The firm that has risen above the Magic Circle
THE Magic Circle model is in need of a re-engineering.” In light of recent revelations about the impact of the economic downturn on City law firms, that statement might not qualify as controversial. However, it’s noteworthy because it is a view espoused by Nigel Knowles, co-chief executive of DLA Piper, the newly-anointed “biggest law firm in the world (by revenue)”, which generated $2.26m (£1.34bn) in fee income in 2008, according to figures out last month. Knowles insists his firm does it differently.
So where are his global peers going wrong? “They have a very high cost base, a very large number of equity partners who all want to earn more than £1m a year,” he says. “So, if there’s not the corporate finance and capital markets work, what do you do?”
This has been an astonishing year both for Sir Nigel (who was knighted in March) and his firm, which overtook Clifford Chance in a Legal Business magazine poll to take the mantle of biggest player. Despite endless analysis in the trade press, the legal pecking order doesn’t change much. “Over the last decade there have been surprisingly few changes in the order in which global law firms rank in revenue tables,” comments LB senior reporter and DLA watcher Stephen Doggett. “The upper echelons tend to look the same each year. That’s why the rise of DLA to the top spot this year is such a big event.”
This modern DLA (67 offices in 29 countries employing 8,000 people worldwide and more than 3,500 lawyers) came into being through its 2005 tie-up with US firms Piper Rudnick and Gray Cary Ware & Freidenrich. None of the firm’s constituent parts, Doggett notes, were top 50 players a decade ago when the concept of a global firm was first envisaged. “The global legal market isn’t used to this sort of growth,” he adds.
DESIGNED FOR TOUGH TIMES
Knowles is careful not to appear triumphalist in a recession (“I don’t want to suggest we’re not experiencing anything of the downturn…”) DLA hasn’t been without casualties – there have been redundancies and it has been reported that he has personally taken a £100,000 pay cut. But at the same time, the solicitor argues that his firm is designed to weather tough times. “What I’d say to a prospective client is that our vision is to be the leading global business law firm. By that I mean we’ve a broad range of practice groups and sector relevant expertise and we are also global.”
He pictures the no-doubt familiar scene of general counsel being grilled by an anxious CEO demanding that the legal budget be slashed by 25 per cent (“I have even known some counsel to have their budgets slashed by 50 per cent”). “Well, the firm is purpose-made for you,” says Knowles.
That might be so; but does DLA have the clout to win the big league clients away from the Magic Circle firms? “Both the challenge and the opportunity for DLA is to be seen as the next tier alternative to the major UK and US firms,” comments Tony Williams, founder of the management consultancy Jomati and former Clifford Chance managing partner. “The jury is out at how quickly they can achieve that.”
Others put it in more pejorative terms. DLA, they say, is all about “high volume, low value” commercial work rather than top tier work. Knowles rejects the tag of “volume merchant” in a characteristically forthright fashion. “If you are in a firm with no vision, no strategy and declining profits, you’re probably not inclined to say too many things nice things about us,” he counters. “The criticism is largely irrelevant. We are very happy with the space that we are in at the moment.” Knowles has previously referred to the “big grey mass of dreariness in the middle of the City” and argues that DLA has its place.
He reels off a list of deals such as advising on Amber Energy’s successful HK$166m IPO on the Hong Kong Stock Exchange and new clients, for example, winning lead global counsel with the auction house Christie’s.
STRATOSPHERIC GROWTH
Whatever the snipers say, the recent figures indicate the strength of the firm. Stephen Doggett describes DLA’s profit margin (24 per cent) as “low nevertheless respectable” and that average equity partner profits ($1.253m) “aren’t to be scoffed at”.
Another criticism is that the firm’s stratospheric growth has been too speedy, meaning that its two centres – Chicago, run by co-chief exec Lee Miller, and its London office which is the base for its international non-US practice – have yet to gel. Knowles is speaking to us having arrived from Heathrow at 7am after a three-day board meeting with Miller and the Baltimore-based chairman of the board, Frank Burch. He insists all is well. “The US business is not more profitable. We are amazingly aligned and close.”
YOU OWE THE FIRM
It has been quite a career trajectory for Knowles, who started his legal career at the rather unpromisingly named Broomhead & Neil in 1978 in Sheffield. That firm was subsumed into the DLA dynasty where the lawyer has stayed ever since. What does Sir Nigel, son of a South Yorkshire grocer, make of the recent report on social mobility in the professions and the particular lack thereof in the law? Mobility moves in a number of directions, reflects Knowles, sidestepping the issue.
“If my restructuring practice is desperately busy, I have to put people from corporate and finance and real estate in to support them,” he says. “Long gone are the days when the firm owes you a living. The firm doesn’t owe you a living. You owe the firm the best shot you can give it.”
Is the profession any more of a meritocracy? “Speaking for my own firm,” says Knowles, “I do not think that we have ever been a stuffy establishment practice. We have always been moving into new territories and we have always had to work harder than everybody else to prove ourselves.”