Denton's terrible year
4 July 2005
4 October 2004
6 December 2004
31 January 2005
11 April 2005
11 April 2005
"We don't like to look back, we look forward," Howard Morris likes to say. "The past is another country." The words have, quite understandably, become something of a mantra for the Denton Wilde Sapte (DWS) chief executive.
It has been six months since Morris rode into the role on a wave of optimism, promising to make the firm's management more transparent, more accountable and more flexible. Already he has removed himself from the partner merit committee, instituted a radical examination of career progression at the firm and instructed competition head Jonathan Tatten to investigate merger opportunities.
To its credit, and the credit of former chief executive Virginia Glastonbury, the firm has seen radical changes in the past 18 months. It has abandoned its limping Denton International network, axed Asia, embarked on a wave of redundancies and rejigged its partner capital. But while Morris has come out fighting for his firm and insists on looking to the future, there is no denying that DWS has suffered its most difficult year ever.
Not counting the partners who left as a result of the axing of the Asian operation, DWS lost no fewer than 23 partners in 2004-05. That accounts for at least 12 per cent of the total partnership. And last year's departure of the bulk of the firm's media and IP capability - at that time the largest single mass lateral hire in the UK ever - was, in particular, a serious blow to morale. The departures have left behind what Morris insists is a smaller, more energised and more profitable group. And the firm has been rebuilding in that area through partner promotions and lateral hiring. Undoubtedly, DWS retains its strong presence in IT outsourcing, counting among its clients EDS, GE Capital International Services, Toshiba, and Teletext. This year, the team advised the Ministry of Defence on its major £4bn IT outsourcing contract. But, while Morris points to key clients that have chosen to remain with DWS in the wake of the departures, including the FA Premier League, Sony Pictures, Teva Pharmaceutical and Warner Brothers, it has emerged that all of these now instruct DLA Piper Rudnick Gray Cary as well.
In a little-noticed move, the firm last year conducted a major capital reorganisation, which saw partners' contributions increase by up to 25 per cent. In the wake of the Asia closures and after being told that partner capitalisation levels were far lower than for their City peers, DWS equity partners voted in October 2004 in favour of increasing their capital contributions. The move saw a plateau partner's contribution grow from £175,000 to £225,000, the equivalent of £2,500 per point.
This year, senior managers insisted that the firm's financial results were being "pored over" by finance director Stephen Watson and were not ready to be released. But multiple sources have provisionally indicated that turnover fell to £157m, down 10.8 per cent on 2003-04's £174m. The firm also unveiled a profit per equity partner figure of £303,000. However, this figure does not take account of the cost of closing the firm's Asian network, estimated at £8m, or £25,000 per partner. When asked about the results, Morris demurs and restates his 'looking forward' mantra. He also says in a comment that smacks of buck-passing: "I'm not responsible for these results."
Picking apart DWS's figures is no easy task. It runs one of the City's most complex remuneration systems, consisting of 90-point lockstep with first-year equity partners starting on 45 points and progressing five points annually to a 90-point plateau. Running concurrently is a bonus system, which sees 27 per cent of profits set aside for discretionary merit-based distribution. The merit system is run in eight bands, from zero to eight.
Partners have confirmed that profit per point this year is hovering around £2,200, giving top-of-equity partners a basic remuneration of £198,000, exclusive of bonus. For some partners, the bonus element can as much as double that basic salary, but this is rare. In 2003-04, when each merit band was worth around £35,000, no one was awarded the top band merit payment and the firm's restructuring star Mark Andrews was the sole partner in band seven, entitling him to around £245,000 in merit-based payments. The vast majority of partners earn a band two bonus - £70,000 on 2003-04 figures.
The merit allocation has not yet been finalised, but partners are predicting the value of the merit pool will slip below 2003-04 levels. Doing the maths has left sources baffled as to how Morris and Watson arrived at the £303,000 average.
This year, top-ranked salaried partners are believed to have earned £180,000 before bonus, to which salaried partners are also entitled. On the calculation of £2,200 per point, partners on the lowest rung of the equity ladder are earning £99,000 exclusive of a bonus. In order to outstrip the pay of their salaried peers, bottom-of-equity partners would have to secure a minimum of a band three bonus payment, something few managed last year. The result is that may now be suffering a similar problem to that which afflicted Simmons & Simmons and Hammonds, that some of its junior equity partners are being paid less than senior salaried partners.
The results may look bad, but DWS partners are drawing comfort from the knowledge that they will be freed from their two biggest overheads - closing Asia and maintaining the firm's diffuse London property portfolio - in time for next year. And it is understood that a number of parties are interested in the firm's desirable Chancery Lane offices. "Once we get rid of those overheads, things will improve straight away. The underlying business is actually very good," said one.
Morris also points out that every one of the firm's offices is now in profit. Despite last year's results, partners remain optimistic, describing a sense of liberty under Morris's leadership. "He doesn't micromanage us," confided one.
But sources in the recruitment market are sceptical. One rather ominously said: "Partners are biding their time. They're giving Morris six months to a year to turn the firm around. If he doesn't manage it, there'll be another wave of resignations."
|Partner exits |
1 May 2004-31 April 2005
|Simon Levine||DLA Piper|
|Mark Gay||DLA Piper|
|Bonella Ramsay||DLA Piper|
|Neville Cordell||DLA Piper|
|Ken Dearsley||DLA Piper|
|Christopher Hanson||DLA Piper|
|Askander Samad||DLA Piper|
|Nicholas West||DLA Piper|
|Nicholas Fitzpatrick||DLA Piper|
|Michael Ridley||DLA Piper|
|Simon Gough||DLA Piper|
|Martin Quicke||Clyde & Co|
|Mark Pring||Chadbourne (salaried)|
|John Barlow||Chadbourne (salaried)|
|Lisa Marks||Berwin Leighton Paisner|
|Hugh O'Donovan||Quadrant Chambers|
|Clive Thorne||Arnold & Porter|
|Tony Grant||Own practice|
a cash call and profits nosediving. Can it get any worse for Denton Wilde Sapte
or can Howard Morris drag his firm up the rankings? Joanne O'Connor reports