Denton Wilde Sapte (DWS) has taken the drastic step of withdrawing from Asia in another bid to force up flagging profitability.
The firm will axe offices in Beijing, Hong Kong, Singapore and Tokyo in a decision that will affect 12 partners, approximately 50 lawyers and around 100 staff in total.
The closures are a result of the firm’s ongoing strategy review, launched about 18 months ago, which has already seen the firm take some extreme steps to bolster profitability. In the 2002-03 financial year, profits per equity partner had fallen to £313,000, placing the firm at 32 in last year’s The Lawyer 100.
One source estimated that the withdrawal from Asia could add an extra £2m to the partners’ profit pool.
DWS has already made a mass redundancy of approximately 70 staff in London and has also pulled out of its European network, Denton International (DI).
Chairman James Dallas told The Lawyer that the move came following the firm’s decision to focus on its four main sectors: energy, infrastructure and transport; financial services; real estate; and technology, media and telecoms. He added that the Asian practice was not necessary strategically for those sector groups.
“There are better business opportunities in other parts of the world, such as the Middle East and the CIS,” explained Dallas. “This move will allow us to focus our resources more on them.”
But the difficulties suffered by the Asian offices undoubtedly brought about their demise. “The closures show the firm has been using scarce resources ineffectively,” said a Dentons source.
Between 2000 and 2003, during the height of the recession, Hong Kong is believed to have been losing around £1.5m annually. Denton Hall and Wilde Sapte each had their own office in the region prior to the merger, but had been suffering defections even before they came together. Former London corporate head Stephen Goodman, who was relocated to head the Asian practice in May 2001, failed to turn them around and last year left for Jones Day. Singapore is also understood to have been losing the firm around £500,000 annually.
“In a lot of offices there had been no real strategic purpose,” said one source close to the firm. “Singapore was a classic example; Beijing was another. Hong Kong is more difficult – there’s a case for saying you need it.”
Beijing had never recovered from the departures of its entire team of Beijing lawyers to Sidley Austin Brown & Wood in May 2002. Since that time the office has had a handful of fee-earners and has largely been managed from Hong Kong.
The smallest drag on the firm’s profits was the Tokyo office – a former Wilde Sapte office that still pulled in sizeable work from a former partner, who is now in-house at Morgan Stanley.
Profits have been a key driver in the ongoing strategy review. Scrapping the DI network alone is estimated to have saved the firm around £500,000 in terms of management costs. This financial year the firm is estimating a 10-15 per cent rise in profits. But given last year’s 4 per cent drop in figures and a minimal rise the year before, a figure of around 5 per cent would seem more realistic.
The firm’s other traditional loss-maker, the Moscow office, seems to have survived the review unscathed. One source estimated that, until 2001, the office had been making a loss of around £1m annually. At that point the firm scaled back its presence in the region quite significantly, reducing that loss by around 50 per cent. However, Moscow is significant for one of the firm’s core practice areas of energy. “Just because something isn’t making money locally, it doesn’t mean that they’re not important,” said a source.
Likewise, the two other offices in Kazakhstan and Uzbekistan, which were brought over from CMS Cameron McKenna in 2000, also look set to be the focus of further investment, as do the firm’s six Middle East offices. In Western Europe the firm retains a presence in Brussels, London, Paris and Milton Keynes.
Despite the sector group approach, the firm is also keeping its Gibraltar office, which undertakes largely company and commercial work. “It’s not strategically necessary,” Dallas admitted. “But it is profitable.”
Meanwhile, all possibility of a US merger has been put on hold for at least three years, with the firm now concentrating on developing its sector focus strategy.
“This is the last big decision in terms of the strategy review,” said Dallas.
Denton International: Austria, Czech Republic, Denmark, Germany, Hungary, Spain, Sweden
|DWS: all to do|
|To get in some heavy-hitting lateral hires, DWS has work to do on its profitability. Profits per equity partner in 2002-03 were just £313,000, which is still significantly behind others in the chasing pack, with CMS Cameron McKenna partners earning an average of £401,000 and Norton Rose partners £390,000. DWS also needs to make itself a more palatable option than the likes of DLA, where equity partners take home an average of £460,000. Revenues per lawyer are also low. The average DWS lawyer brings in just £232,000. Compare that with Camerons at £289,000 and Norton Rose and Simmons & Simmons at £245,000 and £246,000 respectively, and one can understand why the firm is making redundancies.|