Focus: Barlow Lyde & Gilbert - Jekyll and Lyde
1 March 2010
Despite its top-end insurance reputation, BLG has floundered for a decade. Now the new management team is getting tough
It was an uncharacteristically abrupt act. Last year, just a few days before Christmas, Barlow Lyde & Gilbert (BLG) issued a press release stating that its CEO Clint Evans was leaving the firm, to be replaced by chief operating officer David Jabbari.
Evans was just the latest in a long line of departures from the insurance firm over the past five years, but his exit was more open to interpretation than most. Despite his lack of experience in law firm management (he had spent three years as head of branding at Clifford Chance and three at Henley Management College), Evans had been brought in by former senior partner Richard Dedman in 2007 to effect change at BLG - and he was a controversial choice in some quarters of the firm.
His departure has been glossed by some commentators as being proof that BLG was not ready for transformation. In fact, although BLG’s official line is that Evans was a necessary catalyst, by 2009 his branding skill set did not appear to be what the firm needed. And in any case, there was a new boss in Simon Konsta.
If you are a firm trying to turn yourself around, the sudden exit of your CEO would be the clearest sign that you are embracing a bit of judicious brutality. “We’ve learnt to take difficult, tough and sometimes unpleasant decisions over the past 18 months,” says Konsta. “But it’s a liberating thing, because there’s a lot more honesty and transparency within the organisation.”
In fact, in a quest to reinvent itself, Konsta’s BLG is suddenly a little less cuddly. Last month (8 February) The Lawyer reported that the firm’s modified lockstep, which broadly ran from 30 to 100 points, was being ditched (subject to a partner vote) in favour of entirely merit-based compensation based on three broad bands. That focus on individual performance also extends to associates, with the PQE pay scale being replaced by a new competency framework.
“It’s not enough for us to have a key client programme,” Konsta told The Lawyer at the time. “It’s about rewarding those who’ve gone out and improved the firm’s standing and income.”
Turnover rose by 6.4 per cent to £86.9m in 2008-09 after four years of flatlining (compared with double-digit growth posted by Clyde & Co in the same financial year), but BLG’s profitability is woeful compared with its rivals’. It declined to give profit figures for the 2008-09 reporting season and The Lawyer 200 estimated the average profit per equity partner (PEP) at £350,000. That was overgenerous. According to its LLP accounts, net profit dropped from £23.6m to £20.6m, equating to an average drop in PEP from £337,000 to £267,000. This is below Kennedys’ (£350,000), Reynolds Porter Chamberlain’s (£324,000) and Beachcroft’s (£301,000) - let alone Clydes’ (£550,000).
No wonder Konsta wants BLG to get hungry.
The turbulence at the top of BLG has mirrored the upheaval within the partnership as a whole. “BLG’s never been desperately strategic,” says a former partner. “There was a management phase where some quite difficult decisions were ducked.”
Dedman and Evans had been given more decision-making powers in late 2007, but things did not get any easier for those in management. Dedman stepped down mid-term
in 2008, leading to a contested election, which Konsta won. Described by a partner in a rival firm as a “fantastic operator”, Konsta’s political position within BLG was bolstered not just by his individual track record, but by the fact that he hailed from the firm’s stellar professional indemnity (PI) practice - the one group acknowledged by rivals as being the number one in its field. Then, a year ago, Jabbari was brought in from Allen & Overy, where he had been head of knowhow for seven years. Since then the pair have assembled a group of trusted partners who dominate the firm’s decision-making: big-hitters such as aerospace partner Giles Kavanagh, PI partners Richard Harrison and Sarah Clover and energy and marine insurance partner Tim Taylor. It is no coincidence that they are among the biggest performers (and are almost certainly in line to benefit from the changes to the equity share-out).
BLG’s strength and weakness has been that is has produced a number of dominant individuals. The historic fiefdoms may have been eroded, but the question is whether BLG is simply setting up a new cabal in place of the old one. Konsta flatly rejects the notion. “You absolutely need your stars, individuals who are our Spitfire pilots, who’ll nurture and bring on talent,” he insists. “But it doesn’t follow that they’re going to turn into the tyrants of tomorrow. All these individuals are fantastic team players.”
