Herbert Smith senior partner David Gold is taking a tough stance on underperforming partners, with the aim of improving overall profitability.
Stressing that every partner must be a net contributor to the firm’s profit pool, Gold said it is likely there will be a number of partner departures from the firm in the coming years.
“Every business area is being looked at to make sure it’s efficient,” he said. “I want everyone to build up the business and demonstrate that they take out less than they put in, and we’re reviewing that position to make sure.
“Over the coming couple of years one or two people will go more quickly than expected and there’ll be fewer people in the existing partnership.”
Under the terms of Herbert Smith’s lockstep agreement, partners enter the equity on 43 points and automatically gain seven points a year (eight in the final year) over an eight-year period, regardless of their net contributions to the firm. Gold said it is not possible to stall or reverse the position of underperforming partners, adding that there is “no stomach” in the partnership to change that.
The equity at Herbert Smith is tightly held, with profit shared among 62 per cent of the partnership. This compares with Ashurst, where the equity is held by 74 per cent of partners. The majority of Herbert Smith’s partners are either at or approaching plateau.