The X factor

SJ Berwin is a firm about to step into the abyss.” That is how one observer described the outlook for the silver circle firm as it prepares for the exit of David Harrel as senior partner.

After 13 years at the helm, the highly-regarded Harrel will retire from the role early next year. Although he has made no secret about his plans, the loss is still cause for concern among the firm’s partnership.

“Being senior partner is a tough role, as you’re the final person, the face of the firm. You have to deal with all client and partner complaints,” explains real estate partner Jon Vivian.

Harrel has been a popular and well-regarded public face for the firm and was instrumental in a raft of internal changes in recent years. This has included the firm’s financial resurrection and its new US best friends strategy.

But despite having had more than a year’s notice since Harrel first publicly revealed his plans to retire, the fight to become the firm’s next senior partner is only now beginning to hot up.

The Harrel years

Harrel claims that the senior partner election process has still to be formalised and that no date for the vote has been set. However, a competitive vote of some form will take place by the end of the year, most likely in November.

The names so far tipped to grace the ballot paper are head of private equity Jonathan Blake, head of EU and competition Stephen Kon and managing partner Ralph Cohen.

Whoever is elected, it will be a near impossible task to replace Harrel without causing significant disruption to the firm.

Within his 13-year tenure at the helm, Harrel has seen SJ Berwin through a rollercoaster of highs and lows. Most notably, he assisted the resurrection of the firm’s financial performance over the last two years.

In 2003, SJ Berwin recorded its third consecutive year of falling profits as a result of a dearth of corporate work and the firm’s rapid expansion in Europe. The firm had launched its greenfield Paris office in February 2001 and raided a team of private equity and venture capital lawyers from Baker & McKenzie to open a new office in Munich in November 2000.

As a result, in 2002-03, the firm’s turnover dipped a further 5 per cent, while profit tumbled by almost 20 per cent.

It took a tough love approach from Harrel and the firm’s management team to curb this demise. Following a string of redundancies and a strict control on costs, the firm reported an almost 9 per cent increase in turnover in 2003-04, while profit per equity partner (PEP) increased by 25 per cent.

This was backed up by a 23 per cent jump in turnover during 2004-05, when the firm broke the psychological £100m barrier to record a gross revenue of £122m, although this includes German revenues for the first time. PEP similarly increased 13 per cent to £575,000.

The smoothly spoken, silver-haired Harrel is no soft touch. During 2003-04, SJ Berwin piloted a review of the real estate group’s strategy, which was conducted in conjunction with management consultants Hildebrandt. The review aimed to identify areas of the property practice that needed to be scaled back or developed and where costs could be cut. This resulted in the loss of several partners, including Sally Pinkerton, who left for Wragge & Co three months into the review. It also led to a refocusing of the group’s client base on higher-end clients. Around the same time, the firm slashed its administrative and secretarial staff in a bid to curb costs.

The practice review system has since been rolled out to the rest of SJ Berwin’s departments, although the firm is adamant that this will not result in changes as dramatic as those in the real estate group.

“It’s an internal review that’s being used to develop a more rational way of looking at things. But I’d be surprised if it causes any radical difference in the firm,” argues Vivian.

The firm’s 10-member strategy committee is overseeing the initiative, which it expects to complete by the end of the year, in time for its move to new premises on Queen Street Place in January.

“The move is a chance for us to get the firm up to date and portray ourselves as we are now and not what we were like 15 years ago,” says Cohen. “The firm has gone through two years of strong growth in terms of quality of work, revenues and the number of lawyers, so it makes sense to undergo a coordinated review.”

Cohen, Harrel and Blake all sit on the strategy committee, which was elected formally in January 2005 and which is overseeing the review. They have asked each of the firm’s departments and practice groups to put forward a paper outlining their strategies, key clients, business areas and plans to expand.

“It was decided that we’d ask all of the departments to look at what business they’re actually doing, what they want to do and how they relate to the other groups, so we can ensure that our resources are right and aimed in the right direction,” Harrel explains.

