Focus: Manches - Salvage operation
28 November 2011 | Updated: 28 November 2011 10:42 am
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Manches has been adrift financially for the past three years. But it’s now banking on chief executive Judit Petho to steer it out of the doldrums
Manches is a firm with financial woes. Since 2008 turn-over has fallen by 11 per cent from an all-time high of £34.4m to a five-year low of £30.6m.
Desperate to reboot growth, the firm’s 19 equity partners agreed to salary cuts and a lock-in. This followed the firm’s failed 2009 merger talks with Halliwells, a move that threatened to split a partnership already scrambling to find direction.
The appointment of Judit Petho as chief executive last year (The Lawyer, 25 October 2010) was a brave move and one that should force partners to look inwardly and confront some uncomfortable questions about the shape of the firm.
Petho has spent the past year attempting to bring some much-needed direction to Manches in an effort to put it back on the path to profitability. The Lawyer recently dropped by to see how she was getting on.
The rise and fall
First, though, some background.
Pre-2008 Manches had been happy to ride the boom. A constant workflow underlined the firm’s financial growth, while management took a largely hands-off approach. Manches, which accounts on an calendar-year basis, saw turnover inch up from £23m in 2001 to £25.7m by 2005, reaching £34.4m in 2008. The recession, however, hit it hard.
The number crunching reveals the depth of the financial problems facing the firm. Turnover began contracting, sliding to £30.6m in 2010, and the equity partnership, which had never been higher than 25 over the past decade, tightened to 17.
Meanwhile, 2010’s partner headcount stood at 45 compared with 54 a year earlier and average profit per equity partner (PEP) for that year stood at £205,000, its lowest point since 2004’s £195,000. Despite this, 2010’s revenue per partner (RPP), at £680,000, reached an all-time high.
Manches, with its mix of private client, corporate/commercial and property, has no direct peer group comparator, but it is interesting to see where its 2001 financial equivalents have gone.
Take Speechly Bircham. In 2001-02 Speechly’s 38 partners produced a revenue of £23.4m against Manches’ £23m. A decade later and Speechly has grown its partnership to 86 and swelled turnover by 154 per cent to £59.5m. True, Speechly has grown through merger, but the comparison also serves to highlight the opportunities missed by Manches.
When the London- and Oxford-based firm did come close to a merger in 2009 it was with the ill-fated Halliwells. The two firms recognised synergies in their property practices and, as a firm that generated a chunk of revenue from its countercyclical practices, it was felt that Halliwells would give Manches the balance needed to ride out the storm.
Yet some elements within Manches, in particular its powerful family group led by Helen Ward, were highly sceptical. There were concerns that profit would be diluted by a merger with Halliwells, a firm more keen on chasing volumes of business rather than quality instructions.
“I’m never going to be a Halliwells partner,” one partner defiantly told The Lawyer (17 September 2009) after news of the talks emerged, “nor will anyone in my team.”
Equity partners simply felt that pasting over the cracks with a merger was not the right method for rebooting growth at Manches. After the deal was rejected the partners were then presented with an opportunity to hive off Halliwells’ London office, a move Halliwells was not keen on (The Lawyer, 2 November 2009). Neither was Manches.
Tensions ran high as the firm fought over its future. In the end the family partners won out. Had it gone the other way it is not certain that Manches would be around in its current format today.
“We had a lucky escape really,” comments one partner. “The equity partners would have lost a lot of money on a deal like that. We may not have survived it at all. It was a bit risky and the partners weren’t clear about why it was even necessary.”
Manches’ fortunes have looked rocky for some time. Between the end of 2006 and mid-2009 the firm lost six department heads to rivals (see box).
“The rainmakers just kept leaving,” a source close to the firm recalls. “Morale was really low; there seemed to be no one willing to take the reins and shake things up.”
At the same time bank borrowing has crept upwards. According to the firm’s LLP accounts for 2010, Manches’ bank loans and overdrafts totalled £6.75m, making the pressure to increase profitability even more acute.
There was a feeling, say rivals, that for some time Manches was drifting without any sense of direction. In the boom times partners were left to get on with the job so long as the big bucks rolled in.
