Review of the year

A&O’s merger approach to Freshfields, firms shunning the gaming sector, big partner moves, millionaires abounding and the emergence of China… 2006 was not short of talking points

January

The new year dawned with the exclusive news that the Financial Services Authority was overhauling its litigation capabilities with a unit designed to ‘stress test’ enforcement cases (The Lawyer, 9 January). The Office of Fair Trading swiftly followed its lead with enforcement head Vincent Smith giving the go-ahead for an early screening unit (The Lawyer, 16 January).

Meanwhile, a number of firms were celebrating being appointed to Lloyds TSB’s first-ever legal panel (The Lawyer, 9 January).

The first hint of the importance of China during the year came on 16 January, when The Lawyer revealed that both Clyde & Co and Norton Rose had opened in Shanghai.

On 23 January The Lawyer revealed that Allen & Overy (A&O) was slashing equity points for its London-based project finance partners in an effort to combat the weak dollar and the group’s profitability. The firm’s head of projects Graham Vinter said there was “grudging acceptance” of the move.

The first Freshfields Bruckhaus Deringer merger story of the year broke on 30 January after new senior partner Guy Morton told The Lawyer that he wanted to find a US merger partner. Even more dramatically, Morton said he would alter the firm’s lockstep to make it happen – a prediction that would resonate later in the year.

February
DLA Piper (then still weighed down with the ‘Rudnick Gray Cary’ name) hit the headlines in February. First came the news that the firm was snapping at the heels of Clifford Chance for largest global turnover, with a revenue of £850m (The Lawyer, 13 February). Then DLA Piper’s chief executive Nigel Knowles joined the millionaires’ club, receiving a paycheque of £1.1m (The Lawyer, 20 February).

Clifford Chance saw its name in lights as it emerged that a one-horse race would see chief operating officer David Childs crowned as successor to managing partner Peter Cornell (www.thelawyer.com, 3 February).

Meanwhile, Barclays upped the ante for its advisers, which include A&O, Freshfields and Linklaters, by demanding staff diversity statistics from the firms as part of a new US-style corporate responsibility move (The Lawyer, 13 February).

For Freshfields, however, the biggest shake-up was ditching its sacred all-equity partnership model in favour of salaried partners in a bid to retain partners based in China (The Lawyer, 27 February).

Meanwhile, the cracks widened at Lovells when head of private equity Marco Compagnoni jumped ship with his team for Weil Gotshal & Manges (www.thelawyer.com, 2 February).

March
Profit reached an all-time high at US firms on the back of the M&A bonanza. Seven firms broke the billion-dollar barrier in 2005, with Skadden Arps Slate Meagher & Flom topping the table with a revenue of $1.58bn (£902.9m) (The Lawyer, 6 March).

As the NatWest Three awaited their extradition to the US on fraud charges, White & Case got involved in the ongoing extradition debate. London litigation head Alistair Graham joined forces with the Conservative Party in an attempt to force through amendments to the Police & Justice Bill on its way through Parliament (The Lawyer, 20 March).

There was also a dark cloud hovering over Simmons & Simmons after The Lawyer revealed that the firm was left with an annual £3m black hole in its finances after the Ministry of Defence ditched it in favour of Freshfields (13 March).

Barclays’ calls earlier in the year for diversity opened up a can of worms as the first-ever diversity league table was published. Poll position for being the most diverse was taken by Shoosmiths (The Lawyer, 27 March).

Meanwhile, the private equity sector saw more movement when Linklaters stars Graham White and Raymond McKeeve were lured to Kirkland & Ellis with the offer of a £5m combined remuneration package (www.thelawyer.com, 24 March).

  • The Career Report 2006 In March
    The Lawyer unveiled its inaugural Career Report. A comprehensive guide for associates on their chances of making partnership at the top 100 UK firms and top 30 international firms in London, it showed the traditional magic circle firms Linklaters, Clifford Chance, Freshfields Bruckhaus Deringer and Allen & Overy – in that order – as the biggest internal promoters over three years.

    April
    The first official mega-merger of the year was revealed on www.thelawyer.com on 5 April, when Reed Smith and Richards Butler announced that they had signed a letter of intent to complete a full merger by 1 January 2007.

    Hammonds’ problems, meanwhile, escalated when 14 former partners instructed Addleshaw Goddard on the drawn-out battle over repayment of £3m of overdrawings from 2004-05 (The Lawyer, 3 April).

    Money was also on Eversheds‘ agenda as it ditched its lockstep entirely in favour of merit-based remuneration as it braced itself for the introduction of age discrimination legislation, which the firm claimed made lockstep unlawful (The Lawyer, 24 April).

    Meanwhile, A&O and Wragge & Co were dumped as primary advisers to BT following a major review of the telecoms giant’s legal panel, while Addleshaws, Linklaters and Bird & Bird managed to retain their spots (www.thelawyer. com, 7 April).

    Mr Justice Tomlinson finally handed down the reasons for granting the Bank of England indemnity costs in the wake of the BCCI trial (The Lawyer, 17 April). In a remarkable 87-page judgment he criticised the conduct of Essex Court Chambers’ Gordon Pollock QC and revealed that he considered bringing an end to the trial.

