The rewards at the top of City law firms are huge - but they are at least earned. Something the rest of the corporate world could learn from.
Today is dubbed ‘Fat Cat Thursday’. By lunchtime today, bosses at top British companies will have made more money than the average UK worker will earn in a year. Perhaps some aren’t there yet – it’s midday at the time of writing.
By coincidence, this week the Gazette has reported on the accounts of elite law firms – showing in varying levels of detail how each has distributed profits per equity partner (PEP) of £1.5m (Allen & Overy), £1.4m (Clifford Chance), £1.6m (Linklaters).
As one reader quipped: ‘Thanks – I’d been worried.’
The disparity of rewards within the legal profession is of course striking.
At A&O, one partner’s earnings per week were roughly equal to the debt a law student would likely accumulate by the time they left law school. Elsewhere, firm principals worry about monthly cash flow in much smaller amounts.
And yet, we should want these results to be good if we care about the health of the legal profession in the round. I mean, would it help the average legal aid practice if Clifford Chance’s PEP nose-dived?
These amounts are earned, not hustled.
Compared to the rest of the corporate world, City lawyers earn the figures that attach to them – reflected in the fact they time-record, which Sir Martin Sorrell (estimated salary, £70m) we can safely assume does not.
Compare that, too, with the notorious £50m windfall the CEO of housebuilder Persimmon has landed – the unforeseen result of a controversial contract.
Law firm results at least reflect work, rather than low-cunning and chance.
Many other lines of work in the City are skimming exercises, or just trade on arbitrage. Compared to lawyers, their tradition of pro bono remains, shall we say, on the underdeveloped side.
These stellar results reflect a system which relies on the rule of law. In countries where contracts can be voided or rival business-folk locked up through political influence, there is more corruption and fewer lawyers – such places are also light on freedom of speech.
Our law firms are net exporters – would a deteriorating trade figure help any or us?
This round of good accounts also shows businesses that are growing their partnerships in line with profit increases – rather than keeping PEP high by restricting the reward of partnership. Healthy results are good. Was anyone in the legal profession helped by the London implosion of King & Wood Mallesons?
Success gives people options. So, what we are right to do is place demands on such success – around everything from environmental sustainability of their operations, to their role in social mobility, commitment to pro bono work, paying their cleaners a living wage, ensuring women make partner in decent numbers, taking a hard line on sexual harassment… I could go on.
Perhaps most importantly, it is in the interests of commercially elite bits of the legal world to keep an eye on their links to the rest of the profession.
In that spirit, I’m reminded of something Freshfields partner Paul Bowden said in a 2013 interview. He’d combined a teaching role at Nottingham Law School with partnership at the magic circle firm.
Nottingham, Bowden reflected, ‘was – and is – a place where very talented lawyers who are going to become specialists in social security law in the north-west of England study alongside equally talented young people who become asset finance lawyers down in the City of London. If you can’t bring together those different perspectives at that stage in people’s training, one is losing a great deal’.
In other words, being in a different league financially does not mean being a different breed.