Good housekeeping at Herbies

Cash call is simply to stabilise the partner distribution cycle, apparently

Money always gets people in a bit of a tizz. Last week The Lawyer revealed that around 170 equity partners at Herbert Smith had been asked to contribute £2,000 per equity point to the firm (that’s £200,000 apiece for 65 plateau partners), in an effort to boost its capital structure as part of the firm’s planned financial integration with Australia’s Freehills.

herbert smith

One might expect a huge spending spree. As BDO head of professional services, tax, Colin Ives suggests, “When you do something as big as this you’re normally building up a war chest to do other things like lateral hires, acquisitions and so on.”

With several top-billers planning to leave the merged firm in the coming months – litigator Ted Greeno to Quinn Emanuel Urquhart & Sullivan and Simon Bushell to Latham & Watkins are just two examples – it is easy to see why the firm might want to spend some cash replenishing the stocks.

Could another merger be on the cards? Unlikely, but it is clear that, as Ives says, “firms [that have recently merged] will be looking at where they are in the market”.

However, insiders at the firm say the cash injection will not be used for investment purposes – instead it is being deemed a bit of financial tidying up.

“This [capital call] is a bit of housekeeping, it isn’t to raise money or do something different,” one insider insists. “It’s to modernise the system and stabilise the partner distribution cycle – if you’ve got the capital call you end up with a smoother cash flow. Psychologically, it also increases a sense of ownership.”

Sounds like gold stars all round – so why wasn’t this done before the merger? According to sources the firm put forward at least three proposals on how to manage the financial side of things before the Australia tie-up.

Some of those proposals were “a bit more racey” than the chosen capital call, the insider says.

“This wasn’t Freehills imposing their way, it was already on [legacy Herbert Smith’s] to-do list,” they say. “It just made sense for all partners to be on one system.”