Herbert Smith slashes equity to attain magic profit figure
Herbert Smith is to de-equitise around 15 partners, which represents 10 per cent of its equity partnership, as it seeks to attain magic circle-level profitability in the wake of its Project Blue Sky strategic review.
The firm wants to remove 1,200 equity points from its corporate and finance teams and has identified a number of partners who will be asked to either move from ’A’ partner equity status to ’B’ partner salaried level or leave the firm.
The move comes in the wake of Linklaters beginning its own restructuring last week aimed at cutting 30 partners from across its network (TheLawyer.com, 8 December).
In 2010-11 Herbert Smith posted an average profit per equity partner of £900,000 against the magic circle average of £1.2m. The average profit generated by each corporate and finance partner at Herbert Smith was around a third of the £1.4m generated by the average litigator. Meanwhile, across all practice groups, those entering the equity on 43 points received a profit share of £433,000, while plateau partners on 100 points received £1m.
A source close to the firm said: “They’ve gone to 15 partners in corporate and finance and said you can either leave the firm and get paid out for a year or you can become a ’B’ partner at an agreed salary that will be correct relative to the contribution you’re making.”
The firm is also preparing the ground for a potential tie-up with Australia’s Freehills. Partners will vote imminently on whether to hold formal discussions with Freehills as part of what is seen internally as an aggressive new international strategy that will also see it open in New York and target Germany, South Korea and francophone Africa.
The Australia push is being led by London corporate partner Greg Mulley, who began his career at Allens Arthur Robinson in Sydney. Mulley is Herbert Smith’s Australia territory partner. He is understood to have held preliminary talks with Freehills in the past few weeks, with management now looking for partners to back more formal talks.
Herbert Smith declined to comment.
Readers' comments (7)
Anonymous | 12-Dec-2011 10:02 am
A merger with Freehills would be a huge step forward if they can pull it off.
Not so sure about a slash and burn redundancy programme though, this is a firm which needs to boost revenues and address strategic weaknesses, not engage in that type of divisive and distracting process.
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RayJay Johnson | 12-Dec-2011 11:02 am
Herbies has spent too long trying to be a Slaughter & may. Freehills is a good fit though and they've got a decent litigation outfit.
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Anonymous | 12-Dec-2011 12:47 pm
Could it possibly be that Herbies' management have realised after 6 long months that it doesn't matter how Blue the Sky is, sometimes you do need those clouds to come in and deliver the odd thunderbolt, rather than promise the same old drizzle. Best, Sian Lloyd
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Anonymous | 13-Dec-2011 8:18 am
Freeweilers > Herb Hills
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j | 13-Dec-2011 9:17 am
"Blue Sky" = get rid of 15 partners to keep profit up... truly revolutionary, well done Herbies.
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Anonymous | 13-Dec-2011 11:30 am
J - at least it's likely work.
Up here in the North East, one of our biggest firms chose to respond to poor financial results by slashing its assistant numbers.
After wielding the axe, the firm's largest department had three times more partners than assistants.
Did profits go up? No. The firm kept slipping down the rankings. At least if they had the business understanding to apply the Herbert Smith model, the PEP would have started to make recover.
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j | 13-Dec-2011 12:17 pm
You can only slash so far - as your NE firm demonstrates.
Tthis is a paper over the cracks exercise... it's hardly blue sky innovation!
Real profit has to be driven from top line growth, which means taking market share off competitors, effectively more work from existing clients and new work from new clients.
That's where the 'blue sky' thinking should be aimed.
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