Barlow Lyde & Gilbert: Out with the old

Barlow Lyde & Gilbert (BLG) is dragging itself into the 21st century. And although it may have lagged behind the crowd in terms of newfangled ideas such as transparency or merit-based remuneration, the recent pace with which it has embraced change has taken the market by surprise.

By the start of its new financial year on 1 May, BLG, a lockstep stalwart, should have introduced a partner bonus that will give its current top management the option of rewarding outstanding performance with a few more pounds.

It should have installed a newly recruited chief executive officer to replace managing partner Kennan Michel who, as The Lawyer revealed last Monday (5 February), is standing down in April 2008.

And it will have completed a number of consultation programmes that should lead to the introduction of a series of measures, including a new managing associate role aimed at revitalising and incentivising its ranks of assistants.

It looks as if the ultra-traditional and conservative BLG has finally admitted defeat in terms of pure lockstep-based remuneration and capitulated to the demands of a ferociously competitive market. It also appears as though the firm is transforming itself into a more modern and flexible outfit (this, in case you were unaware, is a firm that has never officially released figures, but is now set for limited-liability partnership (LLP) conversion, also by 1 May). The question is: is this arguably long-overdue modernising radical change, or merely tinkering around the edges?

Stagnant profit
Another reasonable question to ask is: why now? BLG’s financial performance over the past three years offers a clue. One aspect of the firm that has not changed, and which shows no sign of changing, is its profitability.

For the past three years BLG’s profit has not budged an inch. The firm’s average profit per equity partner (PEP) has been stuck at £380,000 since 2004. With major court battles thin on the ground last year, it is expected that BLG’s 2006-07 figures will be little better.

Worse still, according to one former partner, last year partners at the top of the equity took home £55,000 less than the year before, with the value of a point on BLG’s 26 to 100-point lockstep plummeting from an all-time high in 2003 of around £5,000 to less than £4,500.

As one former partner puts it: “The bonus is BLG clutching at management straws to find a method of engaging partners who have profitable practices.”

Late last month The Lawyer met a selection of BLG’s senior management, including Michel and head of corporate Keith Snedden, to find out where exactly the firm was heading in its new dawn. Pressed on the figures, Michel refused to comment, saying BLG had “never given profit figures to any journal”.

He did, however, offer an early indication of financial results for 2006-07. As revealed in this issue, there will be no increase in PEP this year either, although turnover is expected to creep up by a few percentage points.

Four years of flat profit would create pressure in any partnership. So, does the spate of changes at BLG, in particular the chief executive role and the bonus, represent a kneejerk reaction?”The truth is the chief executive role is all about succession planning,” argues Michel. “A kneejerk reaction would be to get rid of the management.”

One could argue that this is exactly what BLG is doing. Michel is due to stand down next year, after all. And not a single BLG partner, when offered the opportunity, stepped forward as a potential candidate to take his place as managing partner. Hence the external search.

Michel well understands how and why the changes at the firm he has managed for 15 years could be interpreted from the outside. “We as a firm have been accused – maybe correctly accused – of being conservative, slow to come into the modern age, and I think maybe this chief executive appointment has surprised people,” he admits.

A more pertinent question, however, might be to ask: what exactly will this new professional law firm manager be empowered to do once they arrive? BLG is after all a traditional all-equity partnership. Could the new non-fee-earning chief executive introduce wholesale change if that was what it took to get the firm’s profit moving north again?”The power will be exactly the same as that of the managing partner,” confirms Michel. “This is about the modernisation of a business. But this isn’t about bringing someone in to tell us what to do or tell us what our strategy should be. It’s as if we’re recruiting another partner whose skills are in management.”

Exits strategy
BLG’s recent history suggests that some radical surgery may be needed. The litigation-dominated firm, best known for its market-leading insurance and professional indemnity practices, has seen a string of partner exits over the past few years.

The most recent was highly rated reinsurance partner Michael Mendelowitz, who quit last month for Norton Rose. His exit closely followed those of the remaining partners in BLG’s commercial and technology team, Simon Shooter, Chris Holder and Christian Barsch, who quit for Bird & Bird. The two other partners in that team, former group head Kit Burden and Bridget Treacy, had already left, with Burden joining DLA Piper in July 2005 and Treacy heading off last year for Hunton & Willams.

