Many law firms continue to crow about annual revenue rises while divulging few (if any) other numbers. Why they and their public relations avatars think any financial journalist worth their salt should care remains unclear. ‘Turnover is vanity, profit is sanity, cash is reality’, to quote the hoary but ever apposite business maxim.
On that premise, the sanity of those leading big City players which do publish trading figures is not in question. This year’s results season once again features a welter of inflation-busting profit increases. What more is there to say?
Well, it is instructive to rewind a decade, which brings the unprecedented boom into sharp relief. Linklaters partners earned £1m more last year than they did in 2015/16 (£2.45m v £1.45m), a 69% increase. According to the Bank of England’s official calculator, inflation has risen 41% over the same period.
The same can be said of others in what is less often referred to these days as the ‘magic circle’. Clifford Chance partners netted £2.3m (£1.23m in 2015/16) and their almost equally well-remunerated counterparts at A&O Shearman (formerly Allen & Overy) £2.2m (£1.21m).
One can understand why solicitors dependent on meagre public funding to earn a more modest crust might have mixed feelings about these numbers. And it could be that such riches come with an attendant risk. Gazette columnist Jonathan Goldsmith last week urged the City giants to focus their pro bono efforts on national legal aid needs, lest they be hit by a de facto windfall tax.
Coincidentally, it was also back in 2015/16 that then justice secretary Michael Gove proposed (and quietly dropped) a 1% turnover or profit levy on the Square Mile’s legal elite. Such a levy would yield much more for the exchequer today, which will certainly be brought to the attention of Alex Norris MP. Ending tax breaks for limited liability partnerships could come back to the table too (and we await the outcome of the government’s consultation on seizing the interest on client accounts).
It should be acknowledged that law firm trading results at the top end remain difficult to interpret fully. That is because there is no comparable data indicating how chargeout rates have changed. No one has really had a handle on this since outspoken costs lawyer Jim Diamond stopped producing his annual snapshot. Diamond averred in 2024 that ‘magic circle’ rates had doubled in 15 years.
More firms do seem to be less keen on disclosure these days. It is three years since Freshfields restricted the trading information it provides to mandatory accounts, which do not have to include PEP. If Freshfields partners are not at least £1m a year richer than they were in 2016, the C-suite will have questions to answer.
No comments yet