How have firms in the second half of The Lawyer UK Top 100 fared since the recession hit many of them so hard a decade ago? In this feature, the data shows which firms are the winners and losers in the mid-tier.
By Richard Simmons 3 June 2019
30 August 2013
Those lawyers who are active on Twitter will probably be acquainted with the ‘This is fine’ dog.
For those unaware, it is a two-panel cartoon depicting an anthropomorphised canine wearing a brown bowler hat. In the first panel, the behatted pooch sits calmly with a mug of coffee in a room that is burning down around him. The second panel is simply a close-up of the dog amid the flames as he cheerfully says, “This is fine”. The image has become beloved on social media as a commentary on Brexit, the Trump presidency and virtually any other situation where people in power prevaricate as crisis unfolds around them.
They may not reference online meme culture much, but one of the things law firm leaders do say in interviews, on the occasions where they break into full cliché mode, goes something along the lines of “in this game, you have to run to stand still”. It’s a favourite stock phrase that can be safely trotted out without fear of anyone disagreeing with it.
And it would seem an obvious truism. To quote a managing partner with a rather more evocative turn of phrase, “it’s a shark pool out there”. In the cut-throat world of business, surely it is obvious that any law firm going through a period of stagnation will quickly be overtaken – and in some cases subsumed – by rivals? The heat is rising. Sit around drinking coffee and the dog burns.
But if firms really do need to run to stand still, then exactly how fast do they need to go? And when you are constantly under pressure to move forward, how do you make sure the choices you are making about the route are the right ones?
The past decade provides an ideal petri dish for studying those questions. In that time the legal profession has undergone immense change. This feature examines the firms in the second half of The Lawyer UK Top 100 and their progress since the recession 10 years ago that hit so many of them so hard. Which ones have thrived and which have merely survived? And for those that have done well, what were the key decisions that set them on the right path?
The context: the legal profession 10 years ago
If you look at the UK’s top 20 of 2008, you will see that not much has changed in 10 years – in terms of the member firms, at least. Seventeen of the top 20 firms of 2008 are still there in 2018.
The three that have vanished are SJ Berwin (13th place in 2008; now collapsed), Denton Wilde Sapte (18th; left the UK charts following a US merger) and Irwin Mitchell (20th; now 21st).
Now look at the firms ranked between 51 and 70 in 2008. How many of them remain there? The answer: just eight. Across the wider 51-100 bracket, 24 of the 50 firms of 2008 are gone, either merging, jumping up into the top 50 or dropping out of the top 100 altogether.
This section of the market is much more fluid than the top 50, and the firms in this category are fishing boats compared to the cruise liners of the magic circle – the course adjustments they make can have far more dramatic effects, far more quickly.
However, despite the changes in the mid-tier, its size remains more or less the same. In 2008, the total number of lawyers working at UK 51-100 firms was 7,966. In 2018, the number of lawyers in the same bracket was up just 5 per cent, to 8,635. Meanwhile, the combined revenue of the 51-100 firms is now £2bn, up 14 per cent from £1.75bn in 2008. By contrast, the combined revenue of the UK top 10 has grown by 91 per cent. The biggest are much bigger; the mid-sizers, not so much.
How do you define success as a firm?
“It’s hard to be successful without financial growth, and we do look at profits for all partners, not just equity. We regularly focus our minds on the financial health of the business, but we don’t have an infinite profit aspiration. Professional success ranks very highly with us: driving our key practice areas to be recognised as leaders in the field is really what’s it’s been about since we started.”
Paul Roberts, managing partner, Forsters
“It’s a combination of things, but sustainability is a key priority for us. That means all sorts of different things relating to our people, clients, and financially and operationally. Everything we have sought to do has been done in the name of sustainability, on the basis we want to retain control of our own destiny. After sustainability comes engagement: ultimately the strength of our business is built upon strong engagement with all our target audiences; not just our people and clients but also the communities we are part of in our local areas and chosen sectors.”
Graham Street, managing partner Royds Withy King
“My definition of success would sit across the axis of culture and profit. They are the two elements of the glue that keeps the partnership and the firm together, and both of those sit on top of having the appropriate client profile. It is about making sure we are producing the profit to reinvest and attract new talent to the business while in cultural terms it is about listening to the partnership and understanding which parts of the culture they wish to grow and which they wish to leave behind. A lot of the people we recruit come to us saying they are ready to join a firm where the partners who are managing the business listen to them, where they feel they are making a difference and where they have impact on the direction of travel for the firm.”
