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As firms look to slim their equity, Clifford Chance is poised to catch up its rivals, or even overtake them
Clifford Chance’s decision to consult with partners on a new way of axing underperforming partners is largely intended to bring the magic circle firm into line with the rest of the market.
The firm is planning to scrap its so-called improvement period of between nine months and a year, which gives a second chance to partners who are not pulling their weight.
The exisiting system - under which partners who failed to improve are given a 14-day termination period and asked to leave - is seen as culturally damaging in some quarters because it means partners who are not bringing in the fees are hanging around for too long, disenfranchised.
Under the policy Clifford Chance is looking at, partners would enter a termination period of at least three months, followed by the usual six-month notice period.
The improvement period would go, although the firm is thought to be considering keeping this as an alternative option. Notably, the improvement period is not mentioned in the partnership deed: it is purely firm policy.
The last, last chance saloon
Clifford Chance appears to be pretty much out there on its own, with few rivals giving partners formal improvement warnings.
Linklaters, which has just completed a partnership restructuring, gives partners ongoing appraisals but has no formal improvement period. Partners have a good sense of how much they are contributing to the business and do not need to be warned if improvement is necessary, although one Linklaters partner said the firm is getting “a little bit more vigorous” in this area.
“You can touch, see and feel your contribution,” the partner said.
Freshfields Bruckhaus Deringer, meanwhile, asks partners to provide ongoing business plans and carries out regular peer appraisals, known internally as ’360’ reviews, because partners assess themselves and their peers from all angles. The firm declined to comment.
Linklaters also asks partners to devise a business plan detailing target clients and strategies for winning work, but the process is less formal than at its Fleet Street rival.
Linklaters did not respond to requests for comment and Allen & Overy (A&O) declined to provide details of its arrangements.
Norton Rose, meanwhile, is understood to have no strict formula for asking partners to leave, with each case dealt with on its merits. There are committees to deal with partner underperformance, but there is no fixed timetable. Norton Rose declined to comment on its arrangements.
Addleshaw Goddard’s partnership deed does not mention improvement periods, but the firm has a notice period of six months for fixed-share partners who leave, compared with a year for equity partners. The firm says individual circumstances are taken into consideration and it has no plans to change the system.
Berwin Leighton Paisner does not have an especially formal procedure for underperforming partners, as managing partner Neville Eisenberg points out.
“I think there’s something in the partnership deeds for partners who breach their agreements but we don’t have anything to do specifically with the performance of partners,” he said. “We have notice periods for partners that are leaving - and that works both ways - but I can’t really go into detail on that. It’s very rare, certainly in this firm, that people turn to the partnership agreement to resolve those things. Usually, it just gets resolved through discussions.”
The situation at Eversheds is similar. The firm’s managing partner Lee Ranson said: “We don’t have any specific ’improvement’-type arrangement written into our members’ agreement for our partners. We strive to achieve effective performance review and management at all levels of our business.”
With more firms looking to slim their equity - a trend set by A&O, Herbert Smith and Linklaters, all of which have culled partners this year - top firms will be looking closely at the best way of wielding the axe.
“Normally, firms are restricted by the partnership deed - some require votes to get rid of partners and some have long notice periods,” said a City headhunter.
Clifford Chance, by scrapping a formal improvement period in all circumstances, might be reverting to something closer to the system of other firms. But in some respects the move to speed up the process of axing partners is a bold step that other firms are not yet considering.
“I’m not hearing about any other firms doing what Clifford Chance is doing, but I suspect that, not for the first time, Clifford Chance will be a trailblazer if it goes through,” the headhunter said. “All managing partners would want to do this. In any other kind of business, if someone doesn’t perform they’ll be asked to leave. That’s what happens in a corporate, which is what most firms are becoming. The difference with partners is that they have a stake in the business, but that’s nominal really.”