Is the 'magic circle' of leading law firms a mythical phrase conjured by journalists or does it actually carry weight among lawyers? Lucy Hickman discovers that sorcery has little to do with it, and that an ability to do corporate and international work is an attribute that aspiring members of the exclusive club need to cultivate

The magic circle of top City law firms is a journalistic device, coined by legal reporters in the wake of the break-up of its predecessor, 'the club of nine'.

The magic circle's exclusive membership has consisted of City firms Allen & Overy, Clifford Chance, Freshfields Bruckhaus Deringer, Linklaters, and Slaughter and May from the start.

The club of nine featured these firms and Lovells, Norton Rose, Herbert Smith and Stephenson Harwood.

It harked back to a time when City lawyers were almost members of a club, and featured a 'no-poaching' agreement between the members, and meetings between the senior partners.

The first cracks began to show in 1996, when Stephenson Harwood - which had not grown in size in preceding years in the same way as the other firms - was asked to leave, and in the following years the club of nine fell apart altogether, along with the no-poaching deal ended in early 2000.

It was perhaps the need to emulate the Big Six (now Big Four) accountancy firms that led to the continuation of some kind of elite group, and so the magic circle was born.

But many of its current members are unsure what the magic circle tag was originally meant to denote and what it means now remains a mystery.

There are no meetings or deals in the same way as the club of nine had - senior partners of the top City firms do meet from time to time, but this is usually at the instigation of the Law Society or the City of London Law Society.

Slaughter and May's senior partner, Tim Clark, says: 'It's a funny concept.

I don't know where the term came from or who founded it.

It's mainly something that comes up when we talk to journalists or they talk to us.

We don't describe ourselves as a magic circle firm in any of our marketing material.'

Linklaters head of corporate, David Cheyne, says: 'City law firms years ago used to provide information to each other so they could keep in touch with what was going on, but that ended yonks ago.

'It seems to be a term to describe the leading City firms and there is some truth in it.'

Herbert Smith, the firm whose membership of the elite group is the subject of debate among legal journalists, is clearer about the magic circle's origins - and why it was originally omitted.

Corporate partner and former investment banker Henry Raine says: 'The phrase was coined by a legal magazine and referred to firms which were very strong in corporate or international work.

At the time, Herbert Smith was languishing in the corporate stakes, and so was consigned to the outer darkness.' This is perhaps why Slaughter and May - a far smaller firm in size terms - is in the group, given its pre-eminent reputation for corporate work.

Mr Raine explains that one reason why Herbert Smith did not originally make the grade was because it spent much of the 1980s working on privatisation deals, which had pretty much dried up by the time the magic circle phrase was coined.

However, knocking Clifford Chance off the top spot in the European mergers and acquisitions (M&A) market for the first quarter of 2004 (see [2004] Gazette, 1 April, 6) is just one reason Herbert Smith claims that it has earned a place in the mythical circle.

But perhaps Herbert Smith should be patient.

Mr Cheyne says: 'You can always be a leading firm for a short period.

It's inevitable that firms will have a good run every now and then.

But the first quarter of this year wasn't a busy period.

That's the point.'

And, the first quarter data, compiled by analysts Mergermarket, in which Herbert Smith prevailed, showed that M&A work overall is on a downward trend in Europe so far this year, in contrast to the US market.

Mr Cheyne points to a 13 billion deal that temporarily elevated City firm SJ Berwin into the upper echelons of the corporate deal world in the 1990s, when the firm represented a company making a bid for British American Tobacco.

'There was us and Slaughter and May and SJ Berwin up there that year.

It wasn't a thin market - it was just a big deal.

If you are there, consistently acting on the best deals for a number of years in a good market, that might change things.'

But Mr Raine says that ever since the term magic circle was coined, there have been suggestions that Herbert Smith should join its ranks.

He says the turnaround began in the late 1990s, when the firm took the decision to stop suing investment banks and began instead to woo them as corporate clients.

The strategy appears to have paid dividends.

Long known for its excellent litigation practice, in recent years corporate has begun to outshine litigation in contribution to turnover, and the firm is consistently among the top deal makers in various tables.

Such is the firm's conviction that it now belongs up there with the big boys that it even has a link on its recruitment site that connects readers to an article suggesting the firm should be part of the magic circle.

However, City rivals are resistant to the idea that Herbert Smith deserves to join the elite group.

Mr Clark says: 'If other firms said they wanted to be in the magic circle, it wouldn't bother us.' But he contends that the existing members maintain their pre-eminence.

Mr Cheyne adds that although Herbert Smith has a 'very good' litigation practice, he is not sure that it warrants magic circle status.

Mr Raine says: 'Others use our litigation tag to detract from our corporate practice.

But if people are talking about you, so much the better.

I love that we have such a strong litigation practice, because in a downturn you have another revenue stream apart from corporate.

I use our litigation practice to market the firm to investment banks.

They are fantastic users of legal services and they are attracted by a strong litigation department.'

He adds that recently there were reports of a major bank putting aside billions to cover its potential liability for the Enron scandal.

'These sort of problems are more significant than your average deal,' he argues.

Part of the problem, he says, lies in how the firm marketed itself.

He says: 'We weren't supposed to be in [the magic circle], yet we always came across other magic circle firms on the other side of the deals we were doing.

'We just weren't that good at marketing ourselves then and we had a couple of years when we weren't as good in terms of profitability.

I think profitability is important.

You need to be one of the most profitable firms to be in the magic circle.'

The Mergermarket data revealed that Herbert Smith, ranked with its German ally Gleiss Lutz and its Benelux partner Stibbe, completed 23 deals worth a total of 75 billion (50 billion) in the first three months of 2004.

Freshfields Bruckhaus Deringer came second with 73 billion from 35 deals.

Clifford Chance topped the table for volume of deals, acting on 37 transactions worth 72 billion, while Linklaters advised on 35 deals worth a similar total value.

The lawyers say that when it comes to recruitment, it is important to be known as a leading firm.

But does the magic circle tag help?

Mr Cheyne says: 'In terms of the higher profile the name brings, it may be marginally beneficial.

Name recognition always helps.

On the other hand, it might put people off because of the image it gives off.'

He says that ultimately, the magic circle tag - or any other name - will not keep clients unless you look after them.

'If you don't look after them, they will go somewhere else.

No one has a God-given right to a client.

And it doesn't matter how much they love you - if you don't have the capability, they will go elsewhere.'

Mr Clark says that although being known as one of the country's top five firms through the magic circle tag is a 'nice way to be written about', the term means very little to clients.

'I don't think it brings in any extra work,' he says.

But aren't those placed on a pedestal just there to be knocked off? Mr Cheyne says: 'Because of your higher profile, if you start to falter it makes it more interesting to comment on.

It's what the Australians call "tall flower syndrome".

The higher you grow, the more dangerous it becomes if you start to wilt.'

Lucy Hickman is a freelance journalist