The firm has traditionally been run by Louis Manches and his sister Jane Simpson, the children of its husband and wife founders, Sidney and Judith Manches. Until 2003 Simpson’s former husband Alasdair Simpson was senior partner. Together they decided the fate of the firm.
According to sources close to the firm, any attempt to devise some semblance of a strategy was thwarted by senior management, prompting the exits of many department heads.
“Things had just been allowed to drift away,” a source says. “There was no sense of direction and people were just left to get on with things.”
In the boom period this could be disguised easily, as a constant stream of property and corporate commercial work floated in the door.
In contrast, the firm’s family lawyers, who had been led by Jane Simpson and latterly Ward, can readily claim to be among the country’s elite and the practice underpinned the firm.
Ward is probably the firm’s highest-profile lawyer, having raised the bar in terms of divorce settlements after she secured a £48m payout for Beverly Charman in her divorce from insurance magnate John Charman (The Lawyer, 21 January 2008). Past clients also include Guy Ritchie, for whom she secured a £50m payout from Madonna (The Lawyer, 16 December 2008) and Bernie Ecclestone on his £2bn divorce from Slavica Ecclestone.
Last year the private client business, home to 14 partners, generated 38 per cent of the £30.6m turnover, or £11.6m. This compares with £11.9m generated by corporate (39 per cent) and £4.6m contributed by property (15 per cent).
Jane Simpson retired from the chairmanship in 2008 and Manches himself took up the honorary title of London senior partner last year. According to Petho, he is no longer involved in the management of the firm and has returned to full-time practice. Alasdair Simpson is long gone, having opted to join Addleshaw Goddard in 2003.
Now, says an insider, the partners face a stark choice. “We could go down the traditional route and hire some grey-haired accountant as chief exec,” the source says, “or we could make a real investment in someone who has the energy, drive, determination and youth to develop a strong firm.”
The firm opted for the latter.
After training at CMS Cameron McKenna Petho chose to develop her managerial skills, quitting law to do an MBA at HEC School of Business in Paris. She rejoined the law at Manches from accounts RSM International, where she held the post of chief operating officer for the two years.
When she arrived in late 2010 Petho found a firm with a loyal equity partnership of 17 that had been battered by the recession. “They weren’t happy,” she says. “They knew they wanted to grow the firm, but they didn’t have the vision”.
The partners had the confidence to go outside their comfort zone and hire Petho. They had agreed to lock into the firm in 2009 and take home reduced drawings. “I’ve never had less money,” commented one partner at the time. “It’s difficult.”
What they needed was someone who could inject a growth spurt. But as Howard Kennedy chief executive Mark Dembovsky can testify, finding the right strategy for a group of diverse partners is never going to be easy.
“Often the partners won’t have a vision,” he says. “I’ve done strategy for years and the story’s always the same. If I were to give partners a blank sheet of paper to write down what the vision is, they wouldn’t know and the sheet would be blank.”
The challenge for Petho was to implement a new strategy that would be a fit for all the partners. It also needed to be appealing to the senior associates, who would be ensuring the long-term vitality of Manches.
“I’m used to defining strategy and where we need to go,” says Petho, “but trying to implement change is very challenging.”
As successor to Manches himself, Petho’s biggest test in her first year was persuading the partners to subscribe to a new style of management and follow her vision for the firm.
“I didn’t have illusions when I came in that it would be easy,” she says. “Even though they talked the talk, it was difficult to know whether they’d put it into action.”
Petho is practical in her approach and was aware that being bullish would put at risk the stability she hoped to introduce. According to an insider, the partners wanted and needed some “tough love”.
Petho smiles wryly when she recalls one of the partners describing her style as “feisty”. The insider agrees with the definition, but adds that “after so many years of being left to it any change is going to ruffle a few feathers, but change is what we asked for”.
Petho is clear that the path to success for Manches is going to require some hard work. “Manches hasn’t lived up to its full potential for a long time” she says in her direct manner. “If you don’t have strong leadership and you don’t push people, you lose track of where you’re going.”
There is no doubt she has sparked the fear factor in some partners.
“She has a huge sense of energy,” says one. “She’s very determined; she’s been able to remotivate and reinvigorate the partnership, and that’s what was asked of her.”
Petho believes Manches has a good base from which to grow. “There’s no need to reinvent the wheel,” she says, “but we do need to add depth.”
