Judgement day looms for Herbies corporate partners
Performance comes under scrutiny as department misses budget target
James Palmer
Herbert Smith is gearing up to put its corporate department under the spotlight after it missed its budget target by £20m last year.
Industry sources close to the firm say it is poised for a wholesale cull of partners across the global corporate practice, with some suggesting up to 15 or 20 could face the axe.
The news comes as questions are being raised about the corporate team’s profitability and performance compared with the firm’s flagship litigation practice.
The average profit generated by each corporate partner at Herbert Smith is understood to have been £500,000 last year. That was outstripped by litigation partners, who brought in an average profit per partner of £1.4m.
Average revenue per partner (RPP) in the corporate team was £1.7m for 2008-09, but that has dropped to £1.6m for the past two years, putting it in the same league as Macfarlanes, behind CMS Cameron McKenna’s £1.75m and significantly behind the magic circle.
In contrast, Herbert Smith’s litigation practice posted an average RPP of £2.3m during 2009-10 and £2.1m in the past financial year.
A former Herbert Smith partner said: “Despite all its efforts it’s still viewed as a litigation firm. It’s made a lot of progress in corporate, but it hasn’t reached the magic circle, and is in fact being challenged by the likes of Ashurst and Macfarlanes. It’s still struggling to get involved in big-ticket work.”
Herbert Smith global head of corporate James Palmer denied that any cuts were in the pipeline, saying: “I can honestly say there are no redundancy plans going on in corporate anywhere in the world at the moment.”
But sources say the firm plans to quietly manage out corporate partners, and over the past couple of years has already given ’taps on the shoulder’ to around 12 underperforming partners in areas including corporate, litigation and real estate.
The looming cuts coincide with the firm’s commissioning of management consultants PricewaterhouseCoopers to conduct a year-long systems review of the firm to examine utilisation and productivity among fee-earners.
Tensions between the firm’s litigation and corporate teams have been brewing for some time, with some litigators complaining that disparate profitability, coupled with a rigid lockstep, means they are propping up the corporate team.
A source said: “They still have quite a few good partners in their corporate team, but the issue is that so many of them have plateaued. They need to look at how they remunerate, but they just won’t do that.”
For an analysis of Herbert Smith’s strategy and management team, click here.
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Readers' comments (18)
Anonymous | 5-Sep-2011 11:13 pm
Lawyers are so fickle and forgetful. No doubt it was the corporate partners propping up the litigators a few years ago- that of course is soon forgotton. I thought the idea of a partnership was that it is like a marriage- for better for worse. One branch of the firm shoud support others if one is having a tough time- things even themselves out over time. Oh- just remembered- laywers cant do that as it might affect thier cut of the equity- - they might only earn £600k and not the £900k they "deserve". How will they pay for the mortgage on that house in the South of France! Grow up the lot of you- you are ment to be one firm working as a team, not a load of back public school stabbers.
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Litigation Queen | 6-Sep-2011 9:21 am
Oh dear, isn't this how Barlow Lyde started their decline? By knifing the corporate partners, which led eventually to a free-for-all. And ironically, 5/6 years ago, a number of Barlow Lyde partners said their aspiration was to make the firm the next Herbert Smith. The last posting is so right - lawyers are greedy and short termist.
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Anonymous | 6-Sep-2011 12:44 pm
Herbert Smith is in an unfortunate no-mans land, far too big to be a boutique practice but dwarfed by the global firms. It's weakness in corporate is a further devastating flaw.
The firm needs either a transformative merger or a massive cull to strip back to a London/litigation driven core. At the moment it is dying on its feet.
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Jonathan Rowe | 6-Sep-2011 2:02 pm
Perhaps some of the corporate partners in question will remember how they treated the property partners at HS a few years back ? What comes round goes round.
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Litigation Queen | 6-Sep-2011 3:57 pm
OMG!! The last two postings prove my point. If these reflect current thinking, its bye bye Herbies. You might think your brand will save you, but not when you're too focused on spilling blood on the floor.
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Anonymous | 8-Sep-2011 4:23 pm
The problem with pure lockstep is that you need strong management to deal with underperformance. Herbies management have consistenly failed to grip this issue and exit underperforming partners. Ultimately pure lockstep will never work.
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Anonymous | 11-Sep-2011 9:31 pm
Even a HS trainee I notice some very real organisational problems. There is a huge coasting culture amongst many equity partners. If HS wants to succeed it simply has to operate more like any other business.
Its a shame because HS has some amazing talent in corporate. Some of the comments above that HS it not as international as its competitors are way off the mark: HS has internationalised in the past view years. Its Hong Kong, Singapore, Tokyo, Middle East and Moscow practices are really very strong and most work is cross-border.
In my view it would make sense for the firm to focus on building the areas of corporate in which it is at the top of the market, in particular energy.
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Anonymous | 13-Sep-2011 6:53 am
HS is a firm stuck in yester-year run by work-shy has beens who provide a sub-standard and over-priced service - the place will be on its knees in a few more years if current trends continue.
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