For a generation, Skadden Arps Slate Meagher & Flom stood alone globally among law firms in combining mammoth size with regal wealth. Well, move over, Joe Flom. With revenue of £1.121bn and profits per equity partner of £1.294m, Linklaters has surpassed Skadden on both measures. As managing partner Tony Angel’s nine-year tenure draws to a close, Linklaters is both big and rich.
“The elite
Linklaters’ wealth is no illusion, although there is room for quibbling. That headline-making profit number of £1.294m is seen by only 280 full-equity partners. Throw in 145 ‘reduced-equity’ partners in lower-earning jurisdictions, toss in another 84 non-equity partners, and average compensation for all partners comes to around £1.02m. On that measure Linklaters falls a notch below Skadden and Cleary Gottlieb Steen & Hamilton — but still a shade above Davis Polk & Wardwell and Debevoise & Plimpton. That is fine company. And, however you slice them, Linklaters has boosted total profits by a mind-blowing 108% in three years.
Angel took Linklaters to the super-league in profits by pursuing the holy grail of law firm management: globalisation. In his first term as managing partner, he acquired a raft of foreign offices (not all of them well-chosen). He then pulled off the real trick. In his second term, Angel transformed a firm that was global by virtue of having a lot of offices into a law firm that is global by virtue of doing global work for global clients. And he did it the hard way: by managing.
The success of Angel’s strategy is only apparent in retrospect. He became a tax partner in City grandee Linklaters & Paines in 1984. In 1986 he campaigned for the management committee, and at 33 he became the youngest member in its history. Ten years later, Angel wrote the white paper on globalisation that became the blueprint for the law firm’s expansion. In 1998 Linklaters formed a federation with a group of continental firms known as The Alliance of European Lawyers. The firm’s then managing partner, Terence Kyle, stepped up to supervise the short-lived federation called Linklaters & Alliance, while Angel took on the more lasting role of managing Linklaters proper. Angel’s reputation as a tax lawyer was such that his main rival, Steve Edge of Slaughter and May, wrote Linklaters a letter of thanks for promoting Angel out of the practise of law.
Angel might have been prescient on globalisation, but the
Most of Angel’s first term as managing partner was spent digesting what the firm had eaten. Although
The shell of Oppenhoff excels in finance but lacks a German corporate client base, in contrast to the German partners of Clifford Chance (CC) and Freshfields Bruckhaus Deringer. As a result, Linklaters has yet to raise
“Tony will maintain to his dying day that
At the end of Angel’s first term as managing partner, in 2003, the firm’s profits stagnated, and Angel was widely demonised. But he persuaded his partners to keep faith in his global vision and to continue investing, spending £25m on a new computer system at the firm’s lowest point. Angel laid out a new three-year plan. He aimed to focus the firm on premium cross-border work, to add financial clients to the firm’s traditional corporate base, and to defenestrate any partners with a competing agenda. Oh, and by the way, to build a
To an astonishing degree, Angel has reoriented the firm around cross-border work. Three years ago, he began to track the proportion of billings involving more than one country and asked each practice to set ambitious moving goals. On his computer dashboard Angel tracks the firm’s performance, on a rolling annual basis, on this and other nifty metrics. If the firm is moving in the right direction on a given measure, and meeting its current target, an arrow on Angel’s screen points up, and a light glows green. Since he began tracking the proportion of billings involving more than one country, that number has jumped from 30% to two-thirds. Now Angel is asking his practice heads to meet ambitious moving targets for billings to the firm’s 40-odd biggest clients, and another 40-plus preferred global clients. Currently, these clients account for 52% of firm billings. The dashboard arrow for that statistic is pointing up, the gauge is glowing green, and the face reflected in the computer screen is smiling.
More global, Angel has found, means more profitable. For every extra office involved, the effective billing rate rises, because clients demand fewer discounts and agree to more premium fees for cross-border deals. “Number of offices,” he explains, “is a proxy for complexity.”
Global banks are very much on Linklaters’ target client list. At the start of Angel’s term, Linklaters set out to break the financial duopoly of CC and Allen & Overy, and to a considerable extent, it has succeeded. Overall, financial institutions accounted last year for 15 of Linklaters’ top 20 clients. Since 1999 the share of firm revenue derived from financial clients, defined to include private equity and hedge funds, has skyrocketed from 27% to 46%. And in the past four years, the finance division (including capital markets and insolvency) has pushed its share of firm revenues from 30% to 35%. The corporate division has consistently generated 40% of the pie.
The popular impression in
“Real estate has been transformed,” says commercial division head John Turnbull, “into a finance practice where property happens to be the underlying asset.”
