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Balance of power As income streams are concentrated in fewer large financial and corporate institutions, we reveal the top clients of the leading law firms and the pressures on those relationships RICHARD LLOYD AND CLAIRE SMITH CITIGROUP IS A TOP-FIVE CLIENT OF Clifford Chance, Allen & Overy and Linklaters: talk about peer pressure. Today, every one of the UK’s largest law firms has giant clients to manage. Tens of millions of pounds worth of fees are in the balance; levels of profitability are constantly under review. When, as is the case at Clifford Chance, as much as £500m in legal fees can come from just 20 clients, relationship decisions become critical. Law firm leaders are well aware of this, and are seeking ever-increasing outside advice in order to cope, and then thrive, under the immense weight of pressure and expectation. Clifford Chance’s global managing partner sees no danger in becoming overly dependent on a very small group of clients. ‘Absolutely none,’ Peter Cornell confirms. ‘We have a business balance that reflects the reality of 21stcentury commerce.’ The reality is huge pressure on law firms to deliver evermore efficient services, to increasingly large international institutions.
Concentrated risk Supporting global finance: Clifford Chance managing partner Peter Cornell
For the first time, Legal Business reveals the top-five clients of the UK’s largest law firms in 2003. The resulting mix gives one of the
clearest indications yet as to where the might of the UK’s corporate and finance is currently concentrated. Reading like a Who’s Who of the banking and corporate world, the collective pot, in terms of fees, runs into the billions. Every top firm wants a greater share of that self-same pot; not all will get it. In one of the most competitive legal markets in the world, clients are realising the full extent of their bargaining power. A relationship with an investment bank is not enough; you need to be as high up the ladder – an ever-narrowing ladder of influence – as possible. One of the most critical challenges all leading law firms face is to make top-paying clients all feel like they are the firm’s only client, while not bending over backwards on fees. It’s an important caveat. With size comes reward, but also more risk: risk of errors and blacklists, or the simple risk of fees being hammered down by
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THE LB TOP-FIVES: biggest clients through 2003 1 CLIFFORD CHANCE Its top-20 clients contribute nearly £500m in fee-income Barclays Citigroup Deutsche Bank JP Morgan Chase Merrill Lynch
2 FRESHFIELDS BRUCKHAUS DERINGER Bank of England has, in the past, topped 12% of firm-wide revenue Bank of England Deutsche Bank Goldman Sachs London Underground P&O Princess
3 LINKLATERS RBS goes straight into top five after mid-year panel win Citigroup CSFB Ernst & Young Pricewaterhouse Coopers Royal Bank of Scotland
4 ALLEN & OVERY Top-five clients bring in £30m each; Marconi billed £35m last year Barclays Citigroup Deutsche Bank Marconi Royal Bank of Scotland
6 EVERSHEDS Like archrivals DLA and Pinsents, HBOS is top five HBOS Jarvis Lloyds TSB Strategic Rail Authority Taylor Woodrow
7 SLAUGHTER AND MAY Winning the work for GE on its Amersham buy was a coup Abbey Carlton GE Morgan Stanley Standard Chartered
8 HERBERT SMITH The Merrill Lynch relationship has rocketed, particularly in litigation British American Tobacco Merrill Lynch PricewaterhouseCoopers Royal & SunAlliance AOL Time Warner
9 DLA Barclays goes top five thanks to relationship partner Nigel Knowles Bank of Scotland Barclays Department of Health HBOS Montagu Private Equity
11 ASHURST Debenhams and Morrisons were Ashurst’s deals of the year Cinven Debenhams Morrisons Randgold Royal Bank of Scotland
