Battleplans and bitter pills

Behind the upbeat talk of big profits, there are jitters in the north-east market. Competition is cut-throat and Chris Fogarty finds that, forced into a mantra of merge, specialise or die, it's small firms that suffer.

In the middle of Addleshaw Booth & Co's hugely impressive Leeds headquarters sits a massive chessboard, complete with three foot high pieces. Upstairs, in the office of managing partner Mark Jones, a much more intricate and complicated game is afoot as he attempts to manoeuvre the firm into a winning position against its opponents.

On the face of it, the legal Gods have not been kind to the firm formed by the 1996 merger of Manchester's Addleshaw Sons & Latham and Leeds' Booth & Co. The merger was celebrated with a wedding cake but the honeymoon has been rocky. There was the perhaps inevitable partner fall out, with head of corporate Andrew Needham, corporate partner Glenda Turner, head of employment Tom Flanagan and corporate recovery and insolvency head Shan Spencer plus two assistants all going.

Profits for 1997-98 suffered and were down 6.5 per cent on gross fees of £43m according to The Lawyer top 50 profits survey. Last year average profit per Addleshaws partner was £155,000 compared to Hammond Suddards' £327,000, found the survey. Local competitors scoff at suggestions that high merger costs such as IT investment are to blame. “Mergers are supposed to make money not lose it,” argues one senior partner. A senior partner in a Leeds firm just outside the “big six” offers a more objective view, claiming the merger has proved a success for Booth & Co at least – the firm was “going nowhere” beforehand, he says.

But Jones says it is all down to number crunching. He argues that if you calculate profits per partner by including salaried partners the figures look better. He claims his firm's profit margin – the percentage of income that is profit – is larger than that of Hammond Suddards. The Lawyer top 50 backs him up, giving Addleshaws a margin of 27 per cent while that of Hammond Suddards is 21 per cent. But, having completed these mathematical gymnastics, Jones has the grace to admit that partners

who see that their average profits are half those of their rivals may begin to ask questions about the firm.

He insists though, that Addleshaws is supported from within. “What the partners here are saying is we're in here for the long term.” In turn, he is promising 50 per cent growth in fee income and a 50 per cent increased profits per equity partner in the coming years.

That is an ambitious project, but there is good news. Fee income is up 19 per cent for the first six months of this financial year, the firm has advised on £2bn worth of deals in the last eight months and, in a psychological victory for Addleshaws' Manchester operation, it won the tender for the 2002 Commonwealth Games.

But a 50 per cent increase in fee income is still a tall order. Jones says the key is to increase the firm's market share. One option is London. But although the firm recently opened a London office, it plays down its capital ambitions by saying the office was established to service existing clients. Jones adds though, that the office will gain a momentum of its own.

Yet London is increasingly the focus for Hammond Suddards' hard-talking senior partner John Heller. He says that in two to three years the London office, which currently has 300 staff, could overtake Leeds in size. “I'm not expanding in London at the expense of Leeds and Manchester,” adds Heller.

But by embarking on a London adventure and looking to go international, Heller has to ensure his firm's home base does not suffer from a loss of local clients who feel betrayed.

For now, Heller has reason to be cock-a-hoop. Yearly turnover is up from £53m to £66m and expansion plans are in full swing. “We'll look to go global as well but not to the same extent that the top five have. We'd like to do something with firms in France and Germany, but as I go into their offices to talk to them, another [English] firm comes out.” Heller refuses to say which firms he is talking to.

Asked about global ambitions in five years time, Heller says: “Certainly in Europe, I would hope in south-east Asia and I think perhaps in the US.” It is a typical stance from an aggressive senior partner and his aggressive firm.

Hammond Suddards may have snatched the lead from Dibb Lupton Alsop in the rottweiler stakes over the past six months. In fact many Leeds lawyers say Dibbs has deliberately toned down its confrontational style after realising it loses as many clients as it wins. But Dibbs regional partner Paul Firth is not yet in a pinny in his Sheffield office, baking welcome cookies for clients. Turnover is expected to go up by around 19 per cent in the next year and Dibbs seems its old combative self – when talking to journalists at least.

Many in the North believe Dibbs has made a serious mistake with its “A City firm with regional offices” slogan. They believe it demeans the firm's northern solicitors, who have seen money poured into the London operation. A former Dibbs partner also questions whether Yorkshire clients will wonder if the firm has forgotten them and its regional roots.

But Firth insists the firm is still firmly focused on the North East. “There are some smaller and really significant targets on our doorstep,” he says, referring to the loyal clients of small and medium-sized firms.

The firms living beneath the shadow of the “big six” are perhaps the most vulnerable in the next couple of years. “The competition is hot, very hot,” says Wansbroughs Willey Hargrave Leeds partner Glenn Miller. And client loyalty is a thing of the past. “The old local relationships do not count for anything at all,” he says.

On top of this, clients are increasingly looking to rationalise their legal pound by using just one or two firms. “That's been proven I think by the way the large insurance companies have been chopping their panels,” says Miller. Five years ago General Accident used 12 firms, now it uses just two.

