The Resilience of the Magic Circle
Ben Thomson, LawFuel contributing writer
Remember those predictions about the demise of Magic Circle law firms? Well, they’ve been confounding expectations for years with their continued success. But don’t be fooled – the London legal landscape is evolving into a battleground, with Magic Circle firms finding themselves encircled by aggressive, well-funded US law firms.
And the changes occurring has been leaving the Magic Circle firms to take the battle back across the Atlantic, as well as facing off in their home market.
Challenges Facing the Magic Circle
Let’s face it: the rather stuffy Oxbridge nature of the Magic Circle, combined with a stagnant European and UK economy (compared to a robust US one), has thrown some spanners in the works for their continued growth.
Add to that the entrepreneurial style of US law firms, and you’ve got a recipe for disruption.
Which is exactly what is happening.
The Merger That Shook Things Up
When Allen & Overy and Shearman Sterling decided to join forces, which came into effect this year, it really stirred the London legal pot.
This move has only intensified the rivalry, especially as US law firms continue to spread their influence across the London market.
But don’t count out the Magic Circle firms out just yet. Some UK law firms are taking the battle across the Atlantic. Freshfields and Linklaters, for instance, have been hiring big-name lawyers and making significant inroads in the American market.
Freshfields now has as many partners in the US as it does in Germany, after it merged with two major German law firms in 2000.
The American Invasion of London
Back on home turf in London, American firms are becoming bolder and bigger and continuing to put the heat on the Magic Circle.
As the Financial Times reported, “It was historically seen as a high-risk move to go to a US firm in London.” But times are changing, and firms like Paul Weiss are showing they have “the culture, expertise, work, and talent to dominate in London.”
US law firms have cleverly leveraged their American client bases to grow their European practices.
Pioneers like White & Case and Cleary Gottlieb, who arrived in 1971, paved the way for a new wave of firms following changes to UK law permitting foreign lawyers to form multinational partnerships.
The Private Equity Boom
The growth of private equity firms in London has been a significant boost for US law firms. These London-based US offices have developed their own power bases and are far from being mere ‘satellite’ offices.
In fact, White & Case’s London office is only about 5 percent smaller than its New York counterpart.
Brexit has also played a role in altering the status and influence of US firms in London. The landscape is shifting, and these firms are positioning themselves to take advantage of the new reality.
The Money Game: Remuneration Revolution
Let’s talk money – because that’s where things have really changed. US law firms have shaken up the remuneration game in a major way.
We’re seeing top partners in private equity taking home a cool $20 million a year, with average partner profits hovering around $5 million.
As Siobhan Lewington at recruiter Macrae puts it, “Figures like that were unheard of five years ago in London and show how the industry has become more analogous to investment banking.”
The NQ Pay Race
Even newly qualified (NQ) lawyers are feeling the love, with pay rates hitting £180,000 at US firms.
The Magic Circle firms have had to up their game, recently reaching £150,000 – a 50 percent jump in just five years for some of their most experienced lawyers.
The Lockstep Shake-up
The traditional lockstep pay system is also evolving in response to the ‘red hot’ partner recruitment market.
The American entrepreneurial ethos favours the ‘eat what you kill’ remuneration system, which threatens the more traditional and gentlemanly system deployed across the major UK law firms using the lockstep system, favoring longevity and loyalty to the firm.
The US firms are expanding not just in private equity, for so long the major lodestar for them, but also in M&A, leveraged finance, private credit, antitrust, and tax law.
This continues to challenge the Magic Circle firms who have exquisite contacts across the commercial landscape but who face the aggressive recruitment and payment practices of the American law firms.
The Work-Life Balance Conundrum
Working at these top firms isn’t for the faint-hearted, however.
Billing expectations are around 2,000 hours a year at most top US law firms – that’s about 8 billable hours a day, not including non-billable work. Recruiters typically expect around 1,700 hours for a major firm in London.
A recent survey showed that 8 of the 10 law firms working the longest hours were US firms. Kirkland & Ellis topped the list for the fourth year running, with an average working day of 12 hours and 28 minutes, typically finishing at 10:01 pm. But don’t worry – they’re working to dispel those rumors of a 2,500-hour annual billing target!
The Great London Migration
The hot legal scene has led to a surge in senior lateral moves in London. We wrote about the ‘partner poaching’ scene in London recently and the continued movement across the law firm constellation has continued unabated.
Last year saw over 500 partner hires, with Kirkland & Ellis alone nabbing 18. Other major recruiters included Paul Weiss, Addleshaw Goddard, and Stephenson Harwood.
And the trend continues, with 265 partners recruited in the first half of 2024.
The Impact on Legal Culture
As the big money flows, many are wondering about the effect on culture and work-life balance.
It’s also leading to higher charge-out rates, with some US firms charging over $2,000 an hour at the top end of the market. UK firms charge considerably less, but their rates are creeping up too.
The Future of London’s Legal Market
Despite the challenges, the Magic Circle firms can’t be discounted. Their links to investment banks and long-standing clients remain strong.
Meanwhile, US firms like Paul Weiss are showing their commitment to London by offering UK training programs and moving into expensive new premises.
One thing’s for sure – the London legal market is more dynamic and competitive than ever. Whether you’re a Magic Circle loyalist or eyeing those US firm pay packets, these are exciting times to be a lawyer in London and, like marriage, it requires something of a commitment ‘for better – ie money – or worse – ie work/life balance.
That is a balancing act that the lawyers face in the new world of London BigLaw life.
Author: Ben Thomson, LawFuel’s Big Law contributing writer. Contact Ben at news@lawfuel.com.
