Analysis

Does size matter for law firms?

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The City Insider puts the data from 2023 Legal Cheek Firms Most List into context

A glance at Legal Cheek’s recently released 2023 Firms Most List offers aspiring lawyers a range of different stats from trainee numbers and salaries to average leaving times and rookie retention rates.

It’s understandable that with over 80 firms on the list, your mind can be somewhat overwhelmed by all this information. But it’s also hard to grasp exactly what this means for you and how to properly understand these figures in context.

The most obvious trick is failing to put the trainee and newly qualified salaries into context with the average leaving times. It’s worth wiping away the tears after seeing the eye-watering sums and asking yourself how baggy-eyed will you be. All lawyers work hard. But make sure you are comfortable with the sort of ballpark you are going to put your work/life balance into. Another useful statistic in this area is the ‘most target hours’ criteria which will give you an indication of how many hours you will need to be doing billable work every year, if a firm imposes such a target.

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Of course this all comes with the caveat that will be apparent when you read any one of the firm profiles, that everything depends on your seat, supervisor, the firm’s work culture and the reality that workloads come in peaks and troughs. In addition, the firms with the highest pay may not have the practice area you are interested in, the secondment opportunities you really want, or the most prestigious training in the market (though that last one you can decide for yourself). In short, the size of the salary isn’t everything.

Profit per equity partner (PEP) is always a tricky statistic to comprehend. The reason is that a key bit of information is missing: how many partners in a firm’s partnership are actually equity partners and how many are salaried. Freshfields, Linklaters, RPC, and Slaughter and May are all reported to have over 90% equity partners, meaning that these firms’ gross profits are shared amongst almost everyone with the title of partner. Other firms also have high proportions of equity partners. But it is striking that these firms are not the ones that score the highest on PEP.

% of equity partnersFirm
>90%Slaughter and May,Freshfields Bruckhaus Deringer, Linklaters, RPC
70%-90%Allen & Overy, Burges Salmon, Clifford Chance, Herbert Smith Freehills and Taylor Wessing

These US firms are at the top of the charts for PEP precisely because they are very guarded about expanding their equity partnership. Operating a much more two-tiered partnership whereby there are a large number of salaried partners, often handing promotions to the rank of salaried partner earlier in your career should not cloud the reality. It is for this reason that using PEP figures to make claims about profitability can be deceptive — a better measure is revenue per lawyer.

RankingTop 5 UK firms by PEPTop 5 US firms by PEP
1Macfarlanes (£2.48 million)Kirkland & Ellis (£6.03 million)
2Freshfields (£2.07 million)Davis Polk & Wardwell (£5.91 million)
3Clifford Chance (£2.04 million)Sullivan & Cromwell (£5.27 million)
4Allen & Overy (£1.95 million)Latham & Watkins (£4.65 million)
5Linklaters (£1.87 million)Debevoise & Plimpton (£4.14 million)

Another point that is commonly overlooked is how a law firm is structured. Most will be Limited Liability Partnerships (with the notable exception of Slaughter and May which remains a general partnership). This means that, from a business structure perspective, the firm is very much one firm that shares profits and costs. So, the size of partners profits does not necessarily tell you straight away which firms are the most profitable and what you might earn and how long it might take you to become an equity will depend on how the firm structures its partnership.

However, there are some firms which have adopted a Swiss Verein structure. This model, which is used by large international organisations like Amnesty International and FIFA, enables various different business entities to all share branding but little else. Whilst management styles of Swiss Vereins vary, finances are kept completely separate between the various entities (companies, LLPs and so on) included in the structure.

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This should matter to aspiring lawyers because it changes the meaning of the size of some law firms. Unsurprisingly, owing to the Swiss Verein’s flexibility, many of the law firms with the largest number of offices working in the most countries are Swiss Vereins. Baker McKenzie was one of the first firms to adopt this structure back in 2004, whilst other notable Swiss Vereins include Dentons, Norton Rose Fulbright and DLA Piper which saw them climb the various rankings and stand out to students because of their size.

But whilst you may think you are heading to a firm that does lots of international work, the fact that the offices are all separate may mean that there are barriers to referring work between the different entities. These firms certainly do lots of international work (you might even have the chance to jet off to some particularly exotic locations on secondment). But they are not always as much of a single firm as you might think.

This point brought sharply into perspective the collapse of King & Wood Mallesons’ European arm in 2017 with a former partner partly blaming the Swiss Verein structure for apparently fostering division in the firm, and this year’s $32.2 million malpractice verdict in the US against Dentons over a conflict of interest between Dentons’ US and Canadian branches. In short, you have to work a little harder to find out the extent to which a Swiss Verein is really ‘one firm’.

Take, for example, Hogan Lovells which adopted the Swiss Verein structure in 2010. A spokesperson for the firm earlier this year went public to say “we never found it necessary to use it”. They added: “It wasn’t needed for the combination [Hogan & Hartson merged with Lovells in 2010] and has always been dormant and does not cover any part of our operations either now or in the past”. The firm in reality operates like any other LLP and its partners from across its offices across the world all vote on management issues. Furthermore, it’s always worth checking which types of law are practised in these offices — some firms operate outposts in foreign countries that only practise English law.