    May
    It was dubbed the biggest shake-up in legal education since the launch of the LPC: the College of Law became the first non-university-affiliated law school to win degree-awarding powers (The Lawyer, 8 May).

    At the same time Linklaters withdrew its pro bono trainee secondments from the Tate museums and human rights campaigner Liberty, claiming that it was too busy to devote resources.

    But it was the publication of the draft Legal Services Bill on 24 May (www.thelawyer.com) that caused the most excitement, by allowing lawyers to practise in partnership with other professionals. Days later Taylor Wessing confirmed that it was considering private equity investment (The Lawyer, 29 May).

    Meanwhile, the all-equity partnership looked under threat as Freshfields launched a full-scale review of the model, including the possibility of de-equitising partners (The Lawyer, 1 May). Clifford Chance also scrapped radical plans to create an all-equity partnership model in favour of proposals designed to enhance junior partners’ status without opening up the equity (The Lawyer, 15 May).

    The lockstep also came under scrutiny again as A&O fudged its 15-year scheme to give banking stars Tim Polgase and Robin Harvey extra points to close ranks after the departure of Stephen Gillespie to Kirkland (The Lawyer, 15 May).

    June
    June began with a blazing row over a controversial new pilot scheme in the Technology and Construction Court, which saw judges begin mediating settlements (The Lawyer, 5 June).

    Hammonds had cause to celebrate after being cleared of negligence in the mammoth Football League case (The Lawyer, 17 June). Two findings of minor breaches of duty meant the firm was fined just £4, vindicating its bullish attitude to the litigation.

    Lovells and Freshfields were at each others throats after sources from Lovells claimed the firm was the sole legal adviser to ITV during its aborted takeover by a consortium that included Apax Partners and Goldman Sachs. But ITV confirmed that both firms advised the FTSE100 media giant (The Lawyer, 12 June).

    A&O’s troubles, meanwhile, continued when it found itself battling a £26.2m pension hole, equivalent to £85,000 out of each partner’s pocket, which would take 10 years to eliminate (The Lawyer, 26 June).

    But the highlight of the month was The Lawyer Awards on 27 June, which saw Clifford Chance hold off magic circle rival Linkaters to secure the title of ‘Law Firm of the Year’.

  • The Lawyer Awards
    June saw The Lawyer toast the country’s most pre-eminent lawyers and firms during its annual awards ceremony. The biggest cheer went to law firm of the year Clifford Chance for its dramatic change in fortune and record results. Head of Cornwall’s Follett Stock Chris Lingard was also applauded for increasing the firm’s turnover by more than 200 per cent in just a few years, even in a region with a depressed economy.

    July
    Arguably the story of the year broke in July with the revelation that A&O had approached Freshfields for a merger (The Lawyer, 31 July). Sources confirmed that senior A&O managers had lunch with their counterparts at Freshfields and made the suggestion, which was immediately rebuffed by Freshfields.

    The news continued to flow for Freshfields with the revelation that 30 partners aged 50 or over were set to retire from the firm with effect from 31 October in order to lock in their entitlement to the magic circle firm’s old favourable pension scheme as the firm looked to reform its system (The Lawyer, 31 July).

    Records were broken when the NHS received one of the biggest-ever bills for legal work in the public sector. A&O, DLA Piper and Milbank Tweed Hadley & McCloy split a pot of £28.2m for their work on the Government’s £12.4bn National Programme for IT in the NHS project.

    Hammonds continued to suffer as the implementation of new procedures designed to limit the number of days on which partners could resign backfired with a mass partner exodus in late July.

    Meanwhile, internet gambling hit the headlines with the appointment of the UK Gambling Commission’s first general counsel, just as the US Department of Justice signalled a crackdown on the industry with the arrest of BetonSports>/strong> chief executive David Carruthers (The Lawyer, 24 July).

    August
    Yet again money came to the fore in August with the revelation that Linklaters has more millionaire partners than any other firm in the City (The Lawyer, 21 August).

    Exclusive research revealed that 124 of the firm’s partners had pocketed in excess of £1m during 2005-06, with Slaughter and May its closest rival, with 90 partners earning more than £1m a year at the firm.

    Not content with such a lead, Linklaters unveiled a new three-year strategy, including examining launching in India and Korea, as it looks to close the revenue gap on Clifford Chance (The Lawyer, 14 August).

    But in a shock to the City, it was Warrington-based firm Avalon’s senior partner Andrew Nulty who emerged as the UK’s highestearning solicitor, taking home £13m (The Lawyer, 21 August).

    However, it quickly emerged that Nulty was being hauled before a Law Society disciplinary tribunal for his involvement in miners’ compensation awards from the controversial coal health compensation scheme.

    August was also marked by yet more furore around online gaming, with Herbert Smith adopting a radical policy not to handle IPOs in the sector after pulling out of 888.com’s £700m IPO (The Lawyer, 14 August).

    September
    A year after announcing it would dissolve, Coudert Brothers reached the end of the road. Facing a litany of litigation globally (The Lawyer, 18 September), the firm filed for Chapter 11 bankruptcy protection on 22 September.