John Westwell, managing partner, Foot Anstey
“The three things that really matter to us are sustainability, profitability, and leaving a legacy. I took over in 2013 and soon after starting went round the partnership asking what they wanted out of their firm and those were the essential themes that came out. I have taken those three main pillars and used them to define and drive what our strategic ambition should be.”
Jonathan Agar, CEO, Birketts
The mid-tier today
Looking at the firms that have featured in the UK 51-100 bracket at some time over the past decade, they can be roughly segmented into three groups: the transformers, the departed and the culture-seekers.
The first group, the transformers, are those that have set their sights on the top 50. Not content with being the size they are, they have pursued a policy of rapid – transformational, even – expansion. Many of these have outgrown the mid-tier and become, if not giants, then substantial national or City firms in their own right. They include the likes of DWF, Freeths, Mishcon de Reya, RPC and TLT.
The second group, the departed, is made up of firms that have vanished altogether, usually swallowed up by a larger outfit. They include Finers Stephens Innocent (FSI, with Howard Kennedy), Manches (with Penningtons) and Thomas Eggar (which merged with Irwin Mitchell).
The final group, the culture-seekers, are in many ways the most interesting: they are the avowed members of the mid-tier. Most of these firms have expressed a desire to remain independent: neither to be subsumed into a larger firm nor to grow into a national giant with tens of offices and hundreds of partners. Broadly speaking, they like their culture the way it is and wish to preserve it.
But in a market that is always changing, simply keeping things the way they are can be a recipe for disaster. The most successful mid-tier firms have realised this. They have moved with the times, expanded where necessary, but kept sight of their vision of what they want to be.
Revenue growth at London mid-sizers between 2008 and 2018
|Harbottle & Lewis||+102%|
|Farrer & Co||+71%|
|Bircham Dyson Bell||-5%|
Are we living through difficult times?
Others, however, have stood still or even dropped back in the field. Revenue and PEP have actually fallen, sometimes pushing them out of the top 100 altogether.
So why have some firms faltered while others have thrived? “I don’t think there has ever been a more difficult time to be in business,” says Graham Street, managing partner of Royds Withy King.
“In many respects it’s a perfect storm: we have ambition matched by our competitors right across the profession, a war for talent as we seek to resource our growing businesses. We have clients’ expectations rising quickly based on emerging technology and pressure on pricing. Then at the macro level there are issues of global mobility, distribution of wealth and changing values, distrust of people in positions in leadership, an ageing demographic and new technology. Put all those things together, you need a clear head and a clear sense of purpose to navigate safely through.”
Graham Street, right
Few would disagree with that list of challenges facing the profession – but not everyone agrees with Street’s conclusion that the market is an especially tough one. Like many regional firms of its size, East Anglia’s Birketts sells itself on the promise of ‘London quality at regional prices’ but CEO Jonathan Agar argues that despite the competition, bringing in work is not hard. It gets about a third of its work straight out of the City. “London is a massive market,” Agar says.
“We go there and sit alongside the likes of BCLP and Eversheds. Those firms are looking globally; they want multi-jurisdictional, highly complex interdisciplinary work. They are no longer looking down [for the type of work we are after]. So I don’t think it’s a particularly difficult market. I often go to London and every time I come back with work.”
The data also suggests that you don’t need to run that hard to stand still in this market after all. Back in 2008, a firm with a revenue of £40m would have placed 68th in the UK 200. In 2018, revenue of £40m put Kingsley Napley in 72nd. Similarly, £21m was enough to squeak Sacker & Partners into the top 100 a decade ago. Ten years later, Thomson Snell & Passmore’s £21m places them 115th. In other words, very modest revenue growth – less than 3 per cent per year – would have been enough for a firm to maintain its place in the top 100 over the past decade.
But some firms have not even managed that.
Frog, not dog
The data shows that, in revenue terms at least, the house is not burning down. The shark pool isn’t full of man-eaters after all.
It is possible for a firm to broadly maintain its position in the market without piling on too much in the way of growth.
