Editor's Letter

AS Tony Blair slowly takes his leave of the political limelight, prime minister-in-waiting Gordon Brown has pledged “to build trust” in the Labour Party through “a different type of politics, a more honest and open dialogue”. Will the prudent Chancellor also be able to restore public confidence in areas such as health and foreign policy? Only time will tell.

In any case, and as a number of pundits have pointed out, it may well be Labour’s efforts with the economy that history ultimately ranks as the greatest achievements of the past ten years at least. Recent inflation reports and rate rises have worried some – not least new homeowners – but it is widely accepted that the first decade of the 21st century has been characterised by strong and stable economic growth, stimulating employment and creating wealth. There was the minimum wage of course. And just four days into the job, it was Brown himself who announced interest rates would henceforth be set solely by the nine-member Bank of England Monetary Policy Committee.

Law firms have also enjoyed a pretty prosperous time. PriceWaterhouseCoopers’ 2006 law firm survey found that 30 per cent of the UK’s top-25 firms increased their profits per partner by over 20 per cent in 2005-2006. Calling it “an exceptional year for many”, PWC also found 80 per cent of firms were anticipating a further rise in profits this year. Now, of course, the steady stream of financial announcements – as law firms reach their 2007 year ends – has already started. Indeed, in this issue of Managing Partner both Pannone and Weightmans look back on years that have seen them hit the ₤44m turnover mark. Elsewhere, CMS Cameron McKenna has announced it has broken the ₤500,000 barrier in the all-important profit per equity partner (PEP) stakes for the first time, weighing in at ₤502,000. It joins a number of others to reach this milestone in 2007, including Addleshaw Goddard (₤542,000) and Simmons & Simmons (₤530,000).

In the magic circle, meanwhile, Freshfields Bruckhaus Deringer surprised many by announcing PEP had topped ₤1m for the first time (₤1.036m) – up from around ₤830,000 a year ago and in spite of a significant restructuring in the second half of 2006. Clifford Chance also posted a PEP of more than ₤1m (₤1.015m), perhaps signalling something of another gear change among top City firms expanding internationally.

The challenges facing law firms remain many though. The Legal Services Bill has just received its second reading in The House of Commons and the ‘war for talent’ shows no sign of letting up. Firms continue to fight to differentiate themselves in the eyes of clients and potential employees alike.

It is money, however, that makes the legal world go around. And while PEP figures may dominate the headlines, as the last of the billings get banked it will also be a time for managing partners, boards and their advisers to reflect on whether strategies have ultimately been effective at boosting the bottom line. More long-term investment – for example in IT or overseas expansion – may require the persuasion and buy-in of reluctant partners, possibly even a remuneration reduction. Are the right resources being dedicated to the most profitable practice areas? Is client care and effective marketing creating the holy grail of a strong brand in a crowded market? Are the growth opportunities previously identified meeting expectations? Where is there room for improvement?

Understandably, firms may be taking some time to celebrate their hard work and another strong year. But they can’t afford to be complacent when a major shift in the competitive landscape could be just around the corner.

Richard Brent

Editor

Features

Examining alternatives This article is for subscribers only
With the Legal Services Bill now passing through parliament, firms are preparing themselves for the eventual arrival of alternative business structures (ABSs).

Integrating KM: Are you feeling lucky? This article is for subscribers only
A masterclass detailing how the integration of knowledge-management data and applications can enhance client-facing systems and increase competitive advantage.

Early lease renegotiation: the right strategy? This article is for subscribers only
The complexity of lease renewal may not be the first priority of a managing partner, but early consideration of the challenges and opportunities could forestall potential problems and bring far greater value to the firm.

Case study: Things that go bump in the workplace This article is for subscribers only
US firm Fisher & Phillips LLP has deployed an advertising campaign featuring its now well-known ‘ghost lady’ since 2006, with significant success.

Comment: Make matters better This article is for subscribers only
Faced with tough competition and increasingly demanding clients, more and more law firms are turning to new front-office technologies to boost the productivity of their professionals, increase client satisfaction and, ultimately, improve their profitability.

Spectrum of sophistication This article is for subscribers only
All law firms have different needs depending on their size and culture. At Dorsey & Whitney LLP, a sophisticated financial-analysis function has even been a tool to spearhead cross-functional efforts and bridge some law-firm departmental barriers.

Financing the future This article is for subscribers only
Tensions between partners at different points on a lock-step can make long-term investment decisions problematic.

Case study: Getting to grips with growth This article is for subscribers only
Top-100 law firm Weightmans recently restructured its business lines. Here the firm assesses its growth strategy – identifying the factors behind success and future priorities, but also the problems that can result.

Defining the deal This article is for subscribers only
Research suggests successful employee engagement and retention depends on much more than the pay packet. Firm-wide pay increases have a sizeable impact on profitability. One solution is to arrive at a ‘people and reward strategy’ that recognises individual contribution and rewards top performers accordingly.

Cover story: Selling security This article is for subscribers only
In February the Financial Services Authority (FSA) fined Nationwide almost £1m for a lost laptop containing client details, including addresses and account numbers. Customers could have been exposed to financial crime, it said. Could a law firm be next to get into a data-protection pickle?