Legal eagle: how London’s top law firm retained its grip on the City

The head of law firm Slaughter and May is two minutes late for his interview with City A.M., for which he immediately apologies. The first thing is surprising; the second is not. The partners in this blueblooded City institution have spent a lifetime doing things correctly.

Even among other Magic Circle outfits, this firm manages to hold a singular aura. Much of this is down its status as the most profitable law firm in the City.

Last year the partnership posted sales widely estimated at £439.5m (the firm does not publish its accounts), which are roughly half that of larger rivals such Linklaters or Clifford Chance. Yet Slaughters was still able to pay its 126 partners an average of £1.84m for their efforts, among the highest in the industry.

It is able to do this partly because it did not expand overseas like its rivals did a decade ago, which means when times are bad it does not carry large overheads or is forced to cut large numbers of staff. The business has not let any of its 1,200 staff (including 733 lawyers) go since the financial crisis began. It retains a close-knit, unique culture; Slaughters remains an unlimited liability partnership.

But the main reason for its success is down to the way its lawyers work and the enviable list of clients it retains. This business acts for an astonishing 28 FTSE 100 companies, more than any other rival; its clients include Marks & Spencer and Unilever. In total the firm is retained by 111 listed businesses.

It has also long excelled at getting government work. In the 1980s, under Margret Thatcher’s Conservative government, it won lucrative mandates to work on many of the country’s biggest privatisations, including British Aerospace, BP, British Telecom and British Steel. And during the banking crisis it acted for Gordon Brown’s Labour government to set the legal frameworks for the bailouts of Northern Rock, Lloyds Banking Group and the Royal Bank of Scotland. It earned £22m for this work; its next nearest legal rival earned under £1m in fees from the government for this work.

The profit margins that Slaughters can command for high profile work of the kind it took on during the banking crisis is understood to be around 50 per cent.

“There are two key drivers behind this,” says Saul, 54, an engaging and trim man, who is sitting in one of the firm’s tasteful meeting rooms on the first floor of its Moorgate headquarters. “The quality of the team here and the genuine sense of collegiality among the partners. These factors mean that we are able to advise creatively and proactively on some of the most challenging deals, financings and disputes.”

He also adds that importantly, lawyers at Slaughters are trained as “generalists” in all areas of the law, so when the lucrative mergers and acquisitions side of the business slows down they can turn their hands to restructurings, regulation or competition law. We are not stuffed full of “deal junkies” here, jokes Saul, who was elected as senior partner in 2008 for a five-year term.

Saul says that being a good general corporate lawyer means that “at 3.00am, when a deal is about to be signed at 7.00am and someone rushes in and asks ‘what about the negative pledge?’, there isn’t a ghastly silence. A client wants to be able to look at his or her lawyer and expect the lawyer to know what that means. You don’t want the lawyer to say ‘I just have to call my bonds person about that’”.

For the forgetful among you, the purpose of a negative pledge in loan agreements is to ensure that other creditors do not secure a preferred claim over the assets of the debtor in the event of insolvency.

In common with most Magic Circle firms, Slaughter’s corporate and finance departments account for the lion’s share of its profits; estimated at 65 per cent of sales, though its much smaller tax and competition departments also enjoy strong reputations.

Instead of opening up offices abroad the firm has, for more than the last ten years, pursued what it calls its Best Friends strategy. Slaughters has established a loose network with other top law firms like Hengeler Mueller in Germany or Cravath, Swaine & Moore in the US, who cooperate where they can and pass on business to each other.

When times are good, critics tend to complain that multinationals want to deal with a single law firm that can handle its business across a variety of territories. But in tough times like these, observers concede that Slaughters does not have to retrench as much as its rivals.

Saul says: “Over the last three years, our more flexible model has been particularly helpful. It has enabled us to respond quickly to major economic, business and regulatory developments.” He adds that – for this very reason – a merger with any firm in the network is not on the agenda.

Slaughters has only had two offices abroad for some time – in Hong Kong and Brussels – but 15 months ago it opened a third in Beijing.

Saul says: “We sat down and thought about this two years ago. We have a significant investment in our Hong Kong office and an increasing amount of our work was China-facing. So we felt that we should be in mainland China both to consolidate and grow our China work and to promote the continued growth of our Hong Kong office. Also, an office in Beijing means that we are close to the Chinese firms and this enables us to build ever-stronger relationships with them.”

Slaughter’s senior partner, in common with most professional services firms that depend on corporate action for fees, is “upbeat but guarded” about the prospects for the year ahead.

Saul adds: “Corporates have cash on their balance sheets, the debt markets continue to recover and, after some heroic cost cutting, many businesses will look to mergers and acquisitions for growth.”

He adds: “There is also pressure on private equity sponsors both to exit from long held businesses and to put capital to work.”

However, Saul acknowledges that the market is fragile, adding that a Eurozone sovereign debt disaster, a Middle East crisis or rising inflation “would lead to a loss of confidence in the equity markets”.

The senior partner also thinks that lawyers will become increasingly central to any deals that do come along as a consequence of the financial crisis. Firms will want more protection if a deal unravels, and they are dragged into court.

Saul says: “A few years ago, deals were struck where people thought that they would never have to get the documents out of the drawer. But the world has changed and clients have had to open that drawer – and have sometimes found that they have agreed to things which they would have preferred not to.”

The recent BP-Rosneft deal is a recent case where lawyers – rather than big banks – have taken centre stage in a deal. It was specialist oil adviser the Lambert Energy Advisory and the oil majors’ law firms Linklaters, for BP, and Freshfields Bruckhaus Deringer, for Rosneft, that put the joint venture together.

Saul says: “There is now a greater appreciation that bad stuff happens and that a balanced assessment of risk at the outset is key. This has helped the stock of legal advisers, internal and external, to rise – not so much as lawyers but as advisers.”

Regardless of whether lawyers’ new influence is permanent or merely a cyclical phenomenon, one thing is clear: Slaughter and May, one of the City’s true powerhouses, will continue to box well above its weight.

CV | CHRIS SAUL
Age: 54

Work: Trainee, Slaughter and May: 1977-79; corporate assistant: 1979-86; elected partner: 1986; head of New York office: 1991-94; elected head of corporate: 2003; elected senior partner: 2008

Education: Tiffin School, Kingston-upon-Thames; St Catherine's College, Oxford

Family: Married, two children

Lives: Notting Hill

Hobbies: Drives a 1973 Porsche 911, a Renault Mégane and has a half share in a Lotus 211. Listens to a lot of Joan As Police Woman, Crosby Stills and Nash and Vampire Weekend. Reads a lot of fiction

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