And that is the reason why a number of firms have been able to get away with drifting. “It’s the boiling frog. It creeps up on you – you don’t realise the temperature is rising,” says Capsticks managing partner Martin Hamilton. “When your market conditions are staying more or less the same year-on-year, it’s easy to think you should keep doing the same thing. ‘We are doing a great job, we are providing a market-leading advice to our clients, clients come to us, we don’t need to change.’”
Frog, not dog: there is no financial crash burning the house down, but it doesn’t mean the heat is not rising.
Have faith in what you’re good at
When looking at the group of firms that can be classed as success stories of the past decade, one thing stands out: the triumph of the single-office London outfits. There is clearly still plenty of room in the UK capital for the smaller specialist firms. The media boutique Harbottle & Lewis; the IP specialist Bristows; private client and property-focused Farrer & Co, Forsters and Wedlake Bell; even public sector-facing Capsticks – all have recorded revenue growth of more than 50 per cent in the years since the recession.
To be sure, not every London firm of a similar size has stayed the course. Davies Arnold Cooper, FSI and Speechly Bircham and have all merged into larger firms. Bircham Dyson Bell, meanwhile, has endured a decade of drift and finally merged with a smaller firm, Reading’s Pitmans, at the end of 2018. The majority have prospered, however.
Forsters of the West End is a classic example of a firm that has no aspirations to be a UK giant and that has managed to develop and thrive without losing hold of its core values. A relative youngster in London’s legal market, its old-school attitude to remuneration and financial management has played a key role in its success. The firm has seen a 133 per cent increase in revenue and a 54 per cent increase in profit per equity partner since 2010.
Over the course of the same period it has risen 29 places in The Lawyer UK 200, placing 61st last year.
What is notable is that it has seemingly been done with no particular change in strategy since it was founded in 1998. That was the year 10 partners split off from Frere Cholmeley Bischoff ahead of its impending merger with Eversheds, taking the name Forsters from John Forster, a Frere Cholmeley founding partner of the 1700s.
Since its inception, Forsters has remained focused on its core areas of private client and property. It has been approached for mergers and turned down all comers. Headcount has risen, but the firm remains housed entirely in one Mayfair townhouse, eschewing the chance to open internationally or elsewhere in the UK. The most dramatic influx of hires was the arrival of 19 private client lawyers, including four partners, from Gowling WLG in 2017. Otherwise, growth has been organic, with partners arriving in ones and twos.
Forsters’ story is testament to the fact that forward motion is not always driven by radical change. Indeed, staying the course when change seems necessary can pay off.
“One of the toughest decisions we made was backing ourselves through the financial crisis of 2008/9 to be a strong real estate firm,” says Paul Roberts, the firm’s managing partner since its foundation. “We didn’t slash associate or staff numbers; our focus was on bearing the pain and protecting our people.”
Indeed, The Lawyer UK 200 from those years show lawyer numbers at Forsters dropped by just two between 2008 and 2010. Likewise, Roberts says, “private client has gone in and out of fashion in the past 20 years, with firms getting rid of their teams before realising overseas wealth is an incredibly lucrative opportunity”.
Roberts and his senior partner Smita Edwards – another of the firm’s founders – cite Forsters’ commitment to a lockstep profit system as a key differentiator in the market. “It attracts people who are attracted by working together, something that is missing in many firms,” Edwards says. “When there is internal cohesion, people start to share, trust and innovate; conversely, when partners don’t feel secure of their future and how much they are going to earn, negative traits creep in. It’s bad enough trying to get clients without competing against your own partners.”
“Many of the law firm failures we have seen in recent years have come down to a lack of a sense of ownership in the partnership, with individuals ceasing to feel part of a collective,” Roberts adds. “There have been firms where we have been surprised by the state they have got themselves into.”
If the lockstep system keeps the partnership in order, financial success is built on “aggressive team targets” along with “close oversight of our profit margin”, and recruiting the right people. The firm unashamedly positions itself as a high-end offering.
“Professional success ranks very highly with us: driving our key practice areas to be recognised as leaders in the field is really what’s it’s been about since we started,” says Roberts. It is not a dramatic approach, but it is one that has worked.
