18 July 2011 | By Joanne Harris
European firms are cutting their family ties to make way for the new blood of the future
In May this year the partners of Italian firm Bonelli Erede Pappalardo sat down at their annual meeting and voted through a change that would adversely affect many of those present. They chose to cut down the length of the lockstep from 14 to 10 years, reducing the number of points at the top in the process to favour younger partners.
The move was the latest in a series of reforms at Bonelli designed to institutionalise a business that is still in transition from its first to second generations. In reforming its partnership structure, Bonelli joins a growing number of Continental European firms that are addressing the question of succession planning as they struggle to keep up with their larger, more competitive Anglo-Saxon peers.
In contrast with the big established UK and US firms, the majority of European firms have been around for only a few decades. Many are still led by, or have significant management input from, their name partners. Most are still small; only 11 firms in The Lawyer European 100 have more than 100 partners, while more than 40 firms in the UK top 100 are this size or substantially larger.
This means the question of partnership structures, internal governance, training and promotion of partners is all top of the agenda. The issue is becoming even more relevant with the twin trends of Anglo-Saxon firms on the hunt for new European offices and talented associates splitting off to form their own boutiques. Established Continental firms must keep a close eye on what they are doing to retain both client and lawyer loyalty and ensure that when the founding partners retire, the firm survives them.
“This isn’t only aimed at succession issues,” says Bonelli executive board member Andrea Carta Mantiglia. “The entire idea behind this is that we want our younger partners to be as much considered as possible and get as much value from them as possible. We want to have as many strong partners as possible and a very strong partnership base.”
Carta Mantiglia says the reforms have been a gradual process, culminating, so far, in this year’s shortening of the lockstep and the abolition of the junior and salaried partner roles.
“When we merged 12 years ago we couldn’t start off from a completely different method of remuneration,” he explains, adding that like many Italian firms the three founding practices were run very much on an ’eat what you kill’ basis.
“Every three to four years we revise our remuneration system and every time it’s gone towards the direction of more lockstep and more equality,” Carta Mantiglia says. “I think the foundations that we’ve reached now are more or less the same pillars of many other firms that have been in the market for many more years.”
In contrast, Gianni Origoni Grippo & Partners founding partner Francesco Gianni says succession planning was top of the list of objectives when he and his colleague GianBattista Origoni set up the firm in 1998.
“We wanted to see whether, in a country like Italy where there was nothing institutional, it was possible to start a firm and create an institutional firm,” Gianni says.
Gianni Origoni swiftly set up executive and remuneration committees. There is some overlap between the two, and every two years the membership of the executive committee rotates. Along with office and department management roles, Gianni estimates that 65 per cent of the entire partnership, and around 75 per cent of equity partners, have some sort of management responsibility.
He is also keen to stress that the firm employs a policy of total transparency when it comes to sharing information. Monthly updates let every partner know how the firm is doing financially, down to the level of detail of how much each partner has billed. Partners in Anglo-Saxon firms might think this is standard practice, but it is still something of a novelty on the Continent.
“There’s a lot of information that goes from management to partners. There’s a lot of peer pressure,” Gianni notes.
French firm August & Debouzy, founded in 1995, has taken a similar path.
“When we began to grow, the first thing we did was create a system with a managing partner, then we created the management committee and at the same time we created the partnership committee,” explains founder Gilles August.
Although the firm bears his name, and that of fellow founder Olivier Debouzy who passed away in 2010, August himself is not managing partner: that role falls on the shoulders of Emmanuelle Barbara.
“The system is clear and understandable and as a result the governance of the firm doesn’t rest on my own shoulders or the shoulders of some senior partner,” August says.
Some in the French market disagree, noting that August, described as “brilliant”, is still the dominant personality within the firm. Commentators say the same of Jean-Michel Darrois, senior partner and co-founder of Darrois Villey Maillot Brochier.
“[Darrois’s] influence, his dominance of his firm is such that de facto he’s running the show,” says one managing partner in a UK firm’s Paris office.
Darrois Villey’s co-managing partners disagree, although they concede that Darrois himself is still a force to be reckoned with in the firm.
“In terms of the position of the senior partner, in our view this is a position that loses a lot of its meaning when the founder retires,” says Olivier Diaz, one of the two partners who took over earlier this year from the previous holder of the role, Emmanuel Brochier. “You can’t replace a personality like that. The management of the firm is going to centralise.”
