North by north-east

While many leading City and national firms have reported static – and even declining – fee income, firms in the north-east are claiming booming profits. Philip Hoult reports


Over recent weeks, many of the leading City and national firms have lined up to report static – and, in some cases, declining – fee income for the 2003/04 financial year, with the announcements accompanied by mutterings about ‘difficult market conditions’. Where turnover has increased, any growth has usually been less than 5%. Unsurprisingly, profitability has also taken a big hit.


The view from the north-east could not be more different, with many of the largest firms posting double-digit increases in turnover. Watson Burton, for example, chalked up a 29% rise from £10.7 million in 2002-3 to £13.8 million – making it one of the fastest-growing firms in the country, if not the fastest. Not far behind was Ward Hadaway, which posted a 17% increase to £17.5 million.


Meanwhile, Dickinson Dees, the north-east’s largest firm by size, saw turnover up a healthy 11% to £39.5 million. Fifteen-partner Robert Muckle, the smallest of the five largest firms, but the one with arguably the most clearly defined focus on commercial work, does not publish its figures, although managing partner Hugh Welch confirms that its turnover did rise by 9% in 2003/04.


Eversheds announced firm-wide fee income for 2003/04 at £296 million, up 4%, but does not break down that income by office to reflect its ‘one business’ approach. However, Newcastle office managing partner Chris Hugill says the increase in income for the north-east shows a similar rate of growth to its main competitors in the area.


Increasing turnover is not, of course, necessarily the be-all and end-all, but at the very least it illustrates the growing confidence among the north-east’s lawyers.


‘There is a vibrancy and excitement to the area,’ says Mr Hugill. ‘If you get local lawyers together, what does come over is that kind of passion for the area and a commitment to it. And as the region has regenerated and grown, the firms here have provided an essential part of the infrastructure.’


Further growth is planned. Watson Burton, for example, moved its staff into 60,000 sq ft of new offices at St James’ Gate last month and is targeting a further 18% growth in turnover for the current financial year. Both the firm and its rivals believe it will get a significant additional boost to morale and performance from the switch.


‘We have been part of a pretty stable economy in recent times,’ explains the firm’s managing director, Patrick Harwood. ‘Our clients for the most part are doing well. Equally, our boundaries have stretched.’


Standing on the revamped Quayside, it is not hard to see why local firms have done so well. Newcastle’s resurgence can be seen in the substantial amounts of public money that have been spent on projects such as the Baltic arts centre, the Gateshead Millennium ‘winking eye’ Bridge and the soon-to-be-opened Sage Music Centre that will house the Northern Sinfonia.


The city has shrugged off last year’s failure to be nominated European capital of culture for 2008, when it narrowly missed out to Liverpool, and has embarked on a decade-long cultural programme called Culture10.


These projects are simply the more visible signs of increased public expenditure generally in the region – the north-east has also seen more than its share of the government’s extra spending on services such as health and education.


This has been accompanied by a commercial and residential property boom, with hotels and apartment blocks growing up alongside the river with prices to match their setting. Parts of the historic Grainger Town are now being redeveloped for city living as Newcastle’s reputation for a high quality of life continues to grow.


The regional development agency, One North East, has meanwhile been setting great store on developing more of a knowledge-based economy, and is better thought of than many of its counterparts elsewhere in the country.


Evidence of just how much the region’s economy has changed in recent years was contained in the Office for National Statistics’ ‘Region in Figures’ report, published last month.


Manufacturing, once the area’s bedrock thanks to traditional industries such as steel and shipbuilding, provided 22.3% of the region’s gross value-added – the government’s chosen measure of economic performance – in 2001, a significant fall from the 28.2% recorded in 1996.


But this has been compensated by expansion in areas such as real estate and related businesses – contributing 17.4% of gross added-value in 2001 – wholesale and retail trade (11%), health (9%), education (7.7%) and construction (6.2%).


This period of transformation has undoubtedly benefited the region’s main legal players.


While emphasising that Ward Hadaway’s growth has been across the board, managing partner Jamie Martin acknowledges that the most significant expansion has come from public sector work. The Quayside-based firm acts for clients such as local authorities, health trusts, for example on new generation local improvement finance trust (LIFT) public/private partnerships, and the National Health Service Litigation Authority.


The firm is also one of the main providers of legal advice to One North East, having helped set up the five ‘centres of excellence’ companies that are intended to develop the regional economy in discrete areas such as life sciences and IT.


‘The results of all this public investment are starting to bear considerable fruit in terms of the regional economy,’ Mr Martin insists.


The local law firms have similarly benefited from the property and construction boom. Robert Muckle’s Hugh Welch considers this line of work ‘a huge success’ for his firm, which has been acting for clients such as McAleer & Rushe in relation to the St James’ Gate development and Silverlink Property Developments on the planned regeneration of the one-and-a-half acre Stephenson Quarter, one of the largest projects of its kind in the city for 25 years.


But will it last? The fear, of course, is that the well of public money will run dry, if for example there is a change of government or a sudden economic downturn.


There must also be nagging concern that demand for all the new commercial and residential property will eventually fall below supply. But the lawyers remain confident for the future.