A finer finance department serves to stabilise a firm whose historical core is M&A. “If a real downturn sets in, then we have got a fantastic insolvency practice,” says finance head John Tucker, who has just taken on overall responsibility for Linklaters’ much-touted
Those partners who do not serve the lucrative cross-border needs of priority clients are secondary. Last year intellectual property was the only firm practice with profits of more than 15% below average, because it was dragged down by the German trademark group, Auf Wiedersehen, German trademark filers. Overall, 125 partners have left or retired in the last four years.
Angel worries about losing lawyers only if they are highly appraised by the measures he has refined. In appraising partners financially, he focuses on the ‘gross margin per partner standard hour’. This number subtracts each partner’s share of salary and overheads from the profit that he or she generates. Think of it as a sort of magic circle sweet spot.
Angel’s passion for management sets the tone firm-wide. He relies on a large team of non-lawyer managers, including 14 on the firm’s ‘strategy team’, several recruited from elite consultancies and paid on a profit basis. Last year Linklaters devoted 22,000 lawyer hours to training. In the past three years it sent 300 partners on a crash course designed for the firm by
Angel finds it ironic that the
Angel is bemused when
However lightly managed by comparison, US firms remain pesky rivals, and the jury is out on Angel’s
It is not an easy task, for, despite Linklaters’ new wealth, the lateral maths is tricky for recruiting in
At US firms, the spread is typically higher. At Skadden, the ratio is 4:1, placing last year’s range at an estimated $1.05m-$4.2m (£510,000-£2.06m). US firms with no lockstep will pay stars more than $5m (£2.45m). Thus, Linklaters pays top-of-the-market for young partners, but struggles to attract older lawyers from US lockstep firms, or stars from eat-what-you-kill firms. In addition, some
Linklaters’
The
It is an office mature enough that Linklaters was able to keep some of the
Angel’s critics say that the
One notable critic complains that Linklaters stifles creativity by relying on its database of precedents and armies of junior lawyers. “It is the difference between pret-a-porter and tailor-made craftsmanship,” says Hans Rolf Koerfer, now head of global M&A at Shearman, who left Oppenhoff & Raedler in 2000 on the eve of its merger with Linklaters, which he negotiated.
“I love my profession, and I need intellectual stimulation,” he says. “If it is just to make money, I could run a variety of other businesses and make more money.” Koerfer claims that morale at Linklaters is “miserable”.
To Koerfer’s comment on the firm’s quality, Angel retorts that clients are not complaining. It is also true that the firm is regarded as having considerably improved its record on staff engagement in
If today’s Linklaters partners are disgruntled, they are not voting with their feet. One needs to go back three years to find a clutch of prominent lawyers who left by choice. Since May 2004 Linklaters has stolen 13 partners from other magic circle firms, while losing only one in return. The Linklaters partnership certainly grew during its years of fratricide, thanks to 46 lateral hires and 114 promotions over four years.
By far the most common complaint among Linklaters’ refugees is that they lost all autonomy in practice development. David Aknin is a private equity star in Paris who left in 2003 for Weil Gotshal & Manges. “What is really important,” he says, “is that you feel a bond with your partners, and not like an employee of a corporation. Tony Angel is a great manager, and Linklaters is a true success, but it is not to the taste of everyone.”
If making tough choices among clients restored Linklaters to the top, Angel offers no apologies. He seems glad to see the back of lawyers who give priority to their own fancies. “Strategy is not saying yes to everything,” he says. “Strategy means saying no. If we are going to be a global law firm, there are some things that we must stop doing.”
At the end of Angel’s tenure, Linklaters is awash in acclaim. For the past two years, it has been rated by lawyers as the
On 1 January, Angel will leave to his successor a well-balanced firm, if perhaps a weary one. “Tony’s vision and strategy and tenacity about strategy has been the thing that has kept us on the right road,” says Turnbull. “He took a lot of criticism, but he has seen it through to success.”
The man selected by Linklaters’ supervisory board to replace Angel stands for a continuation of his policies. Angel groomed Simon Davies as a leader at a young age by appointing him
So how will the new Linklaters differ from the old? Davies chooses his words carefully, to cushion any implicit criticism. “More emphasis,” he says “needs to go into firm culture.” Davies favours more consistent firm-wide support of childcare. He also supports flexible work arrangements, and greater diversity in hiring and promotion. Davies’ argument for improved diversity and quality of life are both moral and pragmatic. “We need to strengthen the culture,” he says, “so we are not just relying on economic bonds when we hit a downturn.”
Can Linklaters sustain the financial strength that it has achieved through management? Both Angel and Davies believe that the long run favours the magic circle firm against its key global rivals because the process of globalisation will only deepen. If they are right, the law firm managers of the future may wish to enroll in
A version of this article first appeared in the October edition of The American Lawyer, Legal Week’s
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