Diaz argues that Darrois Villey’s younger partners already have a significant amount of involvement in deals for the clients that Darrois originally brought on board.
“You have partners of a younger generation that have been following these relationships now for many years,” he says.
Ad hoc shock
The same argument is employed by Patrick Dziewolski, a corporate partner at Bredin Prat. Since its establishment in the 1990s, Bredin Prat has won a reputation as France’s leading independent firm, with an enviable client list. Many observers put this down largely to founding partner Jean-François Prat, who passed away suddenly in April aged 69. At the time Prat was still involved in fee-earning, but Dziewolski says the firm had already dealt with succession issues.
“We have a very low partner-to-associate ratio. That means that first, partners work, but more than that, deals and matters are really well distributed within the firm. For many years now, nobody has been an execution partner for more senior partners or founders, and all young partners already have their main clients,” he says.
According to Dziewolski, the issues were addressed by Prat early on in the firm’s lifetime.
“Jean-François was very clever and he had a goal to make Bredin Prat an institution that would survive him,” Dziewolski says. He admits that losing Prat was emotionally tough for the firm, but on a practical front nothing changed.
“The question is purely one of sharing the client and admitting that the success of the firm isn’t just represented by one or two individuals,” he stresses.
Unlike the majority of other independent firms, Bredin Prat lacks an institutionalised governance structure. Whereas the firm’s peers, including its best friends Bonelli and Spain’s Uría Menéndez, have instituted locksteps, terms of office for managing partners and clear career progression for associates, Bredin Prat operates far more loosely.
Dziewolski explains that managing partner Didier Martin was chosen as being the natural candidate and has no set term of office. As managing partner, he allocates remuneration points to the rest of the partnership on an “ad hoc system that rewards merit”, says Dziewolski. Points are allocated in January based on the previous year. “The definition of merit is very broad,” Dziewolski says.
He says the system allows for younger partners who perform well and contribute to the firm in a number of ways - not only by acting on a large number of deals - to reach the top of the lockstep.
This way of approaching succession planning is unusual, but so far appears to be successful. In the midst of a boom of lateral hiring in Paris by US and UK firms, neither Bredin Prat nor Darrois Villey have lost any partners, although Bredin Prat did see five associates depart to set up a boutique in January this year, with the team citing a desire to get closer to clients as their reason for leaving.
Lands of opportunity
Bonelli has seen similar departures, most recently the loss of partner Pierfrancesco Giustiniani and two associates to set up Italian commercial law boutique Hilex. Carta Mantiglia accepts that the partnership reforms are still not complete, but believes they will make a difference to retaining younger lawyers at the firm.
Younger partners have been top of the agenda at Spanish firm Gómez-Acebo & Pombo for some time. Partner Richard Silberstein says the partnership “bought out” the firm from the founders in 1991, and the only founding partner to have any significant management involvement now is Fernando Pombo. He heads the firm’s board and also sits on the business committee, but has no real executive power.
Rubén Ferrer Ferrer, an M&A partner at Gómez-Acebo made up this year, says this approach and the sense that the firm had moved past its founders is crucial for him.
“As a young partner it’s extremely important. From the very beginning all the associates here and the young partners are very aware that the people managing the firm aren’t linked to the founding families,” Ferrer says.
Ferrer is one of a growing number of young partners at Gómez-Acebo, where 10 senior associates aged under 40 have been made up in the past two years. A number of these young partners, such as London office head Miguel Lamo de Espinosa Abarca, have management responsibilities.
“When I was an associate what I was looking for was a law firm that wasn’t dependent on one or two guys with a certain surname,” adds Ferrer.
Ensuring that a ’surname’ is not contingent to a firm’s continuing success is something that Uría Menéndez has addressed. Managing partner Luis de Carlos explains that the firm has a policy of not allowing any sons or daughters of partners to join as lawyers.
“We don’t want our families to benefit from any privilege. We realise that we may lose some talent, but we avoid conflict,” he says.
The policy is perhaps extreme, but it has helped Uría gain a reputation in Spain of having addressed succession planning. Founding partner Aurelio Menéndez Menéndez, the firm’s honorary president, is “always a reference”, says de Carlos, but has no executive power.
