Main law firms' dominance paying off handsomely
BUSINESS OPINION:Ireland generates just 1% of European GDP, but is home to three of the 20 biggest law firms, writes JOHN McMANUS
HERE IS a provocative question. Are Arthur Cox and the other big Dublin law firms some sort of homegrown version of Goldman Sachs? Do their activities resonate with those of the Wall Street giant which was so famously described by Rolling Stone Magazine’s Matt Taibbi as a “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money?”
Well, the big firms certainly seem to share Goldman Sachs’ ability to be on both sides of a deal and not be overly troubled by conflicts of interest. Arthur Cox, it has to be remembered, felt able to advise the Minister for Finance last spring on how to restructure the banks while at the same time being the lawyers of Bank of Ireland and simultaneously working for the private-equity consortium that was engaging with the Government on investing in Bank of Ireland.
What they did was not illegal and something quite different to the allegations being made against Goldman Sachs by the US regulators, but the management of conflicts of interest is central to the criticism being levelled against both organisations.
Perhaps the most amazing of the various explanations offered by Goldman Sachs executives for why they behave in the way they do is that their clients expect it of them. It’s part of the price you pay if you want the best, take it or leave it, would appear to be the maxim.
It is of course unfair to single out Arthur Cox for prospective vampire squid status. You only have to look down the list of lawyers on the panel advising the National Asset Management Agency (Nama) to see that rivals such as Matheson Ormsby Prentice and William Fry seem equally untroubled by associations with the dysfunctional institutions and property developers who Nama will now be hopefully wringing every last cent out of on behalf of the taxpayer.
And if the information that emerged over the weekend about the level of fees the big law firms earn is correct, then this lack of sensitivity seems to be paying off handsomely. According to thelawyer.com magazine, the six big Dublin law firms earned €482 million in fees last year. The breakdown is as follows: Arthur Cox, €105 million; McCann FitzGerald, €100 million; Matheson Ormsby Prentice, €95 million; AL Goodbody, €85 million; William Fry, €61 million and Mason Hayes + Curran, €36 million. Revenues per partner are €1.04 million; €1.45 million; €1.06 million; €1.29 million, €1.02 million and €0.77 million respectively.
The figures are not sourced but thelawyer.com is a well-respected publication and its lists of law firm earnings published throughout the year are considered the most authoritative source of information that is hard to come by.
The survey looks at large European law firms and excludes the massive London and New York-based global firms which are in a different league. It essentially looks at firms which derive most of their fees from their domestic markets.
What really jumps out from the survey is that the Irish market, which is tiny by European standards, supports some of the largest European firms. (Arthur Cox is ranked 14th; McCann FitzGerald 16th; Matheson Ormsby Prentice 19th; AL Goodbody 23rd; William Fry 34th and Mason Hayes + Curran is 56th.
The largest second tier-firm is a Spanish firm Garrigues with annual fees of €334 million, followed by a French firm Fidal with €295 million and the Dutch firm Loyens Loeff with €284 million. Revenues per partner are €1.33 million, €0.53 million and €2.37 million.
And this is the heart of the matter. How is it possible that an economy which accounts for about 1 per cent of European Gross Domestic Product can produce three of the 20 biggest law firms in Europe? And by the same token how is it possible for partners in these firms to bring in fees – and presumably earn associated salaries – on a par with their peers in these much larger economies?
The obvious explanation is that it’s because they have a disproportionately large share of a small market. Which is another way of saying they dominate the market for legal services.
The questions that follow on from this are: is such a situation inevitable in a highly skilled activity in a small market and, more pertinently, does it damage the economy? The answer to the first question seems to be not necessarily. Irish firms appear to be overrepresented – in terms of the size of the economy – in the upper half of the list, compared to firms from countries with similar populations but bigger economies, such as Sweden and Denmark.
This would indicate that there is not as much competition amongst the big firms here as elsewhere, which probably does not come as much of a surprise to anyone doing business.
And you would not have to be much of an economist to conclude that this is a pretty serious problem in a country which is pinning its hopes of economic salvation on an export-led recovery underpinned by improved competitiveness.