12 DENTON WILDE SAPTE Energy, media and retail figure highly for sector-led DWS Liberty Media Rentokil Royal Bank of Scotland Sainsbury’s Shell
13 SIMMONS & SIMMONS Another of the five firms for which Barclays is top five Barclays GlaxoSmithKline Interbrew Ministry of Defence Network Rail
14 CMS CAMERON MCKENNA Lloyds TSB was once 30% of revenues, now more like 3% Enterprise Inns Lloyds TSB Metronet National Australia Bank National Grid Transco
16 ADDLESHAW GODDARD 40 top clients, dubbed ‘blue riband’, contributed 25% of turnover, or £30.5m Barclays British Airways Diageo Sainsbury’s Standard Life Investments
17 PINSENTS Pinsents shares major work for HBOS and Dept of Health with national heavyweight DLA Abbot Group Department of Health HBOS IMI John Laing
18 SJ BERWIN At least two clients are the same year-on-year Apax British Land Diageo Hilton Group Royal Bank of Scotland
19 BERWIN LEIGHTON PAISNER 35% of revenues, £32m, comes from top-20 clients GUS Legal & General Royal Bank of Scotland Tesco WestLB
21 CLYDE & CO Top two each represent around 4% of turnover, or £3.6m Glencore Hiscox NCM Group Riverstone/Odyssey The ACE Group
22 NABARRO NATHANSON 75% of turnover, or £63m, comes from 100 clients Hammerson HSBC Jarvis Land Securities Priory
23 BEACHCROFT WANSBROUGHS Allianz Cornhill works with every department of the firm Allianz Cornhill Aviva BAE Systems Balfour Beatty Zurich
24 IRWIN MITCHELL A core of financial institutions for this insurance-focused practice British Medical Association HSBC Royal Bank of Scotland Thorntons Zurich
Source: All research was carried out by Legal Business and is not attributed to the firm. Where a private client ranks top five, the next available public client is listed. Billing methods vary: majority of clients listed refer to 2003 work. Clients listed alphabetically. Some firms chose not to co-operate officially with our data collection process and, in these circumstances, we rely on data given to us by trusted but anonymous sources. [NB. Baker & McKenzie is excluded because of its anomalous position as a separate London profit centre which is part of a much larger firm.]
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5 LOVELLS Work on BCCI litigation puts Deloittes firmly top five Alstom Deloitte & Touche/BCCI creditors Granada SABMiller Tube Lines
10 NORTON ROSE The loss of acquisition finance star Tom Speechley may threaten RBS’s top five spot Drax HSBC Nestlé P&O Royal Bank of Scotland
15 HAMMONDS Top five bring in 8.5% of revenues, or £11.6m Compass Co-Operative Group Jabil Circuit National Grid Transco WPP
clients who realise just how crucial they are to a firm. That said, it’s a risk that the UK’s largest firms are prepared to take. ‘We hope to generate more income from fewer clients,’ Giles White, Linklaters’ global head of finance, openly admits. What these firms need is to match large revenues with high profitability. Allen & Overy’s director of marketing, Partha Bose, sums up: ‘It’s not just about where the revenues are coming from, it’s also about where the profits are coming Cornell: 21st century realities from. The top clients in terms of revenues may not be top in terms of profits. They may be doing unprofitable work, or they may have negotiated very low rates. The best thing is if your top-ten clients by revenue are also your top ten by profits.’ For this to happen, a law firm’s partnership must not be populated with rainmakers searching for the next big thing, but cross-sellers intent on making the things they’ve already got bigger. ‘It is easy to think your priority is new clients,’ Simon Johnston, senior partner of Nabarro Nathanson notes. ‘It’s also about servicing and expanding your relationships with existing clients.’