Uría began its institutionalisation in the late 1990s, creating a lockstep system and various management committees. In 2005 de Carlos and José María Segovia were appointed joint managing partners after Rodrigo Uría Meruéndano, son of founding partner Rodrigo Uría González, stepped down from managing the firm.
This move, says de Carlos, proved to be prescient as Uría Meruéndano passed away in 2007 and the firm had already dealt with the succession.
“We’ve tried since then to review our bylaws and corporate governance structure, and to become more cooperative,” he adds.
One such change was the introduction of deputy management roles for all the main management positions. Carlos de Cárdenas is deputy managing partner, although this position does not mean he will automatically be elected as managing partner when de Carlos steps down.
Taking on management roles at departmental or office level is seen by many European firms as a good way of training younger partners to eventually lead the whole firm, clearly following the way that Anglo-Saxon firms operate.
“It’s obvious that among these partners the firm will be able to find the future managing partners. These people have experience of managing big groups of people, including partners and associates, and this is a good skill for managing the firm,” says Garrigues co-managing partner Fernando Vives. Vives was previously head of the firm’s commercial department, while his co-managing partner Ricardo Gómez-Barreda led the tax team.
Garrigues’ size sets it apart from the majority of Continental firms. With 273 partners, the equity is divided leanly; partners at the top hold just 1.5 per cent of equity. This, says Vives, means no one is able to have a controlling influence over decision-making.
Iberian firm Cuatrecasas Gonçalves Pereira is the only other European commercial law firm to come close to Garrigues in size, with 238 partners. Despite this, Spanish lawyers in international firms believe that Cuatrecasas still has to address succession planning.
Name partner Emilio Cuatrecasas, grandson of the founder, is executive chairman and is involved heavily in management, although Rafael Fontana is the managing partner.
Fontana says the firm’s 94-year history shows it has built a model that survives. But he does not deny that Emilio Cuatrecasas is a dominant figure. “He’s clearly our leader,” Fontana says.
He adds that Emilio Cuatrecasas was elected to his current role when his father died around a decade ago. Before that he was managing partner.
He has been re-elected twice, each time for a four-year term. The executive chairman has a sizeable amount of power as he can appoint the managing partner, although candidates for the executive chairman position are selected by a committee that also evaluates partner performance.
Fontana argues that it would be impossible for the firm’s chairman, managing partner or the committee to control firmwide decisions, as they must also be agreed on by Cuatrecasas’s 135 equity partners.
But the dominance of the Cuatrecasas name within the firm is likely to lessen in coming years as none of Emilio Cuatrecasas’s children are lawyers, says Fontana.
Not dealing with succession planning can leave firms open to takeover. French independents have been particularly vulnerable here. In the past decade two firms have been absorbed into US practices: Moquet Borde merged with Paul Hastings Janofsky & Walker in 2004, while Rambaud Martel tied up with Orrick Herrington & Sutcliffe in 2005.
At both firms the former name partners are still around. Dominique Borde is now chair of Paul Hastings’ Paris and Brussels offices. He says the breakup of Moquet Borde’s international network BBLP and the desire of the firm to keep acting for international clients meant that joining a US firm was the only option.
“You could be a local firm like we were at Moquet Borde with a lot of referral and corresponding firms, but little by little a lot of these corresponding firms have started their own network,” Borde says.
Paul Hastings has recently taken on a team of partners from Hogan Lovells and Proskauer Rose. Borde says the partners wanted to set up a boutique firm, but he persuaded them that going independent was a risky move in the current environment as top-tier clients wanted international expertise.
“It’s not an easy thing but I do believe that there’s a huge untapped market for high-quality legal work for mid-cap companies and that’s not being exploited very much,” Borde says, questioning the current trend for boutiques. “I think it’s going to be a difficult challenge unless you’re perfectly targeted at what you want.”
Continental firms now accept that they must build a practice for the future and that institutionalisation is a necessity, not a luxury. All of those interviewed for this piece are adamant that remaining independent is also essential.
Uría’s de Carlos believes that most have dealt well with succession. “The main firms are well-organised, they’re very professional and they’ve made the transition from family firms,” he says.
“At some point you stop being a boutique and you become an enterprise,” adds August. “I strongly believe that the succession problem is solved when you solve the governance problem. When you’re very young, you’re immortal. You become mortal around 40 or 50. Then you realise you have to try something but it could be too late for an institution.”