Equity law partners are earning more than ever despite the impact of the recession on the legal sector, a new report has revealed.
Profit per equity partner (PEP) – the figure used by lawyers as a measure of success – rose sharply against revenue declines, according to research which reveals profits and billings of the UK’s largest law firms.
Among firms with significant presence in Birmingham, Shoosmiths managed to turn around a poor performance in 2008-09 when PEP fell 54 per cent.
The firm, which has an office on Colmore Row, reported an 82 per cent increase in profit per equity partner this year to £268,000 against a nine per cent drop in revenue to £90 million.
Pinsent Masons saw its PEP increase 30 per cent to £404,000 but turnover decreased four per cent to £206 million and Hammonds, which last week announced it was considering a merger with American firm Squire, Sanders & Dempsey, recorded a PEP of £359,000, up 36 per cent on the previous year.
The firm, which employs 169 people in Birmingham, revealed turnover is down six per cent to £118 million.
The survey, conducted by Legal Business magazine, reports that for the first time in its 19-year history the combined billings of the top 100 law firms have fallen, ending a succession of year-on-year increases.
However while revenues fell, the equity partners owning those firms were earning more than ever.
The magazine said that as a result of cost cutting, average equity partner profits increased an average of 12 per cent across the top 100.
Eversheds, which has a large office in Birmingham on Colmore Row, saw PEP rise 28 per cent in the past year to £515,000. The firm, which has 136 equity partners and employs a total of 1,375 lawyers, saw turnover decrease eight per cent to £335.2 million.
Last month the firm announced 100 jobs would be cut. It is the second time in 12 months the company has cut jobs. Last year an outsourcing move to South Africa saw 95 secretarial roles axed.
Richard Lloyd, editor of Legal Business, said: “Almost two-thirds of the 100 law firms in our survey posted an increase in profits per equity partner, yet less than half of them achieved growth in revenue. The redundancy rounds of the past two years and cuts to discretionary spending have served equity partners well.
“While it is largely the City’s ‘magical circle’ of law firms that continue to boast the highest earnings partners, it is the smaller London and national firm’s equity partners that have seen the biggest increase in earnings.”
Midlands firm Freeth Cartwright, which has offices in Birmingham, Nottingham, Leicester and Derby, recorded a three per cent fall in revenue to £36.1 million and PEP increased 33 per cent to £196,000.
Birmingham’s second-largest law firm – Colmore Square company Martineau – reported a 10 per cent increase in PEP to £205,000 on the back of a three per cent fall in revenue to £20.5 million.
The PEP rise was a sign of improvement after the previous year’s results, which saw the figure drop by 25 per cent in 12 months as corporate and property work faded away in the recession.
Other firms’ results showed the continued impact of the recession with many reporting a fall in turnover and PEP. Birmingham-based Wragge & Co, which has 117 equity partners and 489 lawyers, saw its turnover fall eight per cent to £96.2 million but its PEP also fell 12 per cent to £260,000.
DLA Piper recorded the largest turnover at £581 million, down just one per cent on the previous year. It was one of only four among the top ten firms by revenue that saw PEP fall by 25 per cent to £485,000.
Dean Parnell, president of the Birmingham Law Society said: “It does not come as a surprise to see costs in the LB100 being slashed by £590 million and 1,330 lawyers losing their jobs. Cutting costs has been carried out throughout the legal profession.
‘‘As a result, most law firms are now leaner and are being run more efficiently. Having a better structured business may also encourage more consolidation amongst law firms over the next 18 months.”
He said that although PEP continues to be the primary measurement tool used by lawyers, it was of little value in assessing the overall performance of a law firm