No risk, no reward
Forsters has prospered without a radical change in strategy, but then it is in a fortunate position. Granted, it has concentrated on getting its culture and its financials right, but it takes on high-end work for a high-end client base, many of whom are individuals. It is not completely recession-proof, but does sit in a strong position. To labour the analogy somewhat, this frog has a perch well above the cooker.
Like Forsters, Capsticks has stayed true to what it is good at, but unlike Forsters it has branched out into new areas and geographies. It was a necessity: the disruption of the recession was temporary for Forsters’ real estate and private wealth clients, but it was a different proposition for a healthcare firm that acted mainly for the NHS.
“The crash of 2008 was much more significant for us than Brexit,” says Capsticks’ senior partner Rachael Heenan, “because it was the exact point at which the rates for public sector work stopped going up, and, if anything they have gone down in the last 10 years.”
Capsticks recognised early on that that it would be a victim of the long, slow temperature rise if it simply stayed as it was. It took steps to diversify; it opened in Birmingham in 2009 for one client based there – the Heart of England Foundation Trust – followed by Leeds and the south coast.
It also took steps into new practice areas, notably housing. The result: revenue has doubled from £19.5m to £38.3m and, after a wobbly few years, average PEP is up despite the decade-long freeze in public sector rates.
The woes faced by the public sector served as an alarm bell for Capsticks. Not all firms have the same early warning system – or possess the appetite to change.
“The legal profession sees risk first in everything. It will always articulate very clearly the reason not to do something,” says Birketts’ Agar. It’s natural; if a client is making a transaction asking for advice, they want to know all the things that could go wrong. But actually, business is all about risk and lawyers can sometimes forget that risks are things which may occur, but also may not occur.”
The Independents: firms to watch
Just outside the top 100 lie a host of smaller firms. Here are some of the biggest risers in The UK 200: The Independents over the past few years.
While Walker Morris and Gordons have both found the going tough over the last decade, there is still plenty of opportunity in the Leeds market. One firm in the city, Clarion, has been the outstanding performer in the Independents over the past five years, with revenue shooting up from just £7.6m in 2013/14 to £14.5m in 2017/18. It has pursued an organic growth strategy, and managing partner Roger Hutton says two revenue streams have contributed to the turnover rise: acting for owner-managed businesses on all aspects of their activities; and providing low-cost services to corporates. Meanwhile, fellow Leeds firm Shulmans is performing well despite the competition provided by the influx of national firms.
Despite a 24 per cent turnover rise in the last financial year, managing partner Tim Halstead says Shulmans does not chase revenue growth. Rather, through careful planning, he is aiming for the firm to grow organically across the board.
Roger Hutton, Clarion
A number of boutiques are also doing well. Media specialist Wigginis now in 103rd place, up 30 on 2008, with a strong run of results over the past four years adding £10m to revenue. Meanwhile divorce and family law firm Vardags, founded in 2005, has expanded rapidly and last year brought in £14.2m, up 48 per cent from less than £10m the previous year. Founder Ayesha Vardag believes consistent double-digit growth is possible.
In the past couple of years Vardags has been growing both geographically and in terms of the services it provides. It has branched out into media and sports law, and now has offices in Cambridge, Manchester, Newcastle and Winchester as well as London.
Royds Withy King: merging conservatively
The best kind of risk is, of course, calculated risk, and this is the kind taken on by South of England firm Royds Withy King. It has gone through three mergers in the past decade. The first two, with Swindon’s Lemon & Co and Oxford’s Whetter Duckworth Fowler, added around £2.4m to revenue and went through in quick succession. The third was more substantial and came in 2016 with £7m firm Royds.
Prior to these strategic moves, legacy firm Withy King was, if not in the doldrums, then not setting the world alight. Revenue flatlined at around £16m between 2012 and 2014. Since then, however, things have changed. The mergers added around £10m to turnover; another £7m or so has come through organic growth to give Royds Withy King revenue of £35.8m in 2017/18.
Despite its mergers, Royds Withy King is not in the same league as firms that have pursued an aggressive expansion strategy, such as Freeths or DWF.
“I think the fact we’ve merged several times reflects our ambition, but the number of them and their profile have in some respects been quite conservative, or perhaps opportunistic, and have fitted with our overarching strategy,” argues Street.