To persuade the partners to follow her lead Petho needed the ear of the key opinion-makers, so she spent the first seven months talking to partners.
“I needed to know how far I could push things,” she says. “I built up very good relationships with the partners in that time.”
Nowadays, ahead of any team strategy meeting Petho says she will have a chat with those opinion-makers. Communicating the strategy, she adds, is essential, as is being able to demonstrate clear results.
“You need to have the ability to explain how you’re doing things,” she explains. “I’ve talked to the people who define opinions, and so by the time I get to my meetings they’re not shocked by what I’m saying. It may be challenging for some people when I say I’m going to do things I do. In law firm management there are lots of people who talk the talk.”
It is in her nature to be methodical, leading the partners step by step through a fast evolution process. At the heart of that evolution is her aim to make the firm the number one choice for high-net-worth clients.
She wants lawyers to focus on developing business leads, so has aimed to take control of administrative functions such as credit control and training. Everything is aligned with that strategy, which is communicated not only to partners, but also senior associates and all support staff.
Her key message, however, is that lawyers need to start taking responsibility for their practices, need to know what clients want and, most importantly, need to deliver. They need to be business development managers.
The firm’s private client base has been put at the heart of the strategy, with Petho recognising that the firm’s central pillar of strength is the family practice.
“Being the go-to firm for ultra-high-net-worth individuals is a natural extension of our current offering - we’re a family law powerhouse,” she says. “I want to build more depth in our private client offering to enable us to provide a one-stop shop for ultra-high-net-worth individuals, especially those moving countries or who have interests in more than one country.
“The other pillar - growing mid-market companies - is equally important, and again Manches has traditional strength in servicing these clients. We’re focusing on sectors where we have specific expertise, such as retail and fashion, technology, life sciences and real estate.”
This fresh focus is intended to give the partners some much-needed direction. Rather than focusing on practice groups (something that may have spawned tensions in the past, particularly as management sat in the property group) Petho has shifted the emphasis onto client groupings. Rather than being assessed on their hourly billings alone, lawyers will be given a range of targets structured around how they have helped the firm to progress.
“I’m different and have a different management style, using modern management techniques,” Petho says, straying into management gobbledygook before going on to explain that she will be using the “balanced scoreboard” technique to assess partners.
“This is an holistic approach that will assess different areas such as client service, business development, team and people management, billable hours, fees and other efforts that will help progress the firm,” she says.
The aim is for all partners to understand the financial health of the firm and their own individual practices.
While private client will sit at the heart of the firm, Petho also expects growth in the commercial and property groups, with hires anticipated.
To illustrate her point further, she talks about business development management. Cue more management speak. “We’re showing lawyers how to track and target clients and move cold contacts to warmer,” she reveals. “It’s not rocket science, but you have to implement strategy and train people to help them get through it.”
Manches is typical of a number of mid-tier firms that lost their way at the beginning of the recession. At the core of the firm sits a decent business with a strong client base, which includes British American Tobacco, Eurotunnel and Liberty Retail, but it was home to a management that has been lacking strategic direction.
Recognising the need for change, the name partner was moved sideways to allow Petho to take the reins. With her academic background she is well-placed to give the firm some semblance of direction, but ultimately it will be financial results that ensures her success at the firm.
Targeting office openings in international private client jurisdictions will remain a pipedream should Petho’s strategy go unheeded. The challenge now for the partners is to find the strength to pull together for a final thrust out of recession, whereas for Petho it is to remain calm in the eye of the storm while learning how to get to the point like a sharpened litigator.
With a focus on financial management and a new vision, Manches will need all the pushing Petho can give.
- Head of trusts and real estate Alan Poulter ’retired’ in December 2006, only to come out of retirement to join Hempsons in January 2007.
- Technology and IP head Alexander Carter-Silk left in January 2007 for Speechly Bircham.
- Head of employment Jonathan Maude left in July 2008 for Lovells and in 2010 moved again, to McGuireWoods.
- Head of technology and IP Richard Dickinson, appointed to succeed Carter-Silk, quit in July 2008 for Arnold & Porter.
- Property and construction head Robin Grove quit in April 2009 for Speechly Bircham.
- Head of litigation Clive Zietman and litigation partner Andrew Shaw both quit in April 2009 for Stewarts Law.