    It was similarly bad news when ABN Amro and the Royal Bank of Scotland (RBS) revealed plans to overhaul billings and increase scrutiny of legal fees in order to reduce the cost of external advice (The Lawyer, 25 September).

    Meanwhile, BAA warned of a review of its legal advisers as the airport operator geared up for an investigation by the Competition Commission (The Lawyer, 4 September).

    Things were worse for Kirkpatrick and Lockhart Nicholson Graham as four months of merger discussions with Salans collapsed (The Lawyer, 11 September). In comparison, Dewey Ballantine and Orrick confirmed they had entered merger talks to create a 1,200-lawyer firm with a combined revenue close to $1bn (£512.34m) (www.thelawyer.com, 12 September).

    But Watson Burton stirred the most interest as the firm staged a coup to eject managing partner Andrew Hoyle, the then highest-paid lawyer in Newcastle, from the firm after a decade of leadership (www.thelawyer. com, 26 September).

  • The Lawyer UK 100 Annual Report
    The Lawyer UK 100 Annual Report was published in September. The benchmark for financial comparisons between firms, it revealed the emergence of a new order in 2006. Cracks appeared in the long-held dominance of the four-firm magic circle, with the biggest clue that Allen & Overy had lost ground on its peers when it made a tentative merger approach to Freshfield Bruckhaus Deringer.
  • Lawyer News Daily
    September saw Lawyer News Daily pop up in our readers’ inboxes for the first time. Following the success of The Lawyer‘s pithy weekly email Grapevine, the daily alerts now also shed light on the latest legal developments, transactions and, of course, scandals. The launch has helped www.thelawyer.com to go from strength to strength, with the site now boasting a mammoth 126,413 unique users.

    October
    Clifford Chance retained its position as the world’s largest law firm as The Lawyer Global 100 showed Asia as the battleground of future revenue streams. In particular Clifford Chance revealed ambitious plans to double in size in mainland China within the next five years to more than 100 lawyers.

    Meanwhile, Clifford Chance and Simmons revamped their recruitment strategies after deeming the term ‘PQE’ to be in contravention of the new age discrimination laws that came into play from 1 October.

    But it was the revelation that A&O’s associates could earn up to £200,000 as part of a complete overhaul of the firm’s career structure that sparked most reader interest (The Lawyer, 16 October). This was followed closely by Freshfields’ shock decision to kickstart a radical partner de-equitisation programme as it continued its financial review process (The Lawyer, 23 October).

    RBS put the finishing touches to its new roll of UK legal advisers, adding Jones Day to the largely reappointed panel (The Lawyer, 30 October).

    Meanwhile, the German legal regulator warned that UK firms taking advantage of the Legal Services Bill would be barred from practising in Germany. The warning is sure to have sent chills through Taylor Wessing, which is taking advice over the possibility of a private equity sale once regulations allow (The Lawyer, 30 October).

    November
    November kicked off with predictions of double-digit rises in revenue for UK firms by the end of the financial year after Ashurst and Freshfields reported record increases of up to 28 per cent (The Lawyer, 6 November).

    Freshfields was celebrating after revealing it would make savings of almost £14m as a result of its radical pension reforms. But Slaughters stole the limelight with the announcement that partners at the top of equity were on target to pocket a staggering £2.5m each in profit (The Lawyer, 13 November).

    Transport for London (TfL) general counsel Howard Carter, meanwhile, unveiled plans to create a Greater London Authority (GLA) legal ‘supergroup’. The ambitious plan aimed to combine the legal departments of the GLA, TfL, the London Development Agency, the London Fire and Emergency Planning Authority and the Metropolitan Police (The Lawyer, 20 November).

    At the same time SJ Berwin announced that it would enter into formal best friend referral relationships in the US, China and India following a radical review of its international strategy. But this was soon overshadowed by a subsequent overhaul of the firm’s bonuses structure to offer associates the chance to pocket up to 75 per cent of salary (www.the lawyer.com, 24 November).

    DLA Piper brought bad news for legal aid, revealing that proposed reforms were likely to force it – and many other firms – to have to ditch legal aid work (The Lawyer, 27 November).

  • The Rising 50
    November heralded The Lawyer Rising 50, published for the third successive year. But this year the report was the most comprehensive ever, featuring financial information on 100 of the UK’s up-and-coming firms, which are nipping at the heals of those in the UK 100. Overall the monetary value of the group was £1.03bn for 2005-06. ASB Law snared the top spot over 2005’s number one, Scottish midsizer Biggart Ballie.

    December
    There was little time for Barlow Lyde & Gilbert to celebrate the festive season before announcing it would undergo a dramatic overhaul to cope with the declining litigation market (The Lawyer, 4 December). Part of the plans included axing partners, overhauling its management structure and converting to limited-liability partnership status.

    Meanwhile, Ashurst revealed it was to break with its traditionally Eurocentric strategy to join the rush into Asia (The Lawyer, 11 December). The firm is to focus on four Asian jurisdictions – Japan, Singapore, China and India – as well as Dubai as part of its new three-year strategy, including launching in either Shanghai or Hong Kong.