Magic circle law firm

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Magic circle law firm
/ˈmæʤɪk ˈsɜːkl lɔː fɜːm/
(Also (chiefly Seppo) “white-shoe ~” ; “big law”) (n.)

Known in the commonwealth as the “magic circle”, and in the new world as “big law”, these large multinational legal service organisations issue curiously non-committal legal opinions and fulfil an essential but hard-to-articulate role in vouchsafing the orderly operation of the world’s financial markets. As such, they are one of the few international enterprises whose business model was wholly unaffected by the global financial crisis.

Magick circle and the occult

As the reference to magick suggests, there is something of the occult in these organisations:

1. Nocturnal: Magic circle lawyers are basically vampiric and, by day, repose in crates of salted earth in crypts beneath their offices. This can lead to disappointment, particularly among the sunshine-loving trading folk, who naively expect a draft promised “today” to arrive during the hours of daylight, and not to the accompaniment of moonlit dire-wolves at four o’clock the following morning.
2. Undead: For the same reason it is literally impossible to work private practice lawyers to death, because they are already undead. As long as you like your work late and impenetrable, they will carry on dancing as long as you are prepared to keep paying for the children of the night to make their music.
3. Soul selling: There is something Faustian about the bargains one strikes with magic circle law firms. Young clerks sell their souls in return for knowledge, power and unlimited wealth (though the trade is reversed from that proposed by Goethe: here it is soul and damnation first, wealth and power later).
4. Spiritual possession: Whole investment bank legal departments have been known to fall under the mendacious swoon of a single firm. In some cases even repeated efforts by a specially trained exorcist to cast out these malign influences over a possessed general counsel have foundered.

Gravity-defying charge-out rates

Magic-circle charge-out rates have been steadily rising since 1985, to the point where it is now more expensive to hire a trainee solicitor for an hour than to fly to Monaco for a weekend at the Grand Prix.

The best way of doing that, therefore, is to arrange for a magic circle law firm to invite you to the motor racing as part of its client entertainment programme.

For their part, magic circle law firms are known to despair at the arms-race amongst them for client corporate entertainment, which has got to the point where they have had to jack up trainee charge out rates —

The rate of increase in charge-out rates and, yea, even law firm revenues, has been so steady as to draw comparisons with the performance of Fairfield Sentry’s investment in Madoff Securities. No-one tell Harry Markopolos.

But it is not just the steady increase in charge-out rates which has the feel of a conjuring trick about it.

How the magic happens

Here is a schematic impression of how it works:

The client, a financial services behemoth, is repeating a large but essentially straightforward transaction, only with a different customer and in a foreign currency. There is therefore a novel FX component, but nonetheless this is about as simple a variation as there could be. The instruction is to update the documents (dates, amounts, parties, and that fiddly little cross-currency bit) and send them to the client, ideally by the end of the day. Being bread-and-butter work for an organisation armed to the teeth with specialists in exactly this sort of transaction, this is a reasonable request. The magic circle machine whirrs into action:

1. Trainee (£600/hr, who was reading classics at Baliol not six months previously) “marks up” the “precedent” from the last deal. Seeing as she understands neither that deal nor the new one — no wonder, seeing as the template is one hundred and twenty pages of the grammatical equivalent of a Heath Robinson machine — this takes most of the day. Though nothing much needed to be changed, half of it is still missing, and the attempt at the fiddly FX things is hopeless. She had a bash on ChatGPT.
2. Thirdy-six hours later, the draft is passed for review to a managing associate (£900/hr, a 26-year-old 4-year PQE skilled only in copying what has been done before but by now inured to writing with the elegance of a Heath Robinson machine). Being busy, the managing associate does not gets to it until 9 the following evening. At 3:45 am the document is dropped on the Trainee’s seat for processing in the morning. It is in better shape — the FX bit at least is formulated in complete sentences — but it confuses “price” and “amount” and, in any case, now needs a partner’s imprimatur.
3. The partner (£1300/hr, Trinity College graduate who has spent her 14-year career cranking out vanilla structured notes) is busy, so her illegibly scribbled alterations (correcting split infinitives, ensuring no verb survives in the active voice etc) arrive at 7 the following evening. The trainee is now busy on a new deal, so only gets to these comments at 3am. The draft (only changed dates, currencies and parties and that fiddly FX thing, remember) gets out the door at 5am five days after it was expected, and there is £7,000 on the clock before the other side has even had a look at it.

Responsibility be gone

The Magic Circle’s showpiece is surely how it can make personal responsibility disappear without a trace, simply by waving a legal opinion at it. The lion’s share of the economic interactions that precipitated the dot-com bust, the Russian crisis, Enron’s collapse, the credit crunch, Bernard Madoff’s gargantuan fraud, the global financial crisis, the London Whale, WireCard, 1MDB —all of these will have been done under the watchful eye and diligent documentary assistance of law firms, not one of which has sustained so much as a claim on its professional indemnity insurance policy as far as has been widely reported.

Now it is no part of the JC’s intention to suggest complicity, neglect or even carelessness on the part of these law firms — they are peopled by tireless, astute and upright people, to be sure — but it is to wonder about cause and effect.

For, if every phase of Lehman’s overreach and eventual collapse can have been accompanied by expensively rendered, diligently composed and conscientiously delivered legal advice, and no part of that advice can be faulted, its recipients might pause to wonder what good it did — and, for that matter, does, even when provided to firms which are not in present danger of imploding.

The goods it does, of course, is not to the company’s bottom line, but the bottoms of its responsible risk managers employed by its clients. No-one got fired for hiring Linklaters, much less for relying on its legal advice, after all.

Fun fact: the total revenue of the top twenty global law firms in 2019 was over thirty billion dollars.

Now that is a nice trick.

See also

• Agency problem
• Reliance on legal advice
• Charge-out rates
• Allen & Overy
• Clifford Chance
• Freshfields
• Linklaters
• Silver circle law firm