Standing out in a crowd 20 RICHARDS BUTLER Around 30% of revenues, roughly £27m, come from top 20 BBC Charles Taylor P&I Management Fortis Group MTV Viacom Thomas Miller & Co
25 WRAGGE & CO Top client less than 5% of turnover, below £4m British Airways British Telecom Castlemore Department of Trade and Industry National Grid Transco
A&O’s Bose refers to the need for a firm to increase its ‘mind share’ among its top clients. ‘We are competing for a share of the mind of the top management,’ he suggests. A few years ago, this may have been dismissed as new-fangled marketing psychobabble, but Bose insists that it is a challenge the A&O partners are facing up to. In the battle for a larger piece of a chief executive’s cranium, more and more firms have turned to highly focused, bespoke client relationship programmes. Clifford Chance has nine organised client groups, aimed at its nine most valuable clients – a list predictably dominated by the banks, but also containing two corporates, understood to be Siemens and EADS. Linklaters has drawn up a programme for nearer 50 socalled ‘Platinum Clients’, drawn from the corporate and banking world. Partners across Europe are encouraged to focus extra time and energy in exploiting opportunities to work with these clients.
Such initiatives are not just the preserve of the Magic Circle. Addleshaw Goddard drew up the 20-top clients of each legacy firm – Addleshaws called them its ‘blue riband’ client base – and created a client service team for each of the 40. More in-depth client satisfaction programmes have been rolled out to 24 of these 40 star clients. ‘They’re the largest clients, plus the ones that we would like to get closer to,’ Carolyn Roberson, Addleshaw’s marketing director, says. Similarly, Nabarro Nathanson has teams focused on its top-30 clients. ‘On these we have teams from across the firm actively meeting, coordinating and working with clients. For another 60 or so, we have partner-led teams focusing on them,’ Johnston explains. ‘It feeds into partner appraisals and partners have their own targets.’ Around 75% of Nabarro Nathanson’s fee income comes from its 100 largest clients. Specialised programmes give firms the opportunity to broaden and improve their offering to clients, and ultimately bag a greater share of the pot. Greater focus on a
DEPENDENCY CULTURE At first sight, Clifford Chance’s reliance on its 20 key relationships – they provide 50% of revenue – might appear a fragile state to be in. But historically, it wasn’t uncommon for a firm to be heavily dependent on just one client. Take Freshfields Bruckhaus Deringer. In in the mid-1980s, the Bank of England contributed 12.5% of the firm’s turnover. At CMS Cameron McKenna, Lloyds TSB was once such a key client that it is said to have made up 30% of the firm’s fee income. Today, the dangers of that sort of dependence are recognised. ‘You need to be seriously worried if any one client is consistently providing more than 5% of your revenues,’ warns Partha Bose, Allen & Overy’s head of business development. Lose a significant chunk of such a business, or the client completely, and it comes straight off the bottom line. Despite CC’s reliance on its top-20 clients, becoming overdependent on any one client is something that its head of business development, Matthew Gorman, dismisses. For him, a key factor is the breadth of the relationship that CC has forged with its key banking clients, to cover all the firm’s practice areas. ‘As long as we have got that hedge in the product mix it’s okay,’ he says.
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Commodity trading
SELLING NABARROS Nabarro Nathanson weds its traditional property backbone with a growing corporate practice that now contributes 30% of the firm’s turnover. The firm’s top-50 clients are evenly split between corporate and real estate companies. Nabarros picks up 70% of its work from existing clients and 75% of its fee income from its top-100 clients. No client is worth more than 3% of turnover. ‘One of the comments we have from clients is we should sell more,’ says senior partner Simon Johnston. ‘When you think about the personality of most lawyers, selling isn’t a characteristic that springs to mind.’
