The Magic Circle vs. New York's Elite

A comparison of the recent financial performance of the top U.K. and New York law firms.

There’s no Biglaw intercity rivalry that can match the one between London’s venerable Magic Circle and New York’s elite white-shoe firms. Both groups of firms are the clear alpha dogs in their markets, attracting the top talent and most lucrative clients.

There are, however, some significant differences between the two groups in how they operate. For example, U.K. firms tend to follow a lockstep (rather than “eat what you kill”) compensation model. Last month, friend of ATL Bruce MacEwen took a deep dive into the relative performance over the last several years of the Magic Circle firms versus their New York cousins. The piece is highly recommended: it’s chock-full of data, and its findings suggest the groups are moving in different directions….

Using publicly reported data for the years 2008-2013, Bruce focused on such metrics as headcount, percentage of equity partners, PPP, RPL, and profit margin. The Magic Circle firms—Allen & Overy, Clifford Chance, Freshfields, and Linklaters—are of course a well-defined group (Slaughter and May, the only member firm without a New York office, was excluded). For New York, these firms were selected as the comparison group on the basis of “historical roots, geographic footprints, and business models”:

Cleary Gottlieb
Davis Polk
Paul Weiss
Simpson Thacher
Sullivan & Cromwell
Weil Gotshal

One could query the absence of Cravath, Wachtell, Skadden, etc., and we refer you to Bruce’s piece for a fuller articulation of these choices. The U.S. market for the highest-end legal services is much more fragmented and diffuse than its U.K. counterpart, and which precise group of firms is the closest equivalent to the Magic Circle is endlessly debatable. But for the purposes of this comparison, this group will certainly serve.

One crucial caveat. The data used was from available public sources, which in the U.K. means firms’ filings under the Companies Act and in the United States means firms reporting to The American Lawyer on the honor system. Salt to taste.

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Here are some of the major findings:

  • 2008 was a watershed year for the Magic Circle. Revenue and headcount reached all-time highs.
  • Conversely, neither the New York group’s revenue nor its headcount has been again as low as it was in 2008.
  • Since 2008, total Magic Circle headcount went from about twice the size of New York to about 1.5 times as large.
  • Total numbers of equity partners essentially held steady for both groups over the five-year period.

Source: Adam Smith Esq.

  • Interesting transatlantic convergence apparent in this chart above. Both groups have arrived, from different directions, at a roughly 20% level for equity partners as percentage of total lawyers.
  • There is a 25% difference with regard to Revenue Per Lawyer. London is at about $900,000 and New York’s RPL is about $1.1 million.

Source: Adam Smith Esq.

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  • London’s total profit went from over 150% of New York’s in 2008 to about 110% for the five-year period 2009—2013. This cannot be attributed to a comparable reduction in headcount.

Source: Adam Smith Esq.

PPP between the groups was dead even in 2008. However, from 2009-2013 the New York firms pulled away to the point where their PPP is about 50% higher. In Bruce’s words, “this is the kind of gap people with options begin to notice.” A very similar trend can be noted with regard to relative profit margins. Again, read the entire piece, but to grossly oversimplify, New York enjoys higher profit margins and RPL (and the former are trending up), while the Magic Circle’s performances in both categories are declining. In the years since the Great Recession, it appears that New York’s white-shoe firms have made more progress toward recovery.

Finally, speaking of law firms, if you haven’t yet done so, please take a few minutes for the ATL Law Firm Reputation Survey and let us know your opinions about your peer and competitor firms.

The Elite Face-Off: NY vs. London [Adam Smith, Esq.]