Norton Rose's Martocracy
8 July 2013 | By Joshua Freedman
8 July 2013
16 July 2013
2 June 2013
8 May 2013
28 May 2013
Norton Rose Fulbright’s expansionist strategy is based on strong leadership by CEO Peter Martyr – too strong for some
Last month Professor Laura Empson of Cass Business School published a paper focusing on leadership in large professional services businesses. Empson’s report, entitled Who’s in Charge? Exploring Leadership Dynamics in Professional Service Firms’, sheds considerable light on the complex management structure of partnerships.
Her study indicates that the hierarchy in a firm can be ambiguous and significantly different from what one’s initial assumption might be. Her interviews with firms turning over between £500m and £2bn a year show that even in a place where partners say they are on an even keel with each other, when interrogated they admit they are not (see Who’s in Charge?, below).
The timing of the report is neat. On 3 June Norton Rose went live with its fifth merger in three and a half years by tying up with Houston’s Fulbright & Jaworski. It was the culmination of a strategy to add member firms around the world, -including in the US, to its Swiss Verein through financially non-integrated combinations. The aim is to turn the firm into a global beast with arms in practically every jurisdiction where a client might want advice.
But numerous sources suggest the firm’s expansion boom was possible primarily because of Norton Rose’s truly autocratic style of management, in which what CEO Peter Martyr says goes. If you disagree with Martyr the options are to stay quiet or find a job elsewhere.
The fact that the firm has a large executive committee and partnership council – numbered around 20 each post-merger – seems little more than window dressing, according to former partners.
Norton Rose Fulbright, as it is now known, is the flagbearer of the modernised, corporate-like management style among global law firms. Rank-and-file partners have minimal say on strategic matters. Martyr calls the shots, aided by a small team of senior figures. It is a sea apart from the more consultative method used by some of its more traditional peers (see How Other Firms are Run, below) and a fair distance from the way the firm was before the recent growth explosion.
Shock and awe
Partnership meetings are rare at best. Mergers have been announced to many partners at such a late stage that any challenges were unlikely. Ex-partners say they were seldom asked for feedback on firm matters and rarely objected to a decision.
“You just didn’t,” says one.
In the years since the present strategy kicked off in 2008, some partners have found themselves in opposition to the way the firm is run and decisions are made. Perhaps unsurprisingly, many of these critics are now ex-partners – and many at the same time admit the changes were necessary.
Most agree the firm was on a downward spiral in 2002 when Martyr took over shortly after a troublesome merger with Germany’s Gaedertz. These challenges were still there for Martyr to manage when he took over. The early 2000s were particularly torrid, with partners suffering delays to parts of their profit distributions for the 2000/01 and 2001/02 financial years.
“It’s certainly changed in the past five years,” says one former partner of the firm’s culture shift. “It has become very much driven from the centre and not a real partnership anymore. Our view as partners didn’t count for anything and our views were swept aside. But if Peter Martyr hadn’t brought the firm in order, Norton Rose might not exist. I think he is a great leader in that he had a vision and he pursued it and he saved the firm, but it could have been done better. You can’t change from the small mind of the partnership style to a global machine without disagreement.”
According to another partner who deserted the firm, “I left because I didn’t like the way things were going. I left predominantly because the gut feeling I had when I joined had gone. It had become a huge international firm but it wasn’t the firm I joined.
“While it’s not for me, [Martyr] has transformed Norton Rose. The whole feel of the place changed. [By the time I left] you had a smaller group of people who were powerful.”
Some did put their oar in on occasions. Sources point to one particular City partner, who has since left, who was keen to keep management in check and who sometimes openly challenged Martyr’s decisions during partnership council sessions, including discussions over the switch from a modified lockstep to a more merit-based system, voted through in 2011.
Sometimes there have been minor revolts. Among them was the awkward delay before UK LLP chairman Stephen Parish was confirmed to be keeping the post for a second term last year, when partners were only given a short amount of time to nominate candidates, prompting competition partner Martin Coleman to stand against him, thereby avoiding a coronation. But generally elections are formalities. Martyr was quietly re-elected unopposed in mid-2011 without any announcement or, it is claimed, much of an effort to attract a range of candidates.
