King & Wood Mallesons (KWM) has launched a review of its capital contributions structure in order to ease cashflow, stop repeated delays to profit distributions and stem the flow of exits by “frustrated” partners.
The review could see its UK partners being asked to pay higher contributions to the firm in return for more units in the LLP.
The news follows the shock resignation of UK, Europe and Middle East managing partner William Boss last week, along with the departure of chief operating officer Rachel Reid. Boss will stay in the top job until May pending the appointment of his successor.
A number of sources close to KWM have accused the firm of withholding profit distributions over the last five years in order to keep up with tax bills, leading to a raft of senior exits last year.
One source close to KWM said the firm had “only just” paid out the full distributions due in August 2015, having previously paid just half the money owed in that quarter.
Another said they had only been paid 25 per cent of their distributions for 2014/15, despite it being nine months into the financial year.
An insider added: “The problem KWM perennially has is being able to pay partners on time or in some semblance of a normal period.”
Delayed distribution payments are a fixture of partner life at many UK firms. However sources said the practice has “got worse” at KWM in recent years as “collections get less but the tax bill stays the same”, according to an insider.
One source said KWM contributions are “very low” compared to other London-based firms of a similar financial standing, and the firm’s management was “looking at the whole capital contribution structure” in a bid to “allow partners to know exactly when they’re going to get paid”.
Any changes to its contributions structure would only affect KWM’s UK arm as the merged firm operates as a Swiss Verein with no profit sharing across jurisdictions.
Complaints about delayed profit payments follow a good year financially for the firm in the UK, Europe and Middle East, adding to the frustration of a number of partners, a source said. “It’s been a so-called record year for the firm but partners just aren’t getting paid,” they added.
The region turned over £191m in 2014/15, a 7 per cent increase on the year before. Average profit per equity partner (PEP) also jumped 39 per cent to £610,000 in its second full financial year since the merger.
KWM management launched a review of its partnership in a bid to “trim the equity” last year, with around 15 partners understood to be leaving the firm. On top of that, the firm has lost a string of partners from its London office so far this year, including Gregg Beechey for Fried Frank, Simon Fulbrook to Goodwin Procter, Richard Lever to Goodwin Procter, and Alex Leitch to Covington & Burling.
KWM declined to comment.