Why do law firms announce their annual results? One reason is to improve their business profile. But Jon Robins hears scepticism that results reveal much about a firm’s performance

It’s that time of year when the Gazette’s in-tray begins to fill up with law firm press releases announcing good news in the form of their annual results. They are the profession’s equivalent of round-robin Christmas newsletters beloved of distant relatives, insisting what a fabulous time they and their family have had over the past 12 months.


For the uninitiated, they read something like this: ‘We have just ended a highly successful year by posting a 25% like-for-like increase in our annual fee income results, enabling us to break through the £60 million mark for the first time. The past 12 months have been extremely eventful for the firm, seeing us take our place in the top 35 law firms in the UK. We have also moved our 200 staff to prestigious new premises…’


Law firms, as private partnerships, do not have to spill the beans, so what do they hope to achieve by publishing their annual figures? There are several reasons, reckons Tina Williams, senior partner and partnership law expert at City firm Fox Williams. ‘Firstly, everybody wants to announce that they are doing well. It gives out the right signals for the clients and for staff because they all want to be part of the winning team,’ she says.


‘But a lot of them do it because they are forced to. The legal press will publish the results and, if they can’t get the right figures, they will give their best estimate. Often firms have had to correct it and so they may as well have given it in the first place.’


Surveys of law firm results were unheard of until Legal Business magazine began publishing turnover figures and profitability of the highest-earning law firms at the beginning of the 1990s, and a number of others jumped on the bandwagon. Now there is a mini-industry of directories and league tables aided by firms who largely co-operate with the process, albeit reluctantly because of the time involved with some of them. ‘A new trend began about ten years ago when the first of the more credible efforts of the league tables were produced,’ says Tony Williams, management consultant at Jomati and former managing partner of magic circle firm Clifford Chance. ‘Firms became increasingly confident about disclosing information, partly as a result of journalists becoming better at getting hold of that information, especially in the larger firms, where they would always find someone willing to talk.’


In the past few weeks, DLA, Norton Rose, Clifford Chance, Wragge & Co, Addleshaw Goddard, Osborne Clarke, Cobbetts, Browne Jacobson, Pannone & Partners and Ricksons have been among those to have announced their results. ‘The firms that have announced over the last few weeks, either through press releases or by briefing journalists, are recognising that it can be a positive message and there’s nothing to be ashamed of,’ Mr Williams says.


What do those firms that disclose the information hope to achieve by doing it? ‘We wanted to increase our business profile,’ says Anthony Hughes, managing partner of north-west firm Ricksons. ‘It’s not really the client that it’s for, but the internal market. People want to work at a successful business and a business that’s perceived by the outside world to be successful.’


Of course, clients are going to be wary of the prospect of their solicitors trumpeting, for example, a 20% increase in turnover. ‘There certainly used to be a nervousness that if a law firm was making money, then it was at the expense of the client,’ reckons Neil Braithwaite, managing partner of north-east firm Dickinson Dees, which publishes its results. ‘But on the whole, I think clients like to see that a firm is successful.’


He says his firm regards annual results as ‘self-promotion’. But he adds: ‘It got to the stage where a sufficient number of firms were doing it, and so if firms didn’t then people would suspect, rightly or wrongly, that was because they weren’t doing so well. So there was a lot of pressure to put results forward.’


But do firms really feel bullied by journalists into disclosing their financial vital statistics? Apparently so. Fox Williams does not publish, although it is converting to a limited liability partnership (LLP) and will then have to make public such information through filings at Companies House. ‘Nobody pins you down and says, “Give me your figures”,’ reports Roshan Khan, the director of marketing and business development. But she says that refusals to release information have been met with questions about what the firm has to hide. ‘That’s the kind of terminology which is used and that’s the pressure,’ she says.


There is a downside to this new culture of openness sweeping the profession as far as the firms are concerned. For a start, they could be handing their clients a negotiating tool to enable them to agree lower fees. ‘One of the issues will be whether the client will use a firm’s profitability as a reason to drive down fees on the basis that if a firm is making £440,000 per partner, then they can afford to reduce their fees,’ says Giles Rubens, a director of professional services consultancy Hildebrandt.


Also the cheery rhetoric can come back to haunt you. ‘We believe history will show that 2003 was truly a pivotal year in the development of Hammonds,’ announced the firm’s management team last year. ‘After years of growth, we demonstrated that we are strong enough to make the changes necessary to enable our firm to compete with the best law firms in the world.’ Unfortunately for Hammonds, the following 12 months saw the firm announce redundancies.


If firms set a precedent for disclosing results, they create an expectation for them to be disclosed in lean years as well. ‘Partnerships historically haven’t retained profit in the business which could be used to smooth out the peaks and troughs in performance,’ explains Mr Rubens. ‘A company can dip into their reserves to keep dividends at a steady level even if there is a poor year of profit, but that option hasn’t existed for law firms. They will have to explain their performance and they’ll have good years and bad years.’


Ms Williams suggests that observers of the legal marketplace should approach firm’s self-generated figures with some caution. ‘The financial results and league tables published don’t necessarily say very much about the firm itself,’ she reckons. ‘It’s possible to increase profits for equity partners simply by culling a large number of equity partners, which happens. But that doesn’t tell you anything about the underlying performance of the firm,’ she says.


There are also suggestions that some firms simply massage their figures so as to achieve a better showing in the league tables.


Firms that convert to LLP status will be required to produce an analysis of their profit-and-loss balance sheet in the same way that a small company would. As of April last year, London law firm Forsters converted to an LLP. So far, the firm has not published its figures formally, although it has co-operated with the various directories. ‘We don’t have any embarrassment about the production of our figures,’ says managing partner Paul Roberts. ‘The only information we aren’t required to produce is a full analysis of our profit sharing,’ he says.


As more firms become LLPs, it seems there will be greater consistency in the way firms produce their results. As Mr Roberts says: ‘The directories and the magazines will be able to look at figures that are truly comparable for the first time.’ With a greater availability of reliable information, the media interest in results looks set to become even stronger.


Jon Robins is a freelance journalist