Hammonds last week unveiled the key recommendations from its firmwide strategic review, completing a year of upheaval for the firm.
The proposals include axing the role of senior partner in favour of a non-executive partnership board chair and moving away from the firm’s modified lockstep towards merit-based remuneration.
Hammonds is also planning to refocus the way it goes about attracting new business and is slashing its eight business departments to four. These will comprise real estate; corporate, strategy and finance; human capital, including pensions and employment; and commercial and dispute resolution.
Managing partner Peter Crossley explains that the review, which began in June, “is about trying to restore the growth dynamic in the business”.
This is something Hammonds sorely needs. In February, the firm announced that it expected profit to slump by 25 per cent due to an exceptional charge of reorganisation costs. In the event, the cost-cutting and redundancy programme instituted resulted in an average profit per equity partner (PEP) of £204,000 and a 6 per cent turnover slump to £127.6m.
More seriously, Hammonds discovered an unexpected £8.1m charge, after tax, on the previous financial year. The extra cost means that current and former equity partners must repay drawings from the past two financial years. The demands are understood to range from around £50,000 to considerably more than £100,000, depending on where the partner stands on the lockstep.
The firm is set to sign off its 2003-04 and 2004-05 accounts before the end of the month. This will be a comfort to ex-partners who are waiting for Hammonds to show that it has calculated demands correctly before they pay back any drawings.
Crossley is hoping the review is the start of better times for Hammonds. It is the latest stage of a tough management style he has introduced following his uncontested election as managing partner in August last year.
“The question is, will Hammonds’ progress in this area be enough to keep up, or will it be closing the gap on some of its competitors?” asks management consultant Tony Williams of Jomati. “That’s the challenge for them, really.”
The review has been exhaustive. Tax partner Bernhard Gilbey has led interviews with more than 100 partners and 250 current and potential clients, while a team of consultants was hired to provide independent advice. The implementation stage, which will take place after the partnership has voted on the proposals in February 2006, will be driven through by Crossley and a newly-elected strategy director.
Crossley and Gilbey are now beginning a second stage of consultation, involving one-to-one interviews with every partner in the firm.
The review has also examined the future of Hammonds’ London office, which has struggled with profitability in recent years. Crossley and London managing partner Paul Groobey are keen to emphasise that the City office has a key role to play in the future of the firm. Groobey and other local managing partners will be responsible for implementing the review’s recommendations within each office.
Outside Hammonds’ walls, former partners welcome the proposals, albeit cautiously. “I like it,” says one. “They’ve taken some hard decisions. But they must stick with it – if not, it’ll just be the emperor’s new clothes.”
Certainly, Hammonds cannot afford to let this strategic review turn into another ‘New Horizon’. That strategy, trumpeted in January 2000 by senior partner Richard Burns and then-managing partner Chris Jones, promised an average PEP of £400,000 – a target further away than ever. Poor financial performance since then has been one reason that partners have deserted Hammonds in droves – anexodus that prompted a 14-month lock-in of equity partners in April this year.
“The challenge is going to be keeping people on board in June,” says another ex-partner, admitting to being slightly sceptical about whether the review can achieve its aim of growing Hammonds.
Crossley’s view is that “the strategy review is about life in the more medium term”. After acceptable half-year results, with turnover up 8 per cent, the general market perception is that Hammonds has got over its bad patch.
As Williams at Jomati diagnoses: “Hammonds is out of intensive care; it’s made a credible recovery so far. But there’s significant rehabilitation and the treatment will continue. I suspect there’ll still be some unpleasant medicine to take in the future.”