> smaller band of clients is a familiar story
Traditionally, though, lawyers have not been very willing to say no to business. As a result, it’s not unusual for firms to have tens of thousands of clients. ‘Partners need to be aware that there are good reasons for not just taking on every client that walks through the door,’ says one Magic Circle head of business development. ‘We turn away work,’ admits Hugh Crisp, who is set to take over as Freshfields Bruckhaus Deringer’s chief executive in May. ‘The best client relationships are the ones where you say, “Look, we’ll happily do this work, but to be honest, you might want a different sort of firm for this job.”’ Firms like Freshfields hunger for the most complex pieces of legal work – ‘where we can add the most value’, says Crisp – the non-commoditised, cutting-edge products from which a larger share of a client’s legal spend will flow. In the US, for example, Cravath, Swaine &
throughout the top 25. In the past two years, A&O has identified 800 key relationships within its base of just over 8,000 clients. Depending on how active they are, companies will move on and off that list, with the firm’s top banking clients remaining a constant feature. There simply aren’t enough resource to keep every client happy. What’s more, statistics prove it isn’t worth the effort. One Magic Circle firm conducted a study of clients who paid in fees less than £50,000 per annum. Over a three-year period, only one or two came through to being substantially larger clients of the firm. Though the size of the client had often increased during that HAMMONDS’ CLIENT RATES period, these relatively marginal levels of fee income had not. One marketing director sums Hammonds’ top five clients make up just under 8.5% of up: ‘Rather than doing a small the firm’s turnover – last year equivalent to approximately deal, you’re better off playing £11.7m. Of its listed base of clients that it billed £20,000 or golf with a general counsel from more, 23% are from the FTSE 100. ‘We don’t manage out a top client.’ our bottom 1,000 clients,’ senior partner Richard Burns claims. ‘Clients are much more sophisticated than they are sometimes given credit for; they know where they get the best service at the best rate.’
BERINGER AND BARCLAYS Each of Allen & Overy’s top-five clients is understood to bring in more than £30m a year in revenues. In all, the top-30 clients account for roughly half of the firm’s turnover – some £320m. Top client Marconi brought in a freak £35m bill last year, about 75% of which was corporate, while Barclays is closer to the corporate department thanks to an old Guy Beringer link. About 60% of the bank’s £30m+ contribution went into the corporate coffers. In 2002 the top client was Deutsche Bank. Johnston: lawyers aren’t used to selling
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Moore and Simpson Thacher & Bartlett have both decided that work such as restructuring is simply too commoditised for the business model in which they operate.
Right time, right place Business models in the wider world can also transform a client relationship, and a firm’s share of a particular niche market. At Simmons & Simmons, a corporate department beset by a number of senior departures received a significant shot in the arm when two of its clients, Collins Stewart and Ecofin, championed a new ‘virtual bidder’ structure in the buyout of Northumbrian Water. Together with Deutsche Bank, the two clients used equity raised from investment funds to back an acquisition vehicle combining an AIM float, a debt financing and a company acquisition – all closing simultaneously. Simmons has since teamed up with Collins Stewart again on the £285m buyout of CenterParcs. Partners at Slaughter and May, Freshfields, Linklaters – or a host of other City practices – would undoubtedly jump at this type of work and these particularly active clients, but Simmons’ experience of this new product gives it an obvious and welcome USP.
Sexier sectors Firms can’t always specialise in rocket science. In a bid to become more clientfocused, sector specialism has become increasingly de rigeur amongst the UK’s larger firms. ‘The biggest change we’re seeing is the rise in the importance of sector groups,’ Tim Jones, Freshfields’ London corporate head, says. ‘In ten years, the London head of corporate will largely be an administrative role: sector groups will take precedence.’ Jones’ theory is being replicated elsewhere. A&O recently rejigged its banking and corporate teams to resemble more focused specialist lines. The argument goes that sectors, not practice areas, are what clients understand. National firm Pinsents has also opted for a sector-led approach, in the form of its ‘Chosen Markets’ strategy. It divides nearly all of its major clients into just six areas, including financial services and insurance, manufacturing and technology. ‘Now 93% of our business is from clients that are on strategy,’ Pinsents’ director of marketing, Andrew Hedley, notes.
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BEACHCROFTS: WELL HEDGED Beachcroft Wansbroughs makes its money in insurance and healthcare, doing all sorts of things for companies in those sectors. Though historically the firm’s biggest client was the Solicitors’ Indemnity Fund, the terror that its demise could have caused never happened. The firm is half litigation, but it acts for Allianz Cornhill in all its practice groups, for Balfour Beatty in construction and projects, and for BAE solely on accident and serious incident claims.
