The firm that has risen above the Magic Circle

THE Magic Circle model is in need of a re-engineering.&rdquo; In light of recent revelations about the impact of the economic downturn on City law firms, that statement might not qualify as controversial. However, it&rsquo;s noteworthy because it is a view espoused by Nigel Knowles, co-chief executive of DLA Piper, the newly-anointed &ldquo;biggest law firm in the world (by revenue)&rdquo;, which generated $2.26m (&pound;1.34bn) in fee income in 2008, according to figures out last month. Knowles insists his firm does it differently. <br /><br />So where are his global peers going wrong? &ldquo;They have a very high cost base, a very large number of equity partners who all want to earn more than &pound;1m a year,&rdquo; he says. &ldquo;So, if there&rsquo;s not the corporate finance and capital markets work, what do you do?&rdquo;<br /><br />This has been an astonishing year both for Sir Nigel (who was knighted in March) and his firm, which overtook Clifford Chance in a Legal Business magazine poll to take the mantle of biggest player. Despite endless analysis in the trade press, the legal pecking order doesn&rsquo;t change much. &ldquo;Over the last decade there have been surprisingly few changes in the order in which global law firms rank in revenue tables,&rdquo; comments LB senior reporter and DLA watcher Stephen Doggett. &ldquo;The upper echelons tend to look the same each year. That&rsquo;s why the rise of DLA to the top spot this year is such a big event.&rdquo;<br /><br />This modern DLA (67 offices in 29 countries employing 8,000 people worldwide and more than 3,500 lawyers) came into being through its 2005 tie-up with US firms Piper Rudnick and Gray Cary Ware &amp; Freidenrich. None of the firm&rsquo;s constituent parts, Doggett notes, were top 50 players a decade ago when the concept of a global firm was first envisaged. &ldquo;The global legal market isn&rsquo;t used to this sort of growth,&rdquo; he adds. <br /><br /><strong>DESIGNED FOR TOUGH TIMES</strong><br />Knowles is careful not to appear triumphalist in a recession (&ldquo;I don&rsquo;t want to suggest we&rsquo;re not experiencing anything of the downturn&hellip;&rdquo;) DLA hasn&rsquo;t been without casualties &ndash; there have been redundancies and it has been reported that he has personally taken a &pound;100,000 pay cut. But at the same time, the solicitor argues that his firm is designed to weather tough times. &ldquo;What I&rsquo;d say to a prospective client is that our vision is to be the leading global business law firm. By that I mean we&rsquo;ve a broad range of practice groups and sector relevant expertise and we are also global.&rdquo; <br /><br />He pictures the no-doubt familiar scene of general counsel being grilled by an anxious CEO demanding that the legal budget be slashed by 25 per cent (&ldquo;I have even known some counsel to have their budgets slashed by 50 per cent&rdquo;). &ldquo;Well, the firm is purpose-made for you,&rdquo; says Knowles. <br /><br />That might be so; but does DLA have the clout to win the big league clients away from the Magic Circle firms? &ldquo;Both the challenge and the opportunity for DLA is to be seen as the next tier alternative to the major UK and US firms,&rdquo; comments Tony Williams, founder of the management consultancy Jomati and former Clifford Chance managing partner. &ldquo;The jury is out at how quickly they can achieve that.&rdquo;<br /><br />Others put it in more pejorative terms. DLA, they say, is all about &ldquo;high volume, low value&rdquo; commercial work rather than top tier work. Knowles rejects the tag of &ldquo;volume merchant&rdquo; in a characteristically forthright fashion. &ldquo;If you are in a firm with no vision, no strategy and declining profits, you&rsquo;re probably not inclined to say too many things nice things about us,&rdquo; he counters. &ldquo;The criticism is largely irrelevant. We are very happy with the space that we are in at the moment.&rdquo; Knowles has previously referred to the &ldquo;big grey mass of dreariness in the middle of the City&rdquo; and argues that DLA has its place. <br /><br />He reels off a list of deals such as advising on Amber Energy&rsquo;s successful HK$166m IPO on the Hong Kong Stock Exchange and new clients, for example, winning lead global counsel with the auction house Christie&rsquo;s. <br /><br /><strong>STRATOSPHERIC GROWTH</strong><br />Whatever the snipers say, the recent figures indicate the strength of the firm. Stephen Doggett describes DLA&rsquo;s profit margin (24 per cent) as &ldquo;low nevertheless respectable&rdquo; and that average equity partner profits ($1.253m) &ldquo;aren&rsquo;t to be scoffed at&rdquo;.<br /><br />Another criticism is that the firm&rsquo;s stratospheric growth has been too speedy, meaning that its two centres &ndash; Chicago, run by co-chief exec Lee Miller, and its London office which is the base for its international non-US practice &ndash; have yet to gel. Knowles is speaking to us having arrived from Heathrow at 7am after a three-day board meeting with Miller and the Baltimore-based chairman of the board, Frank Burch. He insists all is well. &ldquo;The US business is not more profitable. We are amazingly aligned and close.&rdquo;<br /><br /><strong>YOU OWE THE FIRM</strong><br />It has been quite a career trajectory for Knowles, who started his legal career at the rather unpromisingly named Broomhead &amp; Neil in 1978 in Sheffield. That firm was subsumed into the DLA dynasty where the lawyer has stayed ever since. What does Sir Nigel, son of a South Yorkshire grocer, make of the recent report on social mobility in the professions and the particular lack thereof in the law? Mobility moves in a number of directions, reflects Knowles, sidestepping the issue. <br /><br />&ldquo;If my restructuring practice is desperately busy, I have to put people from corporate and finance and real estate in to support them,&rdquo; he says. &ldquo;Long gone are the days when the firm owes you a living. The firm doesn&rsquo;t owe you a living. You owe the firm the best shot you can give it.&rdquo;<br /><br />Is the profession any more of a meritocracy? &ldquo;Speaking for my own firm,&rdquo; says Knowles, &ldquo;I do not think that we have ever been a stuffy establishment practice. We have always been moving into new territories and we have always had to work harder than everybody else to prove ourselves.&rdquo;