“It’s not that we have lacked ambition, but there is a lot at stake and we have wanted to take care to protect things that are of most value to us.”
Withy King’s overarching strategy in the past decade was to expand geographically to reach a critical mass that allowed it to retain control of its own destiny. “I don’t think merging was critical to our survival – there are many firms with similar practices in our locations who haven’t done so,” says Street, “but those firms haven’t developed their capability and in terms of longer-term sustainability they remain vulnerable to an ever-consolidating market.”
That lack of critical mass is perhaps the reason that Bircham Dyson Bell has flagged over the past decade. It is well known for its longstanding ties with government and a focus on parliament, public law and planning. As such, it gets mandates on large projects such as HS2, for big clients like Network Rail and Transport for London. They are certainly impressive, but inevitably engage the firm in a procurement process which giants such as Pinsent Masons and Eversheds can handle with ease but which is painful if you have not got scale. The firm is belatedly trying to beef up and diversify, taking on King & Wood Mallesons’ Cambridge real estate team for a launch in that city in 2017, and merging with Thames Valley firm Pitmans a year later.
As at Forsters, Street cites cohesion in the partnership as an important factor in Royds Withy King’s success. “We are very united about what we want to achieve as a business; there is no infighting over our appetite to invest, and we have a solid financial platform that allows us to make the right decisions that others are not able to make.”
He adds that the firm has been “fortunate” in that the members of the partnership are all relatively young and so are not looking to maximise their incomes over the short term.
“That is not because of anything in particular we’ve done, but the growth in the size of partnerships can certainly bring about challenges if there is not a good alignment of interests among its members.”
Birketts: the power of a CEO
In the late 1990s, Ipswich firm Birketts had an ambitious set of partners faced with a conundrum. Following a 1989 merger it had unquestionably become the town’s leading firm, but it felt it could go further and dominate the whole of East Anglia. But how to go about it? The partners took what at the time was a bold and unusual decision.
They hired a CEO to lead them. Alistair Lang joined from Bank of Scotland in 2001, and to make sure he was no flash in the pan, the partners enshrined the position properly, setting up a structure that defers power to the CEO. It is a structure that remains in place today, with only a few tweaks. Executive decision-making resides with the CEO and board, save for five things: the opening of new offices; mergers and acquisitions; the appointment of new partners; the appointment of the CEO; and the appointment of the senior partner.
“Letting go of control was a massive shift and the partners were lucky in that they chose the right person who did it well and gave it credibility,” says current CEO Jonathan Agar, who replaced Lang in 2013. “I took it over when it was completely established.”
Does every law firm need a CEO? Agar stops short of recommending that, but says: “I would be a really big advocate for firms seeing themselves as a business first. You can run them in different ways but I recommend devolving the decision-making, making it cleaner and clearer, and then holding the leaders accountable. Some partnerships still think that a partner is someone who has a say in everything.”
Where has it gone wrong?
Enough of the success stories. Who has failed to keep up over the past 10 years?
There are a number of firms that still exist – and in many cases are still perfectly profitable – but nonetheless have drifted. In London, Bircham Dyson Bell is the firm that stands out, but there are many more in the regions. There are a handful of firms where revenue has been more or less flat – Brabners, DMH Stallard and Hugh James – but only four have seen revenue actually decreasing.
Howes Percival has never really looked the same since losing the bulk of its Milton Keynes corporate division to Dentons in 2008 and has sunk from 95th to 118th in the UK 200.
Clarke Willmott is larger, but its revenue has declined by £6.5m over the course of a decade, now standing at £46.7m.
Meanwhile, two Leeds firms still enjoy enviable partner profits in the face of declining revenues. Average PEP at Gordons stands at £522,000, fine by the standards of its peers but still 18 per cent down on 10 years ago. Meanwhile, average PEP at Walker Morris is £406,000, a 39 per cent decline on 2008. At both firms revenue has fallen – by £4.3m over a decade at Walker Morris and by £5.2m at Gordons, seeing it plummet from 98th to 142nd in the UK 200.
