Judgement day looms for Herbies corporate partners
Performance comes under scrutiny as department misses budget target
James Palmer
Herbert Smith is gearing up to put its corporate department under the spotlight after it missed its budget target by £20m last year.
Industry sources close to the firm say it is poised for a wholesale cull of partners across the global corporate practice, with some suggesting up to 15 or 20 could face the axe.
The news comes as questions are being raised about the corporate team’s profitability and performance compared with the firm’s flagship litigation practice.
The average profit generated by each corporate partner at Herbert Smith is understood to have been £500,000 last year. That was outstripped by litigation partners, who brought in an average profit per partner of £1.4m.
Average revenue per partner (RPP) in the corporate team was £1.7m for 2008-09, but that has dropped to £1.6m for the past two years, putting it in the same league as Macfarlanes, behind CMS Cameron McKenna’s £1.75m and significantly behind the magic circle.
In contrast, Herbert Smith’s litigation practice posted an average RPP of £2.3m during 2009-10 and £2.1m in the past financial year.
A former Herbert Smith partner said: “Despite all its efforts it’s still viewed as a litigation firm. It’s made a lot of progress in corporate, but it hasn’t reached the magic circle, and is in fact being challenged by the likes of Ashurst and Macfarlanes. It’s still struggling to get involved in big-ticket work.”
Herbert Smith global head of corporate James Palmer denied that any cuts were in the pipeline, saying: “I can honestly say there are no redundancy plans going on in corporate anywhere in the world at the moment.”
But sources say the firm plans to quietly manage out corporate partners, and over the past couple of years has already given ’taps on the shoulder’ to around 12 underperforming partners in areas including corporate, litigation and real estate.
The looming cuts coincide with the firm’s commissioning of management consultants PricewaterhouseCoopers to conduct a year-long systems review of the firm to examine utilisation and productivity among fee-earners.
Tensions between the firm’s litigation and corporate teams have been brewing for some time, with some litigators complaining that disparate profitability, coupled with a rigid lockstep, means they are propping up the corporate team.
A source said: “They still have quite a few good partners in their corporate team, but the issue is that so many of them have plateaued. They need to look at how they remunerate, but they just won’t do that.”
For an analysis of Herbert Smith’s strategy and management team, click here.
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Readers' comments (18)
Anonymous | 5-Sep-2011 11:47 am
There are too many corporate partners at HS who are at the top of the lockstep and just coasting along.
The problem with lockstep is that when you make someone a partner you really have to ask yourself, "is this candidate still going to be generating enough business in 10 or 15 years' time?"
That question hasn't been addressed sufficiently by HS in the past - and it shows.
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Anonymous | 5-Sep-2011 1:16 pm
I've heard they were going to be managing out certain people but 15-20 is a huge amount, and it's going to hit morale very hard...
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Anonymous | 5-Sep-2011 1:24 pm
They just don't have enough top talent in corporate. James Palmer is Slaughter and May quality, but he's leagues ahead of most people around him. They've also lost key people in Tokyo and Hong Kong and those offices are basically freewheeling at the moment.
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Anonymous | 5-Sep-2011 1:24 pm
You can have lockstep as long as management keep an eye on it and manage out regularly. Herbies have weak management and have ducked the issue. I think the senior and managing partner have failed to leave up to the high hopes many had when they were appointed.
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Anonymous | 5-Sep-2011 2:07 pm
They haven't post key people in Tokyo. They just started cleaning up. Anyone who would write such thing would uninformed or an ex-Tokyo partner.
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Anonymous | 5-Sep-2011 2:55 pm
The fact their so-called European alliance company Gleiss Lutz won't touch them with a barge pole makes the situation worse. There is no way Gleiss partners would ever want to merge with Herbert Smith because they just don't understand what they're talking about and aren't as international as they think they are. They don't send much work Gleiss's way, and yet Gleiss has progressed very well over the last three years whereas Herbert Smith has not.
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Herbie rides again | 5-Sep-2011 3:11 pm
Funny how all these commentators won't put their names to their opinions. Are they all still scared of David Gold?
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Anonymous | 5-Sep-2011 5:03 pm
"Herbie Rides Again" - I'm guessing you're scared of David Gold as you also haven't put your name to your opinion.
#wazzock
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p meriwhether | 5-Sep-2011 7:24 pm
What a complete non-story. There are ups and downs. You get ahead by sticking together and staying to plan over 3-5 years. Litigation is not that far ahead and the markets will turn.
HS is a first class out-fit and, effectively, magic circle; have you seen the shape CC is in?
All that said, a few or so non-performing partners should be given deadlines, or moved out; irrespective of dept. and history. That's not news. Fortunately, HS is a pretty cool set, so do not expect any knee-jerk reaction.
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Anonymous | 5-Sep-2011 11:07 pm
Persisting with the lockstep with no tapering coupled with the downturn in profitability relative to its peers has led to voluntary and involuntary departures at partner level which has diminished what was once a great firm.
David Gold is an irrelevance.
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