The top 50 law firms in the UK can look back on a good financial year. Combined revenues grew by 7% to £13.7 billion, while the total number of lawyers and staff grew on average by 2%, taking the firms’ total to over 75,000 employees. With revenues of over £1 billion Clifford Chance, Freshfields Bruckhaus Deringer, Linklaters and Allen & Overy lead the pack in terms of market share.
Every year business advisory firm Smith & Williamson conducts research into the key developments at the top of the UK’s law industry. This year’s study, performed in collaboration with Legal Week, looks into the key financial developments of law firms, including fee income, operating profit, profits distributed to partners and staff, employees and cost base. The 50 largest law firms are included in the so-called ‘ Top 50 Law Firms’ ranking.
The analysis reveals that UK’s top 50 law firms have a combined revenue of £13.7 billion, realised by a workforce of just over 75,000. Slightly more than the half of employees serve as fee earners (lawyers), with 48% operating as staff and back-office. The top 3 firms hold 43% of the top 50 market, while the top 10 law firms amounting for 63% of the £13.7 billion pie. Vis a vis the previous year performance in the law industry has been solid, with fee income up 7% and operating profit up 11% on the back of further efficiencies realised throughout the industry.
With more than 5,600 staff and a revenues of just under £1.4 billion Clifford Chance can yet again call itself the largest law firm of the UK. Clifford Chance is trailed by Freshfields Bruckhaus Deringer, Linklaters and Allen & Overy – all with revenues of over £1 billion – and Herbert Smith Freehills, which made a massive leap up the ranking following a 70% jump in fee income. The top 10 is completed by DLA Piper, Hogan Lovells, Ashurst, Norton Rose Fulbright and Eversheds. All ten players managed to book an increase in fee income, with the exception of DLA Piper (although its operating profit did rise), with five of the ten doing so with a smaller employee base.
The next 20 largest law firms includes several big names such as Macfarlanes, Simmons & Simmons, Bird & Bird and Clyde & Co. With a 32% increase in fee income DWF is the second fastest grower in the list, following Herbert Smith Freehills, which saw its income explode by a staggering 70%. A comparison of the ratio between fee income and number of employees reveals the different business and pricing models applied by the law firms, with Macfarlanes for instance earning £11 million more than Kennedys Law with less than half the number of employees.
While the economic environment may be more benign than it was a short while ago, Giles Murphy, Partner at Smith & Williamson and one of the authors of the study, says law firms find themselves at a crossroads. On the one hand they are reaping the benefits of a recovering global economy, and in some segments demand is once more flying high (e.g. Mergers & Acquisitions). At the same time, the industry is facing disruption, from for instance groundbreaking (digital) business models, changing client expectations and new technologies. “In the increasingly competitive world of legal services, differentiating your firm from others is a prerequisite”, adding that he believes law firms now compete in a new “age of the specialist firm”. Murphy continues: “Whether you are a global or niche player, you need to demonstrate that you are a true specialist in your chosen fields. Then being able to articulate that message clearly and confidently to the market is essential.”