These are three examples of why picking law firms by virtue of the fact that they top the charts on a particular metric can be dangerous. As we have seen, size in terms of pay, PEP and the number of offices and countries that a firm operates in all merit further scrutiny and an analytical eye. For this reason, comprehending these metrics is essential to understanding a law firm and ensuring that you can be as informed as possible when scrolling the Legal Cheek Most Lists and deciding where to start your legal journey.

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16 Comments

Pinsent Masons NQ

It’s not about how big it is, it’s about how you use it.

(26)(1)

CMS Nabarro OlsWANG

Okay little guy.

(20)(3)

Kirkland NQ

What is a Pinsent Mason? Can you help install an Italian marble floor in my Chelsea townhouse?

(33)(8)

Anon

Worth mentioning most of the MC firms have now been forced to move away from lockstep to try and retain their top PE/lev fin partners and hire laterals stateside (e.g. freshfields paying 10m usd for top hires and 4/5m gbp to top London partners)

(12)(0)

Anon

Help. I have an MC TC offer and a elite US TC offer. Second one has ridiculously high pay, but I am worried the training won’t be as good. Most people are saying go MC, then you can always move. But, what if the lateral market dries up? And also, why start somewhere without a long term plan to stay anyway?

(2)(3)

ck 1

depends who the “elite” US firm is. and what area you want to qualify into. MC gives more options for the future (moving in house, moving to a us firm, moving to a uk firm, boutique). US will give you the ability to bounce between US shops for eternity.

(20)(0)

Anon

Thanks for your response. It’s one of the more well-established US shops in the U.K., so not one of those that has an intake of 2/3 trainees.

Think along the lines of KE/Weil/Latham/Skadden. I am still unsure of what I want in the future, so perhaps MC is the better option. But given that US firms are gaining market share like crazy, by the time I qualify as an NQ would they not have reached MC level (or near it) anyway?

(4)(1)

Anon

U.S firms wont take market share of the lower value more niche areas. They will only take market share of high value, mainly finance / corporate related work. If you are happy to operate within the sub categories of those areas, go U.S. If you are totally clueless on what area you might like then go MC

(13)(0)

KLAXON

Bless your heart fresher, so eager, so naive.

(7)(13)

Comment above me is stupid

@klaxon there is nothing ‘fresher’ about this. Seems like a student (who is clearly very able having secured two offers) and is genuinely curious.

People like you (who probably actually are freshers) are what ruin this website’s comments section – spamming ‘okay fresher’ to absolutely everything and pretending to be equity partners at K&E.

Anon

If the lateral market dries up completely that would mean we are in a full blown recession and you have just as much change of not being retained by that US firm or sacked as an associate. Even then you could qualify into an area like R&I that is recession proof and would have high lateral demand in a counter-cycle.

(8)(0)

Anonymous

I would go to MC just for the quality of training and the breadth of practice areas – you may find you like an area of law that you would not have had the opportunity to qualify into at a US firm

(4)(2)

Anon

If the lateral market dries up that rather suggests the whole market has dried up – I’m not saying MC is an absolute safe job in that scenario (see ‘08-09) but I would fancy my chances much more there than at a US firm. The US London market has absolutely exploded since the last financial crisis, I would bet decent money they will shed lawyers like crazy when the next one rolls around.

(6)(0)

Ass

There’s really no reason not to train at an MC firm if you can. US firms’ mid level associates are disproportionately MC/SC laterals because they’ve had the best training. As for money – really the only reason to go to a US firm – you have more than enough money as a MC NQ and can always move later.

It’s much like university – you wouldn’t go to Hull over Oxford just because Hull gave you a scholarship. So why would you get yourself sub standard training in the profession you want to do for the rest of your life just for a bit more money in your early twenties?

(2)(1)

Random passer by

What a rubbish analogy. So the US firm offering the full scholarship is Hull then?

I think a better analogy would be if a kid was looking to qualify as a solicitor in London and had to choose between a BA from Harvard/Yale on full scholarship (US firm) or a BA in Law from Oxford (UK Magic Circle). Both equally prestigious and will get you where you need to get to. However one will be more comfortable for a British born and raised youngster and will better prepare you for the role after 3 years, but the other could be life changing and will expose you to things at high level that you otherwise may not experience. Even that doesn’t sit perfectly but probably more accurate than your rubbish.

(4)(3)

Sensible

It’s one of those lazy stereotypes that’s MC has amazing training and US firms are just full of cowboys flying by the seat of their pants and shouting about “learning on the job”.

It’s a relic of the time when even the biggest US firms had only 50-100 people in London, whereas now K&E has over 400 and I expect LW has more than that.

For the firms you listed, I wouldn’t put Skadden in the same bracket as K&E, LW and Weil. Skadden’s London strategy hasn’t succeeded over the last 15 years and their reliance on Russian clients is obviously not a winner for the foreseeable future.

If you think you want to be a transactional lawyer working in PE, finance, restructuring or funds, you’re likely better off at a US firm. If you want to be a litigator or advisory lawyer, MC is probably still a better bet.

(10)(2)

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