Other losses included star employment partner Matthew Howse, who joined Lebouef Lamb Greene & MacRae, litigator Richard Spafford, who joined Richards Butler, corporate chief John Longdon, who left in 2004, and BLG’s entire finance team, including former banking head Graham Wedlake and partner Neil James, which joined the London arm of Chicago’s Winston & Strawn in 2005.

The external perception is that one of BLG’s key changes, the introduction of a discretionary bonus, is an attempt to stem the flow of partners leaving the firm and hang on to its brightest stars. Those would include rainmakers such as Clare Canning of Equitable Life fame, professional liability head Julian Randall and reinsurance department head Colin Crawley.

Michel admits that the firm needed greater flexibility to attract laterals. “We’re all-equity and have a managed lockstep, and we can accelerate or decelerate people,” says Michel. “We’re firm believers in the equity structure and at the moment that’s our only method of remuneration. But there’s a huge amount of competition out there for talent. We have to have greater flexibility in our remuneration structure to attract laterals and to reward outstanding performers.”

Michel’s point is echoed by senior partner Richard Dedman who, speaking last week, said BLG was “waking up to the need to be more flexible in response to a labour market that’s more mobile”.

This being BLG, though, do not expect any overly radical change. Michel confirms that the total bonus pool is “less than 5 per cent” of net profit, although in theory at least it could all go to one partner.

Will that be enough to stop talent leaving? Maybe, maybe not; but sources at the firm point out that, as with any firm, not all of the partners who left chose to leave.

“I think it would be incorrect to say that we’ve ‘lost’ partners, because that implies they’ve chosen to leave,” argues a BLG partner. “I’d say that, ignoring the three current commercial [technology] partners that are going, only two partners over the past three to four years have left because they wanted to.”

Non-contentious struggles
The commercial team headed by Shooter is unarguably a loss. It points to the difficulty a succession of non-contentious partners have had at building practices at BLG. And its recent exit makes one of the firm’s most recent partner hires also its most controversial.

This month Latham & Watkins senior associate Andrew Giverin joins the firm to relaunch BLG’s decimated technology team. The firm’s persistent (and arguably losing) battle to build a broad non-contentious practice has been reported extensively by The Lawyer. The exit of every technology partner seemed to be the ideal moment to draw a line under what one former partner described as “a sideshow to the rest of the firm”.

But no. With admirable spin, corporate head Snedden claims that the exit of the entire team “gave us the opportunity to review what we wanted in technology and our wider commercial team”. That is the thing about opportunity: you never can tell where it is going to knock.

So what exactly does BLG want in technology?”We want a mix that includes outsourcing, but not a group of partners that are so focused on one aspect such as outsourcing,” says Snedden. “To us it made perfect sense. Are we going to build a team of outsourcing lawyers? No. But we must have an outsourcing capability, because if we can’t offer that service to our clients we run the risk of losing them when they need it.”

In other words, BLG’s former five-partner, eight-associate technology team has been cut to what Snedden describes as a “more rounded” team currently comprising one partner and a handful of assistants (five of the eight are staying with the firm, three are joining Bird & Bird) supporting the firm’s core insurance and professional negligence clients.

It is a model that, more or less, is replicated throughout the firm in tax, property, pensions and so on. The groups have an element of standalone matters, but essentially are there to back up litigation, which brings in 70 per cent of BLG’s revenue.

“BLG sees these groups as necessary functions to have, but not core,” says a former partner. “So they have one partner and enough associates to service it.”

The model makes sense, but would appear to be a confirmation that it is virtually impossible to build a non-contentious practice at a firm so tightly badged as a disputes firm. Asked about Giverin’s chances of doing just that, Snedden says: “We’ll have to wait and see.”

Change on the horizon?
In theory the next few months should see the biggest shake-up at BLG for years. In theory. Whether the reality matches that will only start to be known after 1 May.

But the signs are not good. BLG remains one of the UK’s last remaining all-equity partnerships among the top 100. The new bonus pool is small, and as Michel puts it: “The firm believes in lockstep.”

So, no radical departure then? And presumably no CMS Cameron McKenna-style U-turn on maintaining an all-equity partnership?Sitting in a room with four of BLG’s senior partners (Canning and maritime partner Tim Taylor made up the quartet along with Michel and Snedden), it was impossible not to get a sense that, despite the firm’s rock-bottom financial performance over the past three or four years, it is effectively satisfied with its position in the market.

Yes, BLG is about to bring in an external chief executive, but do not expect any radical changes. It will clearly take more than a flatlining profit to make BLG alter its course.