’s pay to its highest-earning member has remained flat on last year at £3m. There was revenue growth in all geographies, with continental Europe seeing a 6% uptick to £538m. The Middle East was up by 10% from £49m to £54m, while the Americas increased 6% to £215m.
Total staff costs rose 2% from £693m to £707m, in spite of a 6% dip in average associate numbers, which fell from 2,262 to 2,135. The average partner headcount was also down, decreasing by 10 to 558.
In contrast there were fewer reasons for Eversheds Sutherland International’s leadership team to be cheerful, as the firm’s LLP accounts revealed a payment package static on last year .
Senior leaders took home £4.8m for the 2017/18 financial year, a 20% decrease on last year’s £6m package. However, there was a reduction in executive committee members from five to four during the last year, meaning senior leaders are still taking £1.2m per head. Although a considerable cut at face value, it is marginally less than 2016/17 when executive remuneration was slashed by 22% .
Eversheds Sutherland’s highest-earning member in the non-US business took home 9% more than last year, an increase from £1.4m to £1.52m. This is in line with a wider boost to average remuneration per member, up 11% from £391,000 to £434,000.
The firm’s overall financial outlook is robust, with global revenue increasing 14% to £496m. The UK business played a key role, with a 14% turnover hike to match as the practice generated £396m.
Eversheds Sutherland’s European practice also performed well in 2017/18 as revenue grew 25% to £64m, however the ‘rest of world’ (again not including the US, which has a separate LLP) saw turnover fall 8% to £36m.
As LB looks at the future of finance, we look at the clientele of the top City finance practice at Clifford Chance in 2017. For more on banking and finance, see ‘Back to the future’