Freshfields Bruckhaus Deringer’s high-stakes restructuring has helped propel the City giant’s bottom line to record levels, with profits per equity partner (PEP) surging nearly 40% to hit £1.435m.
The magic circle law firm saw PEP rise by £401,000 in 2007-08, climbing 38.8% from £1.034m achieved in the previous 12-month period.
The performance, which was exclusively revealed today (2 June) by legalweek.com, will be seen as a vindication of the dramatic restructuring of its partnership in 2006, which ultimately saw the firm shed more than 60 partners from its equity. On average over the past year the firm had 415 equity partners, down from more than 500 in May 2006.
Meanwhile, turnover at the top five London firm has risen by almost a fifth to sit at £1.178bn for 2007-08, up 19.5% from last year’s figure of £986m. The result makes it only the third London practice to pass the £1bn mark after Clifford Chance (CC) and arch rival Linklaters.
The growth rates are sharply up on 2006-07, when Freshfields saw PEP jump 23.7%, while revenue rose 12%.
The figures will be a welcome boost for Freshfields after a turbulent 2007 dominated by the fall-out of its restructuring and a high-profile age discrimination claim from ex-partner Peter Bloxham, which the firm successfully defended.
Despite a year of controversy the firm continued to win roles on a string of key mandates, including its role acting for Northern Rock on its attempted sale and privatisation.
Freshfields chief executive Ted Burke commented: ‘We are grateful for a very strong year, and have seen particular strength coming out of the emerging markets. Expectations for the coming year are reduced – law firms tend to lag behind the broader markets and a significant part of our results are attributable to the robust business environment of the first half of 2007.
"The current market challenges are affecting us all, and we will continue to stay close to our clients as we navigate our way through the next period.”
Earlier in the year Freshfields announced it was making up 25 new partners across its offices, including 10 London-based associates. The firm also recently promoted nine lawyers to the position of counsel.
The performance sets a tough benchmark for Freshfields’ key City rivals. CC is the only other magic circle firm to have posted results so far, with the firm seeing a 11% hike in turnover from £1.194bn to £1.329bn. PEP, meanwhile, rose 13% from £1.015m last year to a new high of £1.151m.
All eyes will be on whether Linklaters - which in recent years has been the strongest financial performer across the City's big four - can maintain its profitability lead over its old rival. The firm’s headline profits in 2007 was well ahead of Freshfields', which faced multimillion-pound costs thanks to its partnership restructuring, with Linkaters achieving PEP of £1.294m.
Talkback: Can Links keep pace with its Fleet Street rival? Click here to have your say...
...or get stuck in to the Legal Week Wiki results special.
More news, deals and comment on Freshfields Bruckhaus Deringer
Wow! Staff get 0% increase, Associates 2-4% and Partners 40%
In what sense will associates get a 2-4%? On the assistant track, they'll get 10%-plus rises annaully and, last time I checked, 10-15% of associates didn't exit back in 2006-07.
The sterling/euro exchange rate seriously complicates these numbers given the decline of sterling against the euro. FBD has a much bigger German practice than any of its magic circle rivals and so I wouldn't be surprised if a big part of this increase is down to that. That's great if you are a UK based partner but not so great if you are a German partner (and there are lots of them at FBD!). By my reckoning the average German PEP increase as against last year is only 17% once the figures are translated into euros. Still not a bad result but it goes to show why PEP is such a difficult thing to use to measure comparative performance. De-equitising LOTS of partners will obviously have helped too.
Seriously complicates my a***.
To the second poster: sure, there's a raise in if you look at it that way, but you're effectively comparing your salary at band X to the next band up (and it's still only going to be a 10-15% rise). If you compare band X this year with band X last year, the difference is minimal. However, if you consider a partner's pay, then without even having to move up the equity ladder, the partner gets a 40% raise. That's like NQ rates going from £65K to £91K in a year, and if you add in the progression up the pay band ladder to 1 year pqe pay... The point is that the first poster is correct in comparing like for like. And the bottom line is that, like for like, the partners are pocketing an annual increase of 40%, whereas associate rate are up just 4% on the back of record results...
To last poster: yes, partners get more upside when the profit cycle peaks (which is linked to the deal cycle) but then they are also more likely to see a downside when market drops, which associates don't face. Added to which, Freshfields' results clearly have a good deal to do wtih its restructuring, which didn't impact on the associates. So associates only get 10-15% rises this year - Hmmmm, a lonely tear roles down my cheek. Perhpas we should do a charity appeal.
The community that suffered most from the restructure were the support staff, who are expected to do more, with fewer people, and got diddly-squat again this year. CSR my arse!
Associates have less to moan about than the staff; incredibly lucrative partnership remains a carrot to be dangled in front of associates who, on any sensible view, get paid very well and whose salaries increase substantially year on year. In terms of risk and job security, though, Freshfields' support staff are more at risk from a downturn than any of the fat-cat partners, and they have no upside whatsoever during boom time. Was it not Freshfields who marched members of support staff out the door at the drop of a hat this year? How do you think they feel on reading stories like this? Also, what kind of reaction to figures like this do firms get from clients who have been receiving eye-watering bills over the past year?
Allow me to sum up. Equity partners are laughing whatever the weather. You make them rich.
My guess is Linklaters will show a similar increase in turnover but a much lower PEP increase and so the two will be there or thereabouts the same. Linklaters won't benefit from the £/€ exchange rate change and the de-equitisation of 70 or so partners. Both will be a fair way ahead of CC and A&O (despite CC and A&O jerrymandering the numbers with huge numbers of salaried partners) and all will be behind S&M. Simple really.
i'll bet those struggling freshfields partners gave about £100 between them to the humanitarian appeal in Burma. Bless em.
Related Articles
Latest Jobs