LINKLATERS: BANKING ON BP
now becoming almost like arm’s-length negotiations.’ If a corporate or a bank is a £20m client for a firm, it gives them significant leverage to negotiate, say, a 5% or 10% discount – a reduction in fees worth millions. ‘Like any relationship, you will get out of it what you put in,’ Bose predicts. Marconi put into Allen & Overy £35m in fees last year, as the firm led on the collapsed company’s gargantuan corporate restructuring. Jackpot time. But finding next year’s Marconi is the challenge, all the while keeping your regular star clients feeling like number one, and feeling that they’re getting value for money.
Bose: mind share is the key
Linklaters numbered three banks among its top five last Payback time year, possibly as a result of the dearth of big M&A deals. At Richards Butler, the firm’s All of the largest international firms spoken Royal Bank of Scotland is the newest addition after a big focus on the media world as a to for this piece strongly deny that their appointment midway through the summer, but work for the key sector has brought in clients focus on huge clients is in any way risky or accountants edged out more familiar names. Legal Business of the calibre of the BBC and dangerous. What’s more, law firms are now understands that Goldman Sachs, BP and Network Rail also MTV Viacom. The idea is that such powerful institutions themselves that came close, and the firm’s huge work on BP’s merger with the relationship acts on many are finding that their own muscles TNK may push the oil company back into the elite this year. symbiosis. ‘We sell corporate are worth flexing. One senior source at a into media clients and they major City firm was furious at the conduct think of us as a media firm that of a recent panel review by one of the large leader in a sector, a firm is more does corporate,’ managing partner banks. ‘It was so bad. They wanted two or than likely to be conflicted out Roger Parker points out. This is crucial, if three Magic Circle firms on their panel at of working for other leading the rule of thumb Parker quotes is borne the cheapest rate they could get them.’ clients in that sector. Pick up out. ‘It is four times more expensive to win If partner profitability is to stay in the Pepsi as a new client for work from a new client than from an same league going forward, it may be time instance, and a firm can forget existing client,’ he says. for the most powerful law firms to turn about being instructed by Cocathe tables. ‘At some point we are going to Cola. ‘We like it and our clients have to say, “Look, this is a relationship, Too big for comfort like it, but it’s horribly double and if you want us you’re going to have to Loyalty is one thing; ubiquity can bring its hedged,’ says Wragge & Co’s pay for us”,’ confides one Magic Circle own hurdles. When acting for a market senior partner Quentin Poole, of source. ‘The banks risk pushing it back so his firm’s industry focus. It’s a far it will backfire.’ Citigroup, Deutsche, drawback that a lot of firms RBS, Merrill Lynch, and your ilk – you have to put up with. Pepsi and have been warned. LB its ilk pay big bucks. richard.lloyd@legalease.co.uk Partners like to assure clients claire.smith@legalease.co.uk that they understand their business and the dynamics that CLYDE & CO’S RISK-AVERSE RICHES affect it; it’s another way of grabbing more of that so-called mind share – and another way of Clyde & Co likes to focus on its three core areas: insurance, alleviating pressure on fees. reinsurance and transport. The firm has a core bundle of Pressure, as epitomised by the around 300 clients that it acts for on a regular basis. Senior labyrinthine tender processes just partner Michael Payton isn’t concerned by being too focused: to get on to a bank’s panel, is ‘If you thought the global insurance industry was in terminal starting to have a serious impact. decline, then we would have to be worried about our reliance ‘Clients have become very good on that sector. But no one would ever take that view,’ he says. at buying and you have to ‘In an increasingly prosperous, consumerist and risk- averse protect yourself against world, demand for insurance can only go up.’ Last year's top Richard Burns, Hammonds discounts,’ says one City two billed 4% of turnover each, some £3.6m apiece. marketing head. ‘The panels are
‘Clients are much more sophisticated than they are given credit for; they know where they get the best service at the best rate.’
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