Magic circle under pressure as Americans lead UK market
As universities return for the new academic year, the nation’s law faculties are buzzing with excitement at the whopping trainee and newly qualified (NQ) solicitor pay packages being handed out by the increasingly powerful London offices of US law firms.
But what is really getting wannabe lawyers going is a feeling that they might actually get their hands on some of this money.
These hyper elite American outfits — which used to just hire a handful of graduates each year — are bulking up their UK trainee hiring. In this year’s 2015-16 recruitment round flashy American White & Case, which pays NQs £90,000, is recruiting more UK trainees than City stalwart Simmons & Simmons following a 34% graduate hiring increase. Latham & Watkins (NQ pay: £101,000), Sullivan & Cromwell (NQ pay: £101,500), Shearman & Sterling (NQ pay: £88,000) and Akin Gump (NQ pay: £100,000) have all also boosted trainee numbers.
Unnerved by the interest being shown in these firms, magic circle quintet Clifford Chance, Freshfields, Slaughter and May, Linklaters and Allen & Overy have ratcheted up their NQ wages to around the £70k mark. The latter firm has gone even further, and is now paying its NQs just shy of £80k.
Meanwhile, other leading firms, like Hogan Lovells, Norton Rose Fulbright, Herbert Smith Freehills and even plucky Travers Smith, have boosted their wages to similar levels — creating a cluster of big-paying global megafirms sitting beneath the US aristocrats.
A few years from now, you get the impression that the “magic circle” moniker — arguably already past its sell by date despite continued popularity with students — could be rendered altogether meaningless.
Below this lot you have the international middleweights. This spectrum of firms includes the likes of Berwin Leighton Paisner and CMS Cameron McKenna and Wragge Lawrence Graham & Co. Snapping at their heels are ambitious regional outfits like Burges Salmon and Bond Dickinson, which could upset this group a few years down the line with business models that minimise high London costs.
Put it all together and what you are seeing is the creation of three distinct tiers — which break down as lawyers progress up these firms but are increasingly defined for students, trainees and NQs. It is these new categories which define the 2016 Legal Cheek Careers Firms Most List, which is launched today.
The US hyper elite
At the top of the junior lawyer pay tree alongside SullCrom sits the London office of Californian firm Latham & Watkins, Washington DC-based Akin Gump and New Yorkers Davis Polk. They are joined up in the clouds by Skadden, Kirkland & Ellis, Weil Gotshal & Manges, Cleary Gottlieb, White & Case and Shearman & Sterling.
What is most remarkable about this lot is not that they pay graduates £50,000 straight out of university, or that they double this money two years later. Rather, it’s that they are hiring in much greater numbers.
The aforementioned White & Case has boosted it graduate intake this year by a whopping third from 30 to 40 — taking it above many established City players. Latham & Watkins, meanwhile, has quietly increased London trainee numbers from 20 to 24. That puts it in line with Anglo-German firm Taylor Wessing and ahead of substantial English players like Osborne Clark and RPC.
Trainee numbers have also risen of late at Sullivan & Cromwell, Shearman & Sterling and Akin Gump.
Do you have to put your nose to the grindstone to earn this sort of wedge? Yes — while most of these firms insist that they have no hours targets, the ones which are open enough to admit that they do set them just shy of 2,000 chargeable hours per year, which obviously doesn’t include the downtime tasks which make up the majority of many office workers’ days.
Kirkland and Latham lead the way with annual hours targets of 1,900. Junior solicitors at these firms don’t see their friends very much.
But, let’s be honest here, nor do junior solicitors in the magic circle and other megafirms. And finally after years of being hoodwinked by tales of the supposed civilised nature of leading English firm life, students are twigging that the early years of high-end corporate law are a dog fight — wherever you practice.
With the magic circle myth on the wane, it is the global megafirm group into which CC, Freshies, Slaughters, Links and A&O are sinking. In contrast to the US firms, training contract numbers for these firms are flatlining following sharp falls during the financial crisis. Training contracts across the magic circle are still down as a whole by roughly 20-30% since the 2008 financial crisis.
Freshfields is an interesting case study. Trainee and NQ pay at the firm these days is less than Hogans, NRF and HSF, while the 80 training contracts it offers is only five more than Pinsent Masons. What’s so magical about that?
Which is not to say that this is a bad place in the market to be. You earn over £40k as a trainee, you might hit £70k as an NQ, you do intellectually challenging work accompanied by lots of people who are clever like you. And if you’re really tough you claw your way up to becoming a millionaire partner.
Certainly, once you reach the mid-level associate ranks you’ll be every bit the equal in lawyer terms as someone who has trained at a leading US firm. Hell, you might actually be better, with the magic circle’s reputation for quality of training still holding true to an extent.
But for students who more than ever look at a training contract + two-year stint as an associate as a kind of elite Masters-style finishing school, long term prospects are becoming less and less relevant. By the partner promotion stage many of these kids imagine that they’ll be running some tech start up in east London, or perhaps running for prime minister, rather than still slogging it out over the minutiae of deals.
And if you’re not going to hang around for long — and possibly need to save up to fund your future world domination plans — why settle for anything than the best rookie lawyer money?
For the above mentioned financial reasons, this isn’t where most students start wanting to be. Instead, they arrive at firms like Eversheds, DLA Piper and DWF through some kind of compromise — a recognition that their academics are not ultra top notch or a realisation that their interview performance isn’t as silky smooth as some. Of course, it’s all relative here: anyone who makes it this far is, compared to most graduates, still usually very good.
Pay at these outfits has stagnated for the last few years, with any rises in the 2016 Most List in the £2-3k category, rather than the £20k jumps we have seen at some US firms’ London offices.
Some of these firms still haven’t even cracked the £60,000 mark for NQ pay — and partly as a result suffer consistently disappointing new qualifier retention rates. Yet the firms’ decision-makers are unwilling to enter into a pay war with megafirms because they know that ultimately it will be unsustainable.
Meanwhile, training contract numbers have bobbed up by a handful at some firms, and dropped by a few at others, but remained largely the same. Expect a widening chasm to develop over the coming years between some of these firms and the rest.
Ironically, though, it’s from this third tier that many top lawyers of the future may come. As the wannabe tech entrepreneur and politicians who populate a high proportion of the intake of US and global elite firms flit off to try new careers in the years ahead, it will be the solid plodders at the middleweight firms who become some of the City’s most experienced solicitors. Assuming the business model holds up, it could pay to be a middleweight lifer.
But that business model assumption is a big one. Looking ahead, the firms to watch could be the ambitious regional ones, which tend to be streets ahead in terms of innovation than their London counterparts. So the many, many law students who miss out on glamorous City training contracts shouldn’t despair.
In cities like Manchester and Bristol these young lawyers will spend their formative years immersed in unpretentious environments where an efficient, process-driven approach to some aspects of legal work is seen as a good thing. At the same time, they’ll learn to recognise what sort of work can’t be sliced up and given to paralegals. And provided they can avoid sinking into paralegal purgatory themselves, they’re in for some fantastic experience on the frontline of legal market innovation.
As these firms’ lower cost models see them strengthen, and start to challenge the middleweights and even the megafirms, don’t bet against the outsiders who came through this route one day ending up as the equivalent of today’s hotshot City partners. For now, though, they need to be patient — and not get too depressed looking at the money section of the 2016 Most List.