The day of the £1 million a year solicitor is well and truly here. Prodded by fierce competition, Britain's lawyers are working longer and harder, and their salaries are escalating in parallel. The good news for clients is they are now in a buyers' market. Chris Blackhurst looks at how to pick one and how to pay.
By CHRIS BLACKHURST.
When an advertisement appeared in The Times earlier this year offering a salary of over £1 million for a commercial lawyer, eyebrows shot up.
But surprise at the size of the figure was confined to laymen. It scarcely rated a mention among knowing City solicitors. For them, that kind of a salary, while not commonplace, was not unexpected. The ad was placed by QD Legal, a firm of recruitment consultants, on behalf of a US firm practising in London. The seven-figure carrot was seen as merely the latest escalation in the war between US and UK law firms - a war that is changing the face of commercial law in the UK and is forcing up solicitors' potential earnings and raising serious questions about the money they charge.
Fees for senior partners in the UK's leading commercial law firms now range between £400 and £500 an hour. Below that, the average hourly charge-out rate for a partner is £300 to £350. The market is dominated by the 'Big Five' - Slaughter and May, Linklaters, Freshfields, Clifford Chance and Allen & Overy. Total billings by the top 100 firms in 1997-98 added up to £4.3 billion, according to Chambers & Partners. Of this, more than a quarter, 28.5%, went to the Big Five. If you include the next five, all based in the City of London - Lovell White Durrant, Herbert Smith, Norton Rose, Cameron McKenna, Simmons & Simmons - the dominance of London becomes stark. The capital's 10 leading firms account for 43% of the billing by the top 100. Market leader is Slaughter and May in the City. According to an analysis in Legal Business magazine, it is Britain's most profitable law firm, by some distance. Senior equity partners at 'Slaughters' earned £875,000 each in 1998, while a junior equity partner chalked up £437,000.
Each fee-earner at the firm averaged fees of £268,000, while each partner's average profits for the firm were £625,000. 'Slaughter and May is the Rolls-Royce,' said one legal consultant. The firm's clients include Boots, Cable & Wireless, Carlton, Glaxo Wellcome, Ladbroke, Norwich Union, Shell Transport and Unilever.
In May 1996, Chadbourne & Park of New York advertised for three solicitors for its London office. Salary: up to £700,000. Last year, Orrick Herrington & Sutcliffe of San Francisco ran ads in the legal press seeking a UK lawyer to set up its London office. In that instance the salary was $1 million (£613,000). QD Legal had placed the Orrick Herrington advert, and it was QD Legal again that upped the ante this year with the cool £1-million-plus offer. Almost as an aside, QD Legal said in its ad that the £1-million-plus salary was 'very significantly below' that of its anonymous client's senior partners. Nick Shilton of QD Legal would not name the mystery firm of high-rollers. The ad generated at least 60 serious responses, which are being assessed. 'We have had an excellent response from a number of people of the right quality,' says Shilton. 'We are looking for a very heavyweight individual who can make a serious contribution to the practice.'
The ad reflected a shift in the way corporate law is conducted in London.
While the so-called Big Five firms of solicitors still dominate, they have been joined by cheque-book-waving giant rivals from the US. At the same time, the medium-sized firms which have traditionally enjoyed a comfortable living picking off crumbs from the Big Five's top table and servicing smaller clients, have started to find the going difficult.
Once it was widely assumed that a partner in any large commercial law firm had a job for life. Not any more. These days, especially if he or she works for one of the firms outside the top tier, they will have to undergo an annual internal review and put their future on the line. Questions asked, according to Denis Reed of legal search agency JCL, will include: 'How much have you billed? What new clients have you brought in? What contribution are you making to the growth of the practice?'
There is, says Reed, 'nowhere for lawyers to hide any more'. Loyalty, he adds, has gone. Disappeared. People move at an alarming rate. 'The legal profession has gone the way of the US.'
At QD Legal, Shilton agrees, saying there is much more movement between law firms, much of it driven by US lawyers coming to London. 'They have made a major impact,' he says. Despite speculation, Shilton's client could be any one of a number of US commercial firms which have invaded London.
They are known as 'rainmakers' in their home country for their ability to combine deal-making with technical legal expertise.