The backbone of Norton Rose’s pragmatism has been its leadership style. Martyr is well and truly in control, and only a small team including the likes of deputy managing partner Tim Marsden and Parish have much influence. The historic background to this is clear. In 2008 partners agreed to delegate power to a leadership team ahead of the Australian merger – essentially the executive committee of around 10 people at the time. Whether there was a vote on this move is unclear, but Martyr says it was discussed in depth at a partnership retreat.
“We set our stall out confidently and have a clear vision of what we’re going to do,” he comments, adding that Norton Rose Fulbright is not a dictatorship by any stretch of the imagination. “It’s not a one-man strategy, but inevitably you have a smallish group that drives it forward.
“No decisions are taken without the partners,” he says. “[The executives] developing the strategy and making it into the strategy for partners to vote on was going to be how we’d work.”
But many former partners argue that the levels of communication can be remarkably low. The Deacons merger in January 2010, announced in June 2009, was a shock to partners outside the top leadership group when Martyr told them about it at a partner retreat. The litigator had circulated an agenda for the conference, but no mention was made in writing of the real purpose of the trip: a vote on the Australian deal, which at the time had not been communicated to the wider partnership. Outside the top executive team, partners had relied on nothing more than rumours.
One ex-partner describes Martyr’s antics at that conference as being like an entertainer who decided it would be fun to devote the event to something completely different from what had been billed, namely the tie-up. But the boss dismisses suggestions that he acted the role of conjuror, brandishing a brand new running order in front of partners after originally circulating a “dummy agenda”.
“That’s just a bit of folklore,” he says.
But he admits he intentionally left any reference to Deacons off the document that had been sent round before.
“You can’t say there is no agenda. [But] you can’t put [the merger] on the agenda.”
Says another ex-partner: “They tried to keep it quite close to their chests. The merger with the Australian firm was a surprise to us. They’ve since become a little more relaxed.”
This meant there were more rumours internally when the firm unveiled a triple combination with Canada’s Ogilvy Renault and South Africa’s Deneys Reitz in November 2010, although Martyr still managed to keep everything in the firm.
The second Canadian deal, the merger with Macleod Dixon, could not be stage-managed quite so well. It broke in the Canadian press following a leak and London partners were suddenly called to a meeting to discuss the venture. UK LLP members did not have a vote on the deal because it was essentially an amalgamation of two Canadian firms.
The Fulbright union was also widely rumoured, partly because everyone knew a US merger was next on the agenda. But still most partners were not informed by the firm itself until the November retreat in Toronto during which Norton Rose partners voted, ahead of Fulbright’s poll a week later.
Martyr says at least a third of the partnership are told about mergers before the conference at which the vote takes place, with partners being told formally about a deal at different stages depending on their role in the firm.
By the time they were voting, of course, partners were given visibility of all the aspects of the deal.
“There might be one or two people who’d like to be involved and are not, but that’s the way it is,” says Martyr. “The people involved in developing the project know about it.
“We don’t just take it to the day of the vote. It’s not a kind of sudden shock – you can’t just walk in with nobody knowing. Equally, you can’t stop the business from running for six months while everyone has a go.”
Martyr’s point hints at the key issues for the expansionist firm. Martyr wants to limit knowledge of his deals purely because having 200 partners putting in their tuppence every time the firm considers a merger would cause havoc internally and make leaks likely.
Caught in the middle
Challenges or no challenges, there were some decisions along the way that simply baffled partners. Of these, the most infamous is the one taken in relation to the Middle East offices in 2008. Marsden had been on sabbatical in New Zealand and came back with an apparent catch: two local corporate lawyers in the shape of Andrew Abernethy of Bell Gully and Andrew Lewis of Simpson Grierson, two of the leading Kiwi law firms, who were willing to transfer to Norton Rose’s Dubai offices. They joined the partnership on Marsden’s recommendation and are understood to have entered relatively high in the equity. How big their book of business was is still unclear.
“It killed prospects of other corporate promotions in the region,” says one ex-partner, who describes the move as “notorious”.
At the time there were around five partners in Dubai, but the hires did little to bolster the offering. Abernethy lasted around two years there, moving over to Hong Kong in 2010 and then leaving Norton Rose altogether in 2012 when he quit for Akin Gump Strauss Hauer & Feld. Lewis fared slightly better, staying around in the emirate until 2011, when he returned to Auckland to set up Andrew Lewis Law.
“It was a hot time in the Middle East prior to the recession and people needed additional manpower,” Martyr maintains. “In economic terms [it was] a different era.”
