In a downturn, business people like to point out, some truths are laid bare. “You only find out who is swimming naked when the tide goes out,” Warren Buffett famously told investors in a 2002 letter. Which is why, after the 2000 dot-com crash, it was the United Kingdom’s elite law firms that were found to be revealing a little too much skin.
This time, it’s different. After madly shedding partners, doubling-down their bets on foreign offices, and tightening their management controls, the global Magic Circle practices — Allen & Overy, Clifford Chance, Freshfields Bruckhaus Deringer and Linklaters — look a little better-dressed than many of their rivals in the United States. The irony is that the English firms have succeeded by following the lesson of their American peers: They’ve hedged their bets. For U.S. firms, in the past that has meant a healthy dose of litigation and bankruptcy work to balance a corporate shortfall. For the British, the strategy has been geographic: spreading their risk across several continents.
“The U.K. firms have their international investment time behind them and have shown that they can deliver value to their clients around the world,” says Tony Williams, head of London’s Jomati Consultants LLP. “Plus, they’re far better-run than they have ever been.” Williams, a former managing partner at Clifford Chance, can speak from experience.
For the U.K. firms, the international networks are producing more revenue than their massive London offices. In the most recent fiscal year, which is captured in the Global 100 charts (see links below), Allen & Overy for the first time brought in more revenue from its overseas offices than it did from London. (The Global 100 is a joint project of The American Lawyer and Legal Week, a sibling publication.) At Clifford Chance, about $1.56 billion of the firm’s $2.66 billion in revenue came from international offices, with a growing proportion from emerging markets.
Last year 15 percent of Clifford Chance’s revenue came from the growth markets of central and eastern Europe, the Middle East and Asia, says managing partner David Childs. This year he predicts that proportion will expand to 18 percent to 20 percent. “Our offices in these markets are doing very well and will continue to do so this financial year,” he says. The firm has also taken a global approach to reducing its cost base, moving parts of its support functions in IT and accounting to India. This summer Clifford Chance had 110 support workers in New Delhi; by next summer, it is forecast to have more than 300, including a tranche of paralegals.
The British are not strangers to success. In 2001, before the full effects of the dot-com crash hit, six U.K. firms were among the 20 most profitable in The Global 100: Slaughter and May, Herbert Smith, Linklaters, Freshfields, Allen & Overy and Clifford Chance. By 2002, just three made the grade; by 2004, only Slaughter and May did. The impact of the crash was felt later and deeper by the English practices. They also took a hit in Asia, with the 2003 outbreak of SARS leading to a regionwide slump.
In the first half of the decade, all the leading U.K. firms reported drops in profits per partner (PPP). Their costs were out of control, and their international networks had yet to deliver promised gains in profitability.