London, January 17, 2006. Leading law firms across Europe have increased their profitability by more than 20% during 2005, according to a collaborative study between BDO Stoy Hayward, LexisNexis Martindale-Hubbell and the European Lawyer magazine. The research discloses the financial performance and organisational structure of Europe’s leading law firms* across eight EU states.

The survey found that median profit per partner across firms increased to €406,300 (£277,000) in 2005, up from €337,900 (£230,300) in 2004. Of all countries surveyed, Italian firms were most profitable, with median profits per equity partner of €800,800 (£545,900). The survey attributes the rise in profitability to several factors, including aggressive cost control, a growing focus on partner performance, coupled with a booming M&A market.

Key survey findings include:

• Top of the league for fee income (per partner) are Italy and UK, with median earnings in these jurisdictions close to €2,000,000 (£1,363,000);
• A wide variation in fee-earner ‘leverage’ (the number of non-partner fee earners to the number of partners). In Italy it is 6.4 and Spain 7.3 but in other countries leverage is much lower – the overall median number of fee-earners per equity partner is just 4.3. In the UK it is 4.9;
• In terms of the biggest areas of work, “Company/ Commercial and M&A” work accounted for 29.6% of work carried out by the firms. “Banking & Capital Markets” was the second largest category, accounting for 16.3% of the firms’ work. (In 2004 the UK firms devoted 32.6% of their time to M&A and banking transactions, whereas in 2005 this increased to 44.5%. In Germany this has leapt from 35.0% in 2004 to 49.2% in 2005;
• The survey also showed that, despite many European firms declaring their commitment to gender equality, 84% of equity partners in Europe’s top law firms are male. Of all countries surveyed, UK firms were most progressive, with 21 per cent of equity partners female. Swedish firms were the most male-dominated, with just 6 per cent of equity partners female.
• Interestingly, the study also suggested a preoccupation amongst respondents to micro- rather than macro-management issues. Nearly two thirds of firms (60%) cited recruitment and staff retention as their biggest concerns in today’s climate, whereas respondents seemed less concerned by general market and economic issues beyond their control. 31% per cent of law firm’s managers said the threat of US firms entering Europe was most likely to keep them up at night, with 20% citing a general economic slowdown as being a cause for concern.

Nick Carter-Pegg, a Partner in the Professional Practices Group at BDO Stoy Hayward comments:

“Across all countries profits are recovering, assisted by the return in big-ticket M&A work. Another important cause of profitability is high fee-earner ‘leverage’, with profits being theoretically higher the larger the team that each partner manages. As law firms across Europe become bigger and more commercially run, an important issue will be just how to maximise the number of fee-earners a single partner should manage without the quality of work suffering. “Future profitability also depends on the calibre of people working within the firm, and the war for talent has definitely returned in the legal market. The survey shows that most partnerships are still male-dominated at partner level and are missing out on their own existing pool of female talent. Law firms worried about the quality of their workforce should be looking internally and do a better job of providing partnership opportunities for talented female lawyers. This will certainly be more cost-effective than the normal practice of headhunting from rival firms at great expense.”

James Harley, the international marketing director at LexisNexis Martindale-Hubbell, says:

“Continuing consolidation and competitive pressure within the European market has already encouraged many law firms in the region to raise their game. The more complete set of organisational and performance indices within this year’s report should give firms even more confidence as they seek to establish their true positions against their peers.”

To obtain a copy of the full report, please contact ela.kaczmarek@martindale.com . Tel +44 (0)20 7911 1946.

Last updated -16 April 07

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