It was a swift closure to what most agree was a disastrous venture. And it was a call made at the very top of the firm, coming from Marsden, Martyr’s closest ally and the one most likely to replace him should the present chief call it a day in years to come.
Indeed, Norton Rose’s hard-to-fathom strategy in the Middle East stands out as something of an anomaly in a firm that has otherwise been set on colonising the world. While Martyr’s machine has opened and expanded in locations such as Australia, South Africa and, through the Macleod Dixon merger, South America, not to mention the US most recently, the practice in the Gulf has been allowed to wane. And this at a firm that in the early 2000s was market-leading in the region. Key figures such as projects partner John Inglis and Islamic finance star Neil Miller have since taken roles elsewhere.
In 2011 it was hit by the defection of four key partners including Middle East senior partner and regional corporate finance head Campbell Steedman, who joined White & Case. Islamic finance co-head Mohammed Paracha transferred from Bahrain to Dubai to help plug the gap, as did Singapore-based finance of counsel Matthew Escritt, who is now a partner. At the same time the firm carried out a restructuring of its Middle East practice that resulted in a regional strategy under which the firm would opt for a fluid structure of lawyers serving multiple bases rather than being locked to one location. Partner David Baylis has also recently been sent out to head the Abu Dhabi outpost.
Meanwhile, Bahrain has lost a number of people below partner level in the past two years, while one of the biggest names in the region, corporate partner Alan Bainbridge, has moved to London to focus on Africa-related deals.
And the Fulbright merger has caused its own Middle East political intrigue, with partners on the legacy US side currently in talks to leave for Baker Botts and the two arms operating out of separate partnerships in separate areas of the city.
“We now have over 50 lawyers in the Middle East,” Martyr asserts. “We’ve been there for 30 years. We’ve had some management issues there and it’s doing well now. I don’t think our Middle East practice is any different from anyone else’s really. From time to time you get movement between firms.”
But according to several partners who have worked in or with that practice over the past decade, the downward trend in the Middle East has come right from the leader.
Some say Martyr simply did not like Dubai very much.
Another claims: “He thought it was a bubble that would inevitably burst and didn’t have any interest in it. [But] there’s huge potential. If you’re just competing for local work you’re forced to charge low rates and it’s not profitable, but at the premier end it is.”
Norton Rose Fulbright is effectively a place where the top man determines what happens.
As another ex-partner explains: “The CEO got elected and then he was free to appoint his cabinet. The situation was: if you didn’t like what Peter was doing, don’t vote for him.”
Despite claims about Martyr’s style of steering the ship, he maintains that the firm has held on to its partnership culture alongside the expansion. Many of those who opted to leave during the merger wave strongly disagree.
“I don’t think it’s changed substantially,” he says. “We’ve kept the fundamental characteristics of the business, probably more than a lot of other firms. Times change but I think we’ve preserved our culture very well. We tried to come up with innovative ways of preserving our people. I don’t think a firm that has suddenly changed its culture would get 95 per cent of its staff to agree to Flex [the four-day-week scheme to avoid redundancies in 2009].
“We hung on to lockstep for longer than nearly everybody. We’ve never gone for exiting large numbers of partners in a public execution – that’s not been our style.
“Do we have a clear view? Yes. Dictatorship? No.”
He might claim that, but it seems pretty clear what the Cass Business School would conclude if it took an in-depth look at Norton Rose Fulbright.
Ask Martyr: questions from other firms’ managing partners
How do you prioritise clients globally? Do you have a global client relationship programme with, say, 100 core clients? What happens if a client is big in the US, but not anywhere else?
A We have a major client programme. Part of the ability to manage clients goes through our headlight structure [its sector focuses]. It isn’t a question of prioritising – we don’t want to have any conflicts if we can help it. We have very few – that’s part of the due diligence process.
How would you structure things so there are appropriate incentives to cross-sell around the world? Do you include this in determining remuneration and rewards? Are there quotas?
A The reality is whatever you do needs to support good behaviour. We think part of good partner behaviour should be to act professionally with everyone around the world. That’s perhaps one thing we learned from the accountants.
How do you integrate different HR cultures, such as the difference in redundancy arrangements and restrictive covenants in the US compared with the UK, Europe and Australia?
A There are certain things you can’t make common because local laws are different. We’ve been faced with that for a long time. What we can do is behave in a similar way – appraise people in a similar way.