'There are 600 lawyers working for US law firms in London,' says Reed.
'In the past five years they have really taken off.' A glance at the list of the world's top 50 firms show why a £1 million salary for a US firm is not exceptional. According to the study in Legal Business, only eight of the top 50 are from the UK; the rest from the US. At number three is Britain's biggest, Clifford Chance, with 1,795 lawyers producing fees of £377 million a year - £232,000 per lawyer. This pales alongside its top US rivals. Heading the list is Skadden, Arps, Slate, Meagher & Flom of New York: fees of £495 million generated by 1,125 lawyers - a rate of £461,000 per lawyer.
Earnings on this scale yield profits for the firm's senior partners running into millions of dollars. With the Americans has come not only greater movement and insecurity but also a harder-nosed way of doing business.
Skadden, for instance, is famous among commercial lawyers - and not just for being the global leader. American Lawyer, a US legal magazine, once published an article exposing what it called 'Skaddenomics', the way in which the top firm charged its clients. Included among the revelations were food for client meetings that came from an internal canteen but was priced as if it had come from a top restaurant, and charges for photocopying documents at far above what was charged on the streets.
Chris Stoakes, former marketing partner of Stephenson Harwood, solicitors, in London and now a publisher and consultant with his own company, Brightwater, said US lawyers worked longer hours than their UK counterparts and charged far more. 'According to legend, one US associate managed to bill 27 hours for a 24-hour day by working across the date line.'
A fee-earner at a large UK firm, according to Stoakes, would typically be expected to charge 1,200 to 1,800 hours a year. The same fee-earner would probably work a third again that was not chargeable, giving them a total at the top end of 2,700 hours a year. Their US opposite number would be expected to charge at least 2,000 hours a year. In order to merit their £1-million-plus salary, the person QD Legal recruits for the mystery US firm, says Reed, will probably have to earn fees of between £3 million and £4 million. But he or she will have a team of assistant solicitors working for them - all of whom will be putting in longer hours than their equivalents in UK practices. With each assistant charging 2,000 hours a year, and the superstar £1-million-plus earner also contributing over 2,000 hours - and if their work involves deals, there will be a percentage element to be added as well - they should have little difficulty in meeting the target. Top American lawyers regard working six days a week as commonplace.
They start in the office much earlier than their British rivals - usually after a spell in the gym - and work late into the evening. They also think nothing of spending their weekends with clients socially - something many UK lawyers would frown upon.
The American influence, though, is rubbing off. UK solicitors are working longer and harder - and charging more. The old British method of costing, of 'weighing the file' - literally picking it up and 'guesstimating' the amount of work done - has by and large disappeared. Skaddenomics is the new order. UK lawyers even have their own word for it: 'padding', as in padding the bill. It can take many forms. Four partners from one London firm close to Mansion House underground station had to attend a meeting near Temple, two stops away. Rather than take the Tube, they went by taxi and charged the client the fare plus their time spent sitting in traffic.
And padding is not confined to London. Last year a leading firm of Edinburgh solicitors sent a construction client a bill for £204,000. When the client queried the total, they discovered £34,000 was for photocopying at more than £4 a sheet, while telephone calls on the client's behalf were charged in units of six minutes. When the bill was broken down, the client discovered it was being charged for some items twice, and work by trainees was marked up as having being carried out by qualified solicitors.
Clients are growing wise to these tricks. Cautious corporates are demanding a capped or agreed fee before hiring a firm. Increasingly common is the 'blended fee', where there is a set rate for anyone working on a particular matter. For example, a partner's normal rate might be £300 an hour, but the blended rate for the transaction, agreed between firm and client, is £200. This encourages partners to pass the job on to assistants but the client is reassured it will not be facing an exorbitant bill. But they need to be vigilant.
For clients fearful of enormous litigation bills, there is, at last, some hope of relief. For that they have to thank Lord Woolf, Master of the Rolls, whose report in 1996 on reforming trial procedures has now been accepted by the Government. The Woolf reforms, initiated on 26 April, create a single set of rules for county courts and the High Court, and go some way in helping litigants assess likely costs. 'What the ordinary person wants to know is how long it is going to take and how much it is going to cost,' says Woolf. If a claimant makes a pre-trial offer and a defendant rejects it but the sum is later matched at the trial, the defendant can be ordered to pay interest at 10% above base rate. Plaintiffs also have to swear as to the truth of their claims. If they turn out to be false, financial penalties kick in. Judges have the power to dismiss weak cases and to impose penalties for delay. While the changes won't reduce a lawyer's hourly costs, they should eat away at litigation bills.
