PwC Survey Reveals Strong Growth In Partner Profits

by Robin Pilgrim, LawAndTax-News.com, London

22 November 2006

The 15th annual law firms survey from PricewaterhouseCoopers, published this week, shows that virtually all of the UK’s Top 25 law firms continue to record strong growth in profits, as total fee income has increased, and restrictions on equity partner numbers have been maintained.

The 2006 survey highlights a “benign and favourable economic environment” that has enabled more than 65% of the Top 25 firms to grow fee income by over 10%, with some achieving more than 20%. As a result, all of the Top 25 respondents to the survey increased their profits per partner, with 30% recording growth of more than 20%.

However, despite the growth in fees and average profit per partner, profit margins remain under pressure due to continuing low levels of staff utilisation (relative to last year and target), continued salary pressures and high levels of qualified staff turnover.

Alistair Rose, leader of the professional partnership advisory group at PricewaterhouseCoopers observed that:

“The survey results show that 2006 has been an exceptional year for many law firms and a key driver of the high level of growth in profits per partner has been the continued restriction on equity partner numbers. More than half of the Top 25 reduced the number of their equity partners, an indicator of a real focus on maintaining growth in profits per partner at the expense of broadening the partnership. Interestingly, however, among the Top 10 law firms, just over half increased their partner numbers this year, reversing the falling trend of the last couple of years."

“Given the profitability growth reported by firms, it is surprising that levels of chargeable hours, per member of staff, have fallen by an average of 3% for the Top 25. Again, firms are failing to achieve target utilisation. At the same time, staff turnover levels are also still high, averaging up to 20% for some Top 25 firms. There are clearly work-life balance issues involved here, combined with the increasing restrictions on equity partnership as an achievable career goal.”

International expansion has again featured in 2006, with over half the Top 25 reporting increases in their overseas revenues of more than 15%. This is, however, lower than previous years, as firms seek to consolidate their overseas operations.

Not surprisingly, the largest firms have the most established overseas operations with six of the Top 10 now generating more than 30% of their income from those sources. China is attracting most attention, with three quarters of the Top 25 having at least one wholly-owned offices there.

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