While the tactic has so far paid off for Withy King, a merger does not necessarily solve a firm’s essential problems. “A long time ago I was a corporate finance partner,” says Browne Jacobson managing partner Iain Blatherwick. “What that taught me is how difficult it is to make mergers succeed. The hard work really starts after the lawyers hand it back to the client. We would never do a merger just to bolt on turnover: it would have to make us strategically stronger, but equally as important it would have to be a cultural fit.”
One merger that does not look so clever is Blake Lapthorn’s tie-up with Morgan Cole, now five years old. Neither firm was performing exceptionally at the time: Blake Lapthorn had endured years of little to no revenue growth, while Morgan Cole’s turnover fell rapidly in the last two years of its life.
Their combination has done little to spark growth. Blake Lapthorn has merely been transformed from a flatlining £50m firm into Blake Morgan, a flatlining £75m firm. Will an uptick come as the merger beds in and efficiencies are made? Perhaps, but a top line of £74.9m, £74.5m and £73.3m over the past three years hardly looks like a firm that is making strides quickly.
When managing partners are asked how firms lose their way their answers naturally reflect their own experiences and values. For professional CEO Agar, it is all about not truly comprehending the business of law. “I think the lawyers at some of the less successful firms understand the law fantastically well but don’t really see their firm as a business. They talk about the fundamentals of their margin and their growth, but they don’t really deliver on it,” he says.
For the leaders at Forsters, it’s about culture. “Quite a lot of the failures come down to a lack of a sense of ownership in the partnership. It’s bad enough trying to get clients without competing against your own partners as well,” says Roberts. “We have aggressive team targets, but discourage sharp elbows.”
Street, meanwhile, running a firm that has deliberately worked to reach critical mass, sees a reluctance to make the big calls and put in the hard yards as the thing that leaves some firms withering on the vine.
“I think the profession has got some big challenges and its biggest challenge is itself,” he says. “To be successful in anything other than the short term, you need to be committed to investing in your people and your clients, and a lot of firms have either restricted ability or a limited appetite for that. You either invest – or you accept the inevitable consequences.”
Past 10 years: who’s up and down in the UK mid-tier?
|Entered the big-time||UK 200 rank change since 2008||Revenue change (£m)||PEP change (£k)|
|Penningtons (Manches)||Up 34||47.7||310.0|
|Mishcon de Reya||Up 30||114.2||260.0|
|Regional success stories|
|Royds Withy King||Up 142||35.8||229.5|
|Harrison Clark Rickerbys||Up 77||30.0||158.0|
|Veale Wasbrough Vizards||Up 42||20.0||104.0|
|Foot Anstey||Up 38||24.0||250.0|
|Browne Jacobson||Up 23||38.2||67.0|
|Stevens & Bolton||Up 17||9.7||190.0|
|London success stories|
|Harbottle & Lewis||Up 34||17.9||459.0|
|Lewis Silkin||Up 21||23.5||-5.0|
|Farrer & Co||Up 15||26.4||87.4|
|Wedlake Bell||Up 9||11.7||110.0|
|Howard Kennedy||Up 6||9.3||-334.3|
|Blake Morgan||Up 6||22.6||36.3|
|Ward Hadaway||Up 5||7.5||-123.5|
|Sacker & Partners||Up 3||6.0||-64.0|
|Bevan Brittan||No change||2.3||234.0|
|Hugh James||Down 2||1.5||59.0|
|Dropping down the rankings|
|Walker Morris||Down 7||-4.3||-264.1|
|DMH Stallard||Down 8||4.4||80.0|
|Clarke Willmott||Down 10||-6.5||-82.0|
|Bircham Dyson Bell||Down 11||-1.8||-88.0|
|Howes Percival||Down 23||-1.8||-429.0|
|Watson Burton||Out of top 200|
|No longer with us|
|Bond Pearce||Merged into Womble Bond Dickinson|
|Speechly Bircham||Merged into Charles Russell Speechlys|
|Davies Arnold Cooper||Merged into DAC Beachcroft|
|Thomas Eggar||Merged into Irwin Mitchell|
|Manches||Merged into Penningtons Manches|
|Russell Jones & Walker||Acquired by Slater & Gordon|
|Morgan Cole||Merged into Blake Morgan|
|Martineau||Merged into Shakespeare Martineau|
|Finers Stephens Innocent||Merged into Howard Kennedy|
|Pannone||Merged into Slater & Gordon|