Figures from the Office for the Supervision of Solicitors, the watchdog for lawyers in England and Wales, show that complaints, mostly about overcharging, are averaging 3,000 a month - an annual increase of about one third. According to the Consumers' Association, solicitors often do not explain their charges in enough detail, 'and in some cases they just overcharge'. You have been warned.
IS YOUR LAWYER CHARGING TOO MUCH?
Lawyers are 'Natural Born Billers'. There are no hard and fast rules.
Either you ask for a more detailed itemised breakdown when you receive your bill or you agree a fee upfront. Ask for an estimate before the firm starts work and agree a capped fee. Another device is the 'blended' fee, whereby you agree a rate for the work done by anyone on your case. Constantly ask and check how much you are paying.
While City firms show a remarkable degree of similarity in their charges it is possible to beat them down. One in-house lawyer told me he is disappointed if he does not take 10% to 20% off a partner's hourly rate. A decent firm should ring you before sending you the bill, to ask if the amount is okay.
This softens the blow and indicates a willingness to negotiate. Disbursements are an area to examine. Are you being charged too much for taxis, photocopying, writ issuing and so on? These costs may be insignificant, however, when put alongside the barristers' bills. Is your solicitor consulting you before choosing counsel? If not, why not? Are you consulted before the solicitor agrees a barrister's fee? You should be. What about approaching a barrister yourself, via the Bar Council's new BarDirect service, which comes into being later this year? The balance of power has shifted in recent years. Clients today are in the driving seat. Do not be afraid of querying everything. The bane of any solicitor is slow payment. If you argue, you will delay payment. If you agree a lower rate, you will pay up sooner. The solicitor knows that. Do not be afraid of exploiting your advantage. Demand to know who did what on your file. Why was it necessary to have three trainees and two assistants involved on a licensing application?
Why do references change on letters? Why, when you ring, is the partner busy in a meeting but he or she always finds time to claim for work on your behalf? Ring other firms. Ask for quotes. Then you should get an idea if you are paying too much. Consult businesses similar to yours.
Nothing unites normally deadly business rivals more than lawyers' charges.
HOW TO FIND THE RIGHT LAWYER
Gone are the days of 'one lawyer fits all'. If you need a conveyancer, a litigator and a mergers lawyer, why go to one firm? You want the best person to act for you in each field. Give conveyancing to one firm, litigation to another and mergers to another. A company such as Sema, for example, gives its corporate and pensions work to Nabarro Nathanson, IT law to Dibb Lupton Alsop, debt litigation to Vaudreys, and financial regulation to Pinsents. You should do the same. Is it the firm or an individual partner you want? The answer should be, the partner. Firms are merely collections of individuals. Do not be swayed by their grandiose claims of offices in far-flung foreign climes. Neither should it be of any interest to you that a firm has a top-notch insurance specialisation. If you're not in insurance, so what? No, you want to make sure you get the best individual lawyer for the work you need doing. There are now numerous directories and rankings where individual lawyers are assessed. These are fine, but look at the people citing a particular partner in a particular firm. The soundest way by far is word of mouth. If someone you know and trust recommends a certain lawyer, you can feel confident. Ask around, at trade shows and conferences. It is almost impossible these days to avoid lawyers at industrial gatherings. They are seen as a great marketing opportunity. But ask yourself this: if this person browbeating you over coffee is as good as he says, why is he here? Why isn't he in his office doing the work he is so good at? Before you choose, it is a good idea to hold a beauty parade. Big firms expect them. Ask every question you can think of, and tie the firm down. If you're hiring it because its banking partner is the best, you want to know precisely how much time he will devote to you. You want to hear them say how important you are to them. You want to know what they will charge you. Tell them what you expect, and that if they charge too much, you will not pay. Make them promise you the earth. Remember, such is the competition among lawyers these days, they need you more than you need them.