Margin calls

To suggest big corporate law firms have been feeling the squeeze might seem crass to many solicitors not therein employed. We all know what the equity partners take home. They aren’t applying for universal credit any time soon.

Nevertheless, the latest batch of LLP accounts, which have been dropping at Companies House like autumn leaves, confirm the market mood music. Margins came under intense pressure in 2022-23 as the Covid boon subsided. And not really because infrastructure costs rebounded as folk trooped back into the office, and clients once again had to be schmoozed.  

What stands out from these filings are inflation-busting increases in wage bills. Salary costs are not disclosed when top-50 firms punt out their headline figures over the spring and summer months.

To give just one example, Fieldfisher’s non-partner pay bill, including bonus, climbed by a whopping 24% (£16m) year on year. Headcount rose by less than 10%. Fieldfisher is also instructive, however, in that the firm still sustained (indeed, slightly increased) the trading surplus shared by partners.

Flat profits were trending among the top-50 in 2022-23. So how are firms performing this feat of impressive financial alchemy? Unless everyone is working even longer hours, it seems reasonable to assume that they are putting their rates up. And by quite a lot (I should stress that this may or may not be true of Fieldfisher).

As a former City hack, I want to follow the real money. Sadly, that is much harder now. No one has really had a handle on what the big City firms charge from year to year since outspoken costs lawyer Jim Diamond stopped producing his annual snapshot. Diamond latterly concluded that magic circle rates had doubled in 15 years.

I suppose there is no particular reason why we should know – not in detail. But at least I can offer you a steer from the US, courtesy of new research from Thomson Reuters. Hourly rates across the US large law firm market rose 6.5% in the fourth quarter of 2023 – the highest increase since the 2008-09 crisis. Profit per equity partner also bounced back.

On this side of the pond too, perhaps the good times (or should I say the ‘even better’ times) will not be long in arriving. Especially as wage pressures ease.