Konsta argues that, as regards fiefdoms, BLG has learnt from its experience. “Culturally there wasn’t enough interplay between the senior partners in the organisation,” he admits. “The way we were structured internally was unwittingly imposing some barriers to the firm.”
You can say that again, say several sources familiar with BLG. In the early part of the decade the firm was run by senior partners Ian Jenkins, David Arthur, Dedman and managing partner Kennan Michel, plus influential individuals such as insurance partner Graham Dickinson and reinsurance partner Colin Croly.
The reinsurance group had attained legendary status in the late 1990s and early part of this decade, but their success had almost created a firm within a firm.
“To be fair, reinsurance is tricky to manage - it’s often seen as more technical because it’s an underlying dispute, say in aviation, and the reinsurance contract on top,” says a City reinsurance partner. “The reinsurance team at BLG probably developed its own muscles. There were better rates on reinsurance in those days, so they had quite a lot of clout and arrogance.”
Over the past four years, however, that clout has diminished with the collapse of the reinsurance market. Nevertheless, the decision to merge the reinsurance department with the commercial risk group - executed by Evans - caused some ructions within the firm, although Konsta got some internal kudos from taking on the reinsurance vested interests. Croly quit, while a trio comprising property insurance partner Roger Doulton, product liabiliity partner Neil Beresford and financial institutions partner Toby Rogers all left for Clydes in May 2009.
The general turbulence led to other departures the firm did not want to see, notably those of reinsurance partner Michael Mendelowitz to Norton Rose in January 2007 and Christopher Warren-Smith that August to Fulbright & Jaworski. Warren-Smith’s exit is still cited today by firm insiders as one of the biggest blows, as (in contrast to its perennially doomed attempts to branch out of its core areas into non-contentious work) he had developed a noteworthy practice in financial institutions litigation - precisely the area that BLG had been banking on to get it out of its rut. “Chris had immense value to the firm,” says a source close to BLG. Other high-profile departures, such as Clare Canning’s to Mayer Brown in October 2007, strengthened the impression that BLG was losing all of its big names.
BLG certainly maintains an excellent reputation for high-end work on PI and in specialised litigation, such as its win last July for accountancy firm Moore Stephens in Stone & Rolls (2009), the very last judgment handed down by the House of Lords. However, reliance on the high-profile and big-billing cases can present its own problems. After Equitable Life (2005), where total legal fees over five years topped £25m (The Lawyer, 3 October 2005), the firm’s revenue dipped in 2006 by £3m to £76.2m, while virtually every other firm in the City was posting record results.
But the biggest issue bedevilling the insurance sector is commoditisation, or as Jabbari prefers to term it, standardisation. BLG’s historical background in Lloyd’s of London syndicates rather than the composite insurers meant it reacted very late to this trend, unlike Kennedys, for example, which over the past decade has moved up the food chain and developed international reach. A number of individuals at BLG have built a following through high-end personal contacts (Konsta’s own standing in the Lloyd’s PI market is an outstanding example), but BLG is having to wrestle with how to institutionalise its business. The firm has dealt with this on PI by targeting insureds such as major law firms and other professional services businesses very effectively, but even professional indemnity insurers are commoditising on the lower level.
“What kills you is if you’re unwittingly doing a high volume of standardised work,” sighs Konsta. “It’s a bit like putting diesel into a Ferrari - you can’t work out why your performance isn’t any good until you get a mechanic.”
But if you want to get on with the composite insurers you need to do run-of-the-mill work - and make it pay. This is where Jabbari’s intervention and knowledge management background is key, as BLG has been perceived by some in the market as being sniffy about the sort of work it was willing to take on.
“The perception was that they didn’t want to do the bog standard stuff and that they wanted to be Herbert Smith,” comments a City insurance litigator.
Stringent client demands have precipitated a mood of realism. Jabbari has become central to BLG’s project, which requires a more analytical response to pricing pressures. “The big institutional client relationships need a spectrum of work,” says Jabbari. “You don’t get the high-end work unless you get the bottom end. That’s not an abstract point. In our claims service it’s written into the deal.”