Firms such as Wansbroughs that manage to hold onto such clients are looking to offer them greater services by offering to meet all their legal requirements under one roof. They already do the insurance litigation work, for example, so why not throw in the employment work as well?

Other firms such as Stockton-on-Tees based Jacksons are looking at mergers to fortify against the competition. Although a recent attempt to link up with Liverpool's Weightmans and London firm Kennedys fell through, Jacksons senior partner Kevin Fletcher says a merger is still on the agenda. But he adds that Jacksons will not merge for the sake of it. The key, he says, is to find the right partner. That is the challenge for many middle-tier firms in the North East. “I think there will be mergers [in the region],” says Fletcher. “But whether there will be a lot I don't know.”

One potentially successful merger has been that which formed Keeble Hawson Moorhouse. In June 1996 Keeble Hawson merged with fellow Sheffield firm Rodgers & Howe and then in May this year it swallowed Leeds insolvency practice RC Moorhouse & Co to become the 10th largest firm in Yorkshire, with 22 partners and 55 other fee earners. “If I was being honest, it was a challenge really,” admits firm spokesman and solicitor Jonathan Armstrong.

The firm is now heavily investing in IT and developing a more personal, partner-led service for clients. “The criticism a lot of lawyers have with big firms is that they see the contact partner once a year but whenever they have a problem they are passed downstairs to a trainee,” says Armstrong.

Keeble Hawson is now trying to position itself as a niche firm, servicing areas such as matrimonial work and insolvency.

A niche policy has proved hugely successful for private client firm Wrigleys. Formed in 1996 from the former private client departments of Hammond Suddards and Dibbs, Wrigleys has found itself in the almost unique position of having virtually no competition in the North East, according to senior partner Matthew Wrigley. He puts this down to the firm's size. “There is a steady flow of clients who feel neglected or alienated at the big firms,” he says.

He says big firms are often not interested in private client work (both the Hammond Suddards and Dibbs teams left on amicable terms) and smaller firms are often not specialist enough for the “academically testing” work.

So while the North East's “big six” have their attention caught up in their own bloody war, the smaller firms below are faced with a stark choice. Expand, specialise or die.

Says Jonathan Armstrong from Keeble Hawson: “I think the days of firms that do everything from one single location, especially from outside of London, will shortly be over.”

What's in a name?

Big London firms fall under the banner of City firms or West End firms. But what do you call yourself if your roots are outside the capital?

Dibb Lupton Alsop: “A City firm with regional offices” – a new slogan which regional managing partner Paul Firth says has been misunderstood.

Hammond Suddards: “We are a national firm. What we're not is we're not a City firm with regional offices” – managing partner John Heller in his usual diplomatic form.

Addleshaw Booth & Co: “A national firm based in the North” – managing Mark Jones subtly rebrands the old “The firm of the North” mantra.

Walker Morris: “A City-type office in the regions” – managing partner Philip Mudd risks a copyright action by reversing Dibbs' slogan.

Irwin Mitchell: “A regional practice with a London presence” – managing partner Howard Culley's slightly spiritual summing up.

Walkers' great gamble

Just what is Walker Morris playing at?

The Leeds firm is taking an entirely different route to its “big six” competitors by openly stating that national and international expansion is not its plan. Many in the city openly speculate that this policy will bring about the firm's downfall. One senior partner maintains that Peter Smart's decision to step down as managing partner recently is a big blow to the firm and there is a perception that Walker Morris is standing still.

But according to Walkers' new managing partner Philip Mudd, nothing could be further from the truth. Walkers is ready to take on the world – but from the security of its own backyard.

“We don't want to replicate this firm in a number of different locations,” explains Mudd.

Instead he is confident that technology will allow the firm to service large corporate and institutional clients. He cites the case of multinational bulldozer-cum-boot manufacturer Caterpillar, based in Iowa, which hired Walkers as its advisers after staging a beauty parade in Geneva. “They're not at all interested in branch offices,” Mudd says.

The firm has also been instructed by US-based Woolworth's and a multi-national entertainment conglomerate that it will not reveal. And on a national level it has been involved in the £100m deal of a London-based Scottish bank.

Mudd holds these deals up as evidence that firms do not need to leave town to service the world and he does a convincing sales pitch for his “City-type practice in the regions”.

But will Walkers' partners, who see their local rivals jetting off to New York and Milan for glamourous international work, be happy to settle for Leeds throughout their working lives?

Says Mudd: “The quality of the work is good here. We've got first-class people and they don't have to worry about the great thrill of moving to Birmingham.”

Mudd refuses to give any clear indication as to firm turnover. But he does make the bold claim that he wants to double the number of fee earners within five years' time.

That would see Walker Morris having 206 fee earners and becoming one of the largest law firms in Leeds. By then, the goals of national and international expansion nurtured by Walkers' rivals could lie in ruins, or Walker Morris could be just another small practice scratching out a local living.