As provisional financial results continue to roll in from big commercial law firms, a pattern is beginning to emerge: partners in these firms are, in the main, reaping healthy profits.In many cases, they appear to be edging back up to pre-recession levels. But in parallel with the general rise in average profits per equity partner (PEP) in 2009/10, revenues are generally down, or up only slightly. These results in particular are illustrative of the point:

  • At Eversheds, PEP rose to £517,000 (an increase of £113,000 on 2008/09) on the back of falling revenues (down £11m, to £355m from £366m). PEP in 2007/08 was £552,000.
  • At Olswang, PEP rose to £420,000 (an increase of £115,000 on 2008/09) on the back of a slight rise in revenues (up £1.8m to £91m from £89.2m). PEP in 2007/08 was £545,000.
  • At Denton Wilde Sapte, PEP rose to £360,000 (an increase of £60,000 on 2008/09) on the back of falling revenues (down £2.3m, to £167.5m from £169.8m). PEP in 2007/08 was £470,000.
  • At Addleshaw Goddard, PEP rose to £426,000 (an increase of £21,000) on the back of falling revenues (down £5.8m from 2008/09, to £167.5m from £173.3m). PEP in 2007/08 was £586,000.
So, partner profits have been preserved, even if firms aren’t bringing in the revenues they used to. But there has been a price to pay: all of the firms listed above have made staff redundancies at some stage in the last two years, and some of them have cut the number of equity partners sharing in the profits pool. From a business perspective, is it possible that partners have gone too far with the cuts? There will likely be a few former partners, associates and support staff who think so – but we will probably only be able to tell by looking at growth (or decline) in next year’s financials.

Management consultants would say that stringent staff cuts were wholly necessary (and would have advised firms’ senior management that this was so). Over-lawyered firms are useless for everyone working there if revenues cannot be maintained, so the unlucky few must depart.

But many firms are now beginning to recruit again as they are seeing an upturn in work, and that, of course, carries a cost.

Staff cuts don’t necessarily guarantee a rise in profits, of course. Bucking the trend completely was CMS Cameron McKenna, where PEP fell to £453,000 (a decrease of £101,000) on the back of falling revenues (down £26m, to £214m from £240m) – despite the firm having made a number of redundancies (though it did not reduce its number of equity partners). PEP this year is more than £200,000 off the £655,000 made in 2007/08.

The magic circle firms have yet to release preliminary financials, but all eyes will be on Clifford Chance, which has undertaken perhaps the most comprehensive restructuring of any major law firm since the recession began. In 2008/09, PEP fell by 36% to £733,000 on top of a 5% revenue fall, which cost the firm its crown as the biggest firm in the world by revenues.

For completion’s sake, I’ll round off with the remaining financials:

  • At Watson Farley & Williams, PEP rose to £448,000 (an increase of £18,000) on the back of rising turnover (up £6.7m, to £80.2m from £73.5m).

  • At Beachcroft, profits per member rose to £314,000 (an increase of £13m) on the back of rising revenues (up £10m, to £131m from £121m). The firm has not released a PEP figure for 2009/10.

  • Neither Holman Fenwick Willan (turnover up £0.9m, to £99.6m from £98.7m) nor Kennedys (turnover up £21m, to £88.3m from £67.3m) have yet released PEP figures for 2009/10. HFW posted a PEP of £514,000 for 2008/09, and Kennedys £350,000.