A wry picture of restless discontent amid increasing affluence is painted in the Law Firms’ Survey 2007 published yesterday by PricewaterhouseCoopers.

Like a dysfunctional overachieving family, the kids cannot sit still for more than five minutes while the parental generation spouts platitudes but keeps on sending out mixed messages about issues such as fidelity and deeper values. And as for keeping up with the Joneses – well, the rich are getting richer and the poor relations are dropping out of the neighbourhood.

The key finding in the report is that the top ten firms continue to do extremely well and, what is more, do much better than those beneath them. Two thirds of the top ten achieved a growth of fee income during 2006-07 in excess of 10 per cent. For one in five, the increase was of more than 15 per cent. As a result the top ten are moving farther ahead than ever from the chasing pack in profitability. The top ten’s average profits per partner stood at £866,000 (by comparison with £781,000 in the previous year). Meanwhile, for the next group of firms (the top 11 to 25) profits per partner stood at £497,000 (by comparison with £478,000 the year before). In other words, profitability among the elite group grew at more than double the rate of those in the division below. Almost as interesting – although PwC did not give any figures on this – even within the top ten the best performers are moving ahead of those lower down.

One of the keys to these results is the extent to which new equity partners are being created. The broad principle is that the top firms are making up fewer new equity partners than those lower down the scale. As a result the cream can be spread much thicker at the top. Firms outside the top ten may boost their income by creating more partners but they are not increasing profitability. As the report comments: “Firms are finding it more challenging to increase profitability per partner than they are to increase top-line performance.” Of course, behind these bald statistics are complex and subtle issues of culture and aspiration. The most profitable firms have been going through a determined process in the past couple of years of “managing out”, as the management-speak euphemism puts it, the less profitable, older or less motivated partners so that almost half the top ten firms decreased their equity partner numbers during the year.

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Meanwhile, the work ethic is ruthless and the consequences are revealed in the other key theme highlighted by Alistair Rose, of PwC, who leads the professional partnerships advisory group: namely that top law firms are suffering extremely high staff turnover and the war for talent is intensifying.

This has been a topic of increasing concern in recent months but the PwC figures show how serious the issue has become. Half the top ten firms reported staff turnover at more than 31 per cent among their three to five years’ postqualified lawyers. And broadly speaking you can talk about 25 per cent turnover as the norm among leading firms. “This is now the biggest issue on managing partners’ agenda,” Rose says. “Losing a quarter of your people annually when you are a professional service firm is worrying, especially when you consider that this is costing you roughly £300,000 for each qualified person in terms of real and opportunity costs and the disruption in continuity to the client.”

But you do not need to be a management guru to see what is going on. As the PwC report points out: “Our survey confirms what many commentators have suspected for some time; [there is] a direct correlation between those firms recording the highest chargeable hours and those with the highest staff turnover.”

Likewise, the targets set by the top ten are hugely demanding so that newly qualified staff have as targets 156 more chargeable hours than the top 11 to top 25 firms. Even more striking is that these staff go on to achieve almost 300 hours more than their peers at smaller firms. Endless hours, however, erode the emotional commitment to the firm and as Rose observes: “In today’s law firms loyalty is a depreciating asset.” And this is not just among the younger lawyers, who move on quickly either because they are seduced by the bigger pay cheques proffered by US firms or they have been burnt out, but also among partners – or teams of partners – who now jump ship with the regularity of pirates.

One of the other fascinating details to emerge from the PwC report is that, by and large, the overseas offices of UK firms are nothing like as profitable as the London end. And key emerging markets such as China are the most problematic of all. Rose says: “Everyone wants to be there but the paradigm of business is quite different from what they are used to in the West.” The result is that those hard-working London associates are subsidising the firms’ long-term global aspirations, although they stand a diminishing chance of reaping the benefits of partnership. No wonder they leave in such droves.

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