Focus: McDermott: Where there’s a Will…

 In the US on 1 January the Chicago-headquartered firm installed new global co-chairs in litigation partners Peter Sacripanti and Jeff Stone. In the UK, meanwhile, it elevated London office head and European corporate group leader Hugh Nineham to the newly created role of head of Europe. Nineham’s additional role in particular is part of a new McDermott strategy aimed at a firmwide invigoration.

And boy, does it need it. If ever there was a firm that could do with a new broom - particularly in its ­London office, which has done a fair portrayal of a major car crash for ­several years - it is McDermott.

When the wheels came off

It does not take long if you ask around the City to find someone with experience of the firm who tends to be less than polite about it. Indeed, the above description of a multiple pile-up is probably underegging it.

“It’s a pig’s ear of a firm,” claims one recruitment consultant damningly.

Now, a recruiter’s job is to flesh out a firm’s practice areas. If this bunch find selling McDermott difficult, that is a problem. Especially as McDermott seems to have developed a habit of losing its key people.

Last month’s exits of three competition partners in one week - Scott Megregian, the founder of McDermott’s London antitrust practice, plus Alasdair Bell and Davina Garrod - underlines the fact that it can still turn in a good impression of a sieve.

But it is not all gloom. “Whether or not McDermott is a good client depends entirely on the team,” argues another recruiter. “If it’s employment or IP, it’s very easy to sell. Other areas are more difficult.”

Heyday

So what is the problem? And what can the firm do about it? To answer both questions it is necessary to take a quick trip back in time through the US firm’s history in the City.

Jump back to November 1998 and McDermott can be found busy launching its new London satellite. Cue a period of several years’ rampant recruitment, legendarily powered by an advertisement campaign centred around how much cash McDermott partners could make. Back then this was revolutionary stuff.

The office was headed by Simmons & Simmons’ former head of corporate William Charnley and also featured that firm’s former head of tax Peter Nias, now one of the few survivors of the office’s early days. A succession of big-name partners arrived, many reportedly on lucrative guarantees (Charnley was said to be on a ­guaranteed £800,000, while others averaged around the half-million mark).

Other big-name hires included Fraser Younson, a rainmaking employment law specialist (now at Berwin Leighton Paisner); Larry Cohen, the former head of IP at ­legacy Hammond Suddards (now at Latham & Watkins); and former London managing partner John Reynolds, a Herbert Smith partner brought in to head the litigation ­practice (now at White & Case).

All firms lose talent. McDermott made a specialism of it.

“The plan seemed to be to get a random bunch all in the same room and hopefully they’d gel,” comments another recruiter.

By 2007, when Charnley himself upped sticks for Mayer Brown, the gel appeared to have been washed right out of the US firm’s crewcut.

The headcount reduction is reflected in McDermott’s London office revenues for the past few years (See table).

Getting a grip

Not that it has been all one-way ­traffic. McDermott has hired 10 partners in London between January 2008 and and February 2010. It has lost 13.

One of its former partners is ­willing to offer an explanation as to why talent continued to jump ship, at least during his time at the firm.

“Everything was going in the wrong direction,” he claims. “Morale was low and there was a lot of uncertainty about the firm’s strategy, plans and direction. Plus people were operating in silos within the London office.”

Silos in firms occur for several ­reasons, but remuneration and ­personalities tend to feature ­prominently. Now McDermott says it is doing its best to address both. ­Crucially it has a lawyer more or less untainted by the mistakes of the past spearheading the new direction.

“We’ve got a different set of ­individuals here now,” stresses ­Nineham. “It’s a group of people who get on with each other and want to work with each other.”

As for the money, the partner ­compensation system was one of the issues addressed during a root-and-branch strategic review initiated last year. The firm set up a subgroup, of which Nineham was a part, with the specific remit of looking at compensation, which reported back to the leadership at the end of 2009. No changes have yet taken place, but the new system, if and when it is ­introduced, has been designed to encourage teamwork and a greater degree of collaboration.

More immediately, McDermott has appointed Nineham as its new head of Europe, part of an overhaul of the firm’s organisational structure resulting from the last year’s review and aimed at moving Europe closer to the core of the US firm’s global strategy.

Phew, it’s Hugh

There is a general agreement in the market that in Nineham the firm has got itself a serious heavyweight to lead this push. “If anyone can turn that place around, he probably can,” claims one former partner.

Nineham, who says he is “not ­interested in history so much”, does not deny that his firm has had issues. But understandably he is keener to discuss future plans than to dwell on the past.

Right now the emphasis is on how the firm’s new plan will take it to ’the next phase’. Indeed, several ­former partners claim the reason they left was that there was no plan at all to elevate McDermott to the next level. Instead the tone and focus was simply on generating as much profit as possible without a ­structured approach to getting the firm there.

“If you described McDermott’s strategy in one sentence, it would be, ’let’s earn more this year than last year’,” says another ex-partner. “Okay, that’s fine, but if you want to invest for the future sometimes you need to take a cut. From day one McDermott was about the money.”

And now?

“We’re not planning to be all things to everybody,” states Nineham. “We’re not planning global coverage in all practice areas. We’re looking to identify core strengths that we can scale, that can be profitable and international.”

The focus will be primarily limited to four core business units with up to five practice groups in each: tax; transactions; controversies; and ­regulatory and government affairs.

There will be a “quite different level of authority and responsibility lying with practice group heads”, Nineham adds.

Also, for the first time there will be business plans for practice areas, with individual targets and continuing scrutiny as the transition takes place.

“This is all still a work in progress,” admits Nineham. “We reckon the process needs to be assessed over a three-year period.”

Forward planning

The key area for the future health of the London office is corporate. In its favour McDermott has Nineham, a respected City stalwart who joined from Lovells, where he was head of the firm’s international corporate practice and a member of Lovells’ international executive committee.

There are signs of life in the group, with some significant deals for key clients from the US side of the ­business, including Goldman Sachs and Macquarie Bank.

The firm is also thought to be looking for new space in London for around 120 lawyers. If anything ­contrasts with McDermott’s ­aggressive pronouncements in its early days, that it would have 250 lawyers in five years, that does.

On the flip side, in the current market there is a glut of corporate talent available and only a handful of positions.

“If McDermott was up against any of the Sweet Sixteen firms you’d be incredibly surprised if they went there,” claims another recruiter.

High up the current list of target sectors in London is energy, in all of its manifestations, including transactional. The arrival of former Denton Wilde Sapte partner David Birchall, an electricity and carbon trading specialist who will sit in the firm’s trading regulatory team, but who is currently on gardening leave, could send a few volts through the group.

“David’s arrival is one of the keys to building off our broad focus on the energy market,” admits ­Nineham. “We’ve already had some successes in commodities deals.”

IP will continue to be a focus under Gary Moss, Taylor Wessing’s former UK managing partner, who the firm hired in September 2008; as will its highly rated employment practice under Alison Wetherfield alongside David Dalgarno.

The firm also launched a ­dedicated private client team after hiring LG’s former senior partner Martyn Gowar in October 2009.

But as Nineham knows, the key to making these various strands work is likely to be integration.

“Previously there was less focus on the integration of our overseas offices,” Nineham admits. “We’re now determined to integrate all the lawyers into the practice groups internationally.”

On paper it appears that a number of key issues have been acknowledged and addressed. But Nineham would be the first to point out just where the pudding’s proof is.

“No place is 100 per cent stable, but we now have a sense of direction and purpose,” he contends. “Perhaps we were a bit naive when we opened, but we’ve learnt from experience and developed a clear focus.”

The market will be the judge of that.