How do the member firms outside the UK LLP go about tabling strategic imperatives at a global level?
A My job is to make sure everybody’s strategic imperatives are considered, and at ex com that everything is at the table
How do you translate this into profitability levels even closely matching the magic circle? Do you have a profit target groupwide or for individual partnerships, or aims for matching profit levels across the group?
In the current environment no one in their right mind would make a profit prediction. It’s our strategy initially to increase profit levels across the firm. So far, so good. It will take time, but I’m pretty confident with the way it’s going.
Who’s in charge: an excerpt from the Empson transcript
Empson: Who is actually in charge of [the firm]?
Interviewee: The partner group.
Empson: Does anyone run [the firm]?
Interviewee: I’d still say it’s the partner group.
Empson: Here’s a very specific question then – you were the leader of […] and you’re no longer the leader of […]. Who had the conversation with you about
Interviewee: The chairman is clearly in charge.
How other firms are run
DLA Piper in the UK is largely seen as having a leadership set-up whereby the top figures will happily avoid in-depth consultation with partners on strategic matters. Co-CEO Nigel Knowles did not even tell the firm’s board he was investing in ABS vehicle LawVest in early 2012, let alone other partners. The parent company Riverview was expected to take a proportion of DLA Piper’s lower-end work out of the firm.
This caused uproar among some in the partnership, who broke from their usual perceived phobia of challenging its leadership by raising the alarm over the boss’s stake. It hit the agenda at an international board meeting, with details later emerging of Knowles’s holding of
approximately 1 per cent in the vehicle, while a small number of other partners held different amounts.
The episode did little to put the firm’s reputation for autocratic leadership to rest.
Linklaters, rather like Norton Rose Fulbright, has learned that achieving global dominance requires a leadership team that ploughs ahead with projects and brushes off dissent.
Sometimes the firm’s strategy involves getting rid of large numbers of partners or removing them from the equity, including in both 2009 and late 2011, resulting in a sense of alienation among some.
Revolts are not unknown. Global managing partner Simon Davies had to wait until the firm’s annual partnership retreat in Switzerland in April 2012 to be confirmed as firmwide boss for a second term after a rebellion over the way the partnership restructuring was handled, while partners used the conference to air their views.
Shakespeares has clinched five mergers since 2010 and is in talks over a sixth with Leicester’s Marrons. At the heart of this is CEO Paul Wilson. Sealing so many bolt-ons in such a short space of time would be almost impossible without strong leadership. Nonetheless, a merger team of four or five people handles each transaction. Once the firm is in substantive talks with a potential acquisition, broad terms of the deal are put to the full partnership for a preliminary vote before the transaction is done. Wilson is talked of as a dominant leader in similar terms to Norton’s Martyr, but the firm’s merger challenges are different, with Shakespeares’ biggest coming in the form of rumours that spread fast within the tight-knit Midlands community, potentially complicating
Slaughter and May is at one extreme of the leadership model. It prides itself on being a close-knit partnership of largely home-grown lawyers that consults partners on a large number of issues, whether it be office openings or closures, or other matters.
Strategic shifts may be debated by the whole partnership or individual practice streams, while the annual practice review often includes a focus group of partners covering a cross-section of the firm. Instead of having a promotions committee, all partners get together for a physical meeting in the offices to discuss annual partner additions, with a consensus rather than a numerical voting result emerging. There are private votes on senior, executive and practice partner selections, while the 11-partner board meets monthly and circulates papers ahead of each gathering.
Significantly, the firm avoids the word ‘manage’ in senior leadership job titles.
Dewey & LeBoeuf
Dewey & LeBoeuf’s power was held in the hands of two key people: chairman Steve Davis and executive director Steve DiCarmine. The two were close. Other partners had a say largely based on seniority, such as New York corporate rainmaker Mort Pierce. The need for transparency is one of the key lessons from the firm’s collapse last year. Partners did not know that 100 of their colleagues were on remuneration guarantees.
LeBoeuf Lamb Greene & MacRae found out about the disastrous merger in 2007 with debt-ridden Dewey Ballantine at the last minute. Rank-and-file members knew nothing about the combined firm’s controversial bond issue in 2010 until the day of its announcement.
And only in January, a few months before it filed for bankruptcy, did partners learn it was seriously in dire straits. It even misreported its last revenue figure to the media. One of the worse examples of communication and leadership.