BLG’s belated foray into the regions underpins this approach. In April last year it took partners Mark Hemsted and Robert Muttock from DLA Piper for its Manchester launch. It had originally opened in Oxford at the beginning of the decade as part of its bid to build an IT practice. But in April 2008 it took on Henmans partners Tony Nurse-Marsh and Clive Brett to handle PI and professional negligence and it has since launched a subsidiary. BLG Claims LLP will handle standardised claims work for one particular client (the firm declines to name the insurer, but says the office has now broken even within 18 months).
“It’s shown that this firm can build a very effective insfrastructure for highly standardised processes,” states Jabbari, who adds with alacrity: “We’re not in the business of running them as freestanding services.”
BLG is clearly set to develop this model further. “The categories of work that were once fit for the City are no longer fit for the City. So the appropriate response for us, providing it makes sense in business and profit terms, is that we need to service them wherever they need to be serviced,” declares Konsta. “It takes us to some very, very honest conversations with our clients and it requires us to look at the work we’re doing and where we’re doing it. Some of this work is no longer appropriate to be done in the City. But that leaves the City with a very clear mandate.”
That said, it is questionable how far Oxford can function as a low-cost base. Clydes tried something similar in Guildford before being stymied by London’s gravitational pull of salary and property costs.
Despite the fact that its core insurance market is a global one, BLG has been behind the game internationally. It has offices in Hong Kong and Shanghai, in 2004 it opened in Singapore and last year in São Paolo, but just 10 of its partners are based abroad. Compare this with with Clydes which has 64 of its 174 partners overseas, and has recently allied itself with firms in India and Saudi Arabia.
Konsta acknowledges that BLG has been at best dilatory at expanding internationally, and at worst complacent. “In a mood of honesty we recognised as an organisation we hadn’t been as immediately responsive as we should have been,” he admits. “Our clients are global players or massive London players, so the challenge for us is to make sure we’re mapping where they’re going globally.”
Brazil is a key investment in this context. It opened there last year with partner Jeremy Shebson, specifically to target aviation. This is not a sign, however, of entrepreneurial boldness on BLG’s part, but of simply playing catch-up; Clydes opened there more than 20 years ago. The closed nature of the Brazilian market demands investment on the ground - local carriers insist on local insurers, so to get the work a law firm has to be present within the jurisdiction.
It is in aerospace, led by Giles Kavanagh, that Konsta sees the biggest potential. It is BLG’s most international business, with practitioners in Hong Kong, Singapore and São Paolo and clients including Ace, Amlin, Catlin, Chartis (formerly AIG) and Global Aerospace Underwriting Managers. In many ways it will be a test case in how BLG can build a business outside London. “It’s exemplary in the sense that it looks at itself as an international business that operates on a practice basis rather than a regional basis,” Konsta says.
While Konsta and Jabbari are both hesitant about predicting an easy transformation of the firm’s market position, the firm has perhaps already made its biggest change of the past decade. Gone is the attempt to build a weighty non-contentious practice utterly unrelated to its insurance roots. Gone too is the idea that the firm can only take on top-end mandates. A chastened BLG no longer sees itself competing against Herbert Smith, but Clydes.
Cuddly just won’t cut it.
BLG goes hardcore
BLG’s obsession with diversifying into unrelated non-contentious work has been a running sore at the firm. It tried leveraged finance in the 1990s and has tried corporate and IT over the past decade. IT was its best effort, but in 2005 IT partners Kit Burden left for DLA Piper and Bridget Treacy for Hunton & Williams. The following year partners Simon Shooter, Chris Holder and Christian Bartsch quit for Bird & Bird.
“That traditional idea of a having a corporate hedge and being countercyclical was a bit woolly,” admits chief operating officer David Jabbari.
BLG has now focused its non-contentious ambitions on work within its core industries of insurance and financial services.
This month pensions partner James Parker acted for Abbey Life Assurance Company on the £3bn transfer of pensions liabilities from BMW - a landmark deal in this sector.