The departments have passed their findings over to the strategy committee, which is examining them in a bid to identify key areas of focus for the firm. This includes expanding its international network into Italy and Scandinavia, although Harrel claims neither jurisdiction is a pressing issue.

Looking ahead

SJ Berwin’s US strategy, however, continues to generate speculation. As part of the review, the strategy committee is looking to forge a best friends referral network with a handful of firms in the US.

Harrel explains that, along with the overall strategy papers, the committee requested each practice group to draft a list of firms with which they have previously shared referrals. It is now cross-referencing those firms to see which would be the best fit, although discussions are still at an early stage.

Debevoise & Plimpton, Dewey Ballantine and Nixon Peabody are understood to be some of the firms under consideration, as SJ Berwin has previously shared informal referrals with them. But Cohen claims the process is still at an early stage.

One observer forecasts that SJ Berwin would be likely to re-evaluate its US strategy in favour of a merger after Harrel, who is well known for his reticence on the subject, steps down as senior partner.

Speculation is fuelled further by a new wave of US firms, including SJ Berwin’s potential best friend Nixon Peabody, understood to be scouring London’s mid-sized law firms for possible transatlantic mergers.

Harrel damns claims that the firm is, or would, head down the US merger trail, stating that any discussions with US-based firms relate solely to developing the best friends referral network. And he has the support of the partnership. “Such speculation causes puzzlement at the firm, as there are no plans at the moment to merge with a US firm,” one partner insists.

Litigation partner Tim Taylor is more damning of the rumours. “The firm’s strongest selling point is that it is one of a tiny handful of firms that are either not magic circle and competing with US firms head-on or already absorbed into US firms,” he maintains.

However, despite SJ Berwin partners’ on-the-record bluster, the firm will have to move one way or the other on the US issue. The next senior partner, be it Blake, Cohen or Kon – would be brave to consider altering the firm’s independent nature and Harrel’s legacy.

“We made a decision well over a year ago that we didn’t see a US merger as a prospect. That’s our clear and stated policy,” Harrel says. “The firm has a very settled view of its strategy and its independent stance, and anyone that’s going to become senior partner will need to respect that.” That is the message now – but for how long once he has gone?

STEPHEN KON

Stephen Kon’s supporters put him forward as a charming and charismatic leader who has managed to woo defecting partners such as competition specialist Tom Usher back into the firm’s fold. Usher left SJ Berwin in early 2004 for a short stint at Dundas & Wilson, only to rejoin the firm last month (September).

Speculation is rife, however, that Kon will drop out of the race before it reaches a vote, leaving Cohen and Blake to battle it out in a two-horse race.

“The election is likely to go to a vote and there’s unlikely to be a consensus,” said one SJ Berwin partner. “Kon’s likely to step aside, leaving Ralph Cohen and Jonathan Blake as candidates.”

RALPH COHEN

Ralph Cohen is seen as the most ambiguous candidate. The partnership is understood to be divided between his supporters, who are adamant that Cohen is a welcome and integral member of the firm’s management, and those who question whether he holds the qualities necessary to fill Harrel’s sizeable shoes.

Recent public criticism of Cohen, centering on his ability to handle the top job, appears to have assisted his cause and has prompted many previously doubtful SJ Berwin partners to rally together in vocal support of him, even if they remain unwilling to be named publicly as his supporters.

One such convert said: “Ralph’s a valued and respected partner and managing partner of the firm and has the full support of the partnership.”

If Cohen is elected, debate will switch to who will replace him as managing partner and what form the two roles will take. Harrel, though, claims that the firm is unconcerned by the issue.

JONATHAN BLAKE

Jonathan Blake’s support is largely due to his reputation as one of the firm’s top-billing partners and for securing such significant client wins as Lion Capital, the former European arm of Hicks Muse Tate & Furst.

He is also held in high esteem within the wider legal market, with even a rival forced to admit that he has “developed a highly successful practice”, although it is questionable how much actual transactional work the group completes. Either way, the firm is likely to be unwilling to reduce the time available for Blake to develop client relations.