Dickinson Dees’ managing partner, Neil Braithwaite, whose firm has more than doubled in size to more than 700 staff and trebled its turnover since moving to new offices on the Quayside in 1998, maintains there is room for further growth both locally and nationally.


‘We have gone through successive barriers where people said the growth must stop,’ he says. ‘The markets have a greater degree of elasticity than [people] give them credit for.’


It is a view shared by Ward Hadaway’s Mr Martin, echoing Kevin Costner in the film ‘Field of Dreams’. ‘When we moved to the Quayside in 1998, the building – which was publicly funded – had been empty for 18 months,’ he says. ‘It was a big commitment for us. But one of my partners said “don’t worry, people will come”. If there was an example of the benefits of public investment in infrastructure, this is it.’


One of the strengths of the north-east, and another reason to believe why things will not turn sour for local law firms, is the powerful sense of regional identity – and that does not just mean loyalty to the three local football clubs of Newcastle United, Middlesbrough and Sunderland.


Corporate and public sector clients, while increasingly sophisticated purchasers of legal services and keen to establish a fair price for their work, are felt to be extremely loyal.


In return, the likes of Robert Muckle place great emphasis on their community activities. ‘One of the things that is important to us is our pro bono work,’ says Mr Welch, whose partners have set up – amongst other activities – a charitable trust to which they have donated some £100,000 since its creation in March 2002. ‘It is very important to us in terms of our commitment to this region,’ he says.


Another factor underpinning Newcastle firms’ confidence is that their local market is, to some extent, cocooned. With the exception of Eversheds, the likes of national players DLA, Pinsents, Addleshaw Goddard and Hammonds have so far shown little interest in establishing a local presence. While a few years ago such a move might conceivably have been on the agenda of management at those firms, their strategies are increasingly directed at opportunities in the City of London and continental Europe.


This is partly because the number of major listed companies, and therefore potential large clients, in the north-east is relatively limited – restricted to the likes of transport groups Go-Ahead and Arriva, as well as software manufacturer Sage and the Northern Rock bank.


As a result, any attempts to muscle in are likely to continue to come only from Leeds – or even London – and local firms believe they are well placed to fend off such forays. ‘Clients here are well looked after,’ says Mr Welch. ‘All the firms have upped their game quite a bit.’


From this relatively secure base, there is, however, a growing ambition to develop more work on a national basis.


Dickinson Dees has been particularly successful in this regard, for example building a national transport and infrastructure practice on the back of its links with Arriva and Go-Ahead, both of which started out life as north-east businesses.


In May 2003, the firm advised Anglo-French operation Govia, a part-owned Go-Ahead subsidiary, on its successful bid for the South Central train franchise covering the south-east of England.


Dickinson Dees also aims to benefit from opportunities such as the one presented recently when it acted for the sellers of a local chain of convenience stores, Bells Stores, to Sainsbury’s. The firm has been retained to act on ongoing Bells-related work, but hopes to handle a greater range of work for the supermarket giant in the future, not least when its property panel comes up for review later this year.


‘Being based in Newcastle is much less of a barrier than it might have been five years ago – we have got a track record and it does not matter where the work is,’ says Mr Braithwaite, who adds that the firm nevertheless remains committed to being largely a single-site operation.


This is the case even though it has benefited from its decision in September 2000 to set up an office in Stockton-on-Tees – a move that was intended to take advantage of opportunities created by the fragmentation of the old ICI business, with new clients including US chemicals business Huntsman coming on board. ‘Our growth record supports our single-office strategy,’ Mr Braithwaite argues.


Clearly this strategy is at odds with that pursued by Eversheds’ local office, but Chris Hugill feels there is plenty of room for local firms to differentiate themselves from each other and from other firms not represented in the region.


‘Our approach is that we are a key part of an international firm,’ he says. ‘The office not only serves the north-east market, but also provides services to clients based elsewhere. In turn, we draw upon our expertise from around the firm to benefit our locally based clients – such as state aid expertise from our Brussels office – that other local firms cannot provide.’


Mr Hugill insists, however, that unlike other national firms, Eversheds is committed to the north-east. He cites 40% growth in the fee income generated by its local human resources team – an area that is one of the firm’s undoubted overall strengths – as proof ‘the model works’.


But it is not just the two biggest firms that are thinking national. Watson Burton’s Patrick Harwood believes the firm can continue to expand its reach into areas such as property and construction, and industrial-disease litigation. He also points to its niche but growing NHS fraud practice, which started out following a single instruction from a local health trust, as ‘an example of taking something on locally but finding it is a nationally transferable skill’.


This is not just a case of following local clients across the country either, but getting work from those based outside the north-east. ‘Clients are taking on board that Newcastle is not the end of the world,’ he adds.


The fact that most practices in the north-east are doing well means that its lawyers have managed to remain competitive for work without it spilling into outright hostility – something you would not necessarily say about other major regional centres.

Whether that will always be the case remains to be seen. But, for now, as Mr Hugill says, ‘while the firms here might approach the market from different perspectives, there is enough quality legal work for all’.