Linklaters and Simmons & Simmons: Parallel lines
16 February 2009
Two very different law firms occupying disparate places in the legal echelons – but Linklaters and Simmons seem to employ uncannily similar methods to achieve similar aims.
Linklaters and Simmons & Simmons: Parallel lines" class="inline_image inline_image_left" src="/pictures/web/images/16380_Simon-Davies-links.gif" /> They are two firms occupying different parts ;of ;the spectrum – one an ambitious mid-market player and the other a global leader.
But the similarities between Linklaters and Simmons & Simmons are startling. Where Linklaters has led, Simmons seems to follow. Both pioneered international expansion; both have a string of financial institution clients; both have become fixated on profit; and both have taken the axe to their partnerships.
However, it is Linklaters that has forged ahead in recent months with its New World programme (revealed by TheLawyer.com last month, 23 January), which consists of a plan to cut up to 70 partners and 10 per cent of its associates and which has raised the bar in terms of ruthless law firm management.
The question is: will Simmons respond with a proposal of its own? Managing partner Mark Dawkins – it is your move.
The wilderness years
Simmons has long since given up on its ambition to join the magic circle. Since taking over in 2005, Dawkins has instead focused on carving out a place in the upper mid-market.
But the firm has taken its lead from the magic circle when it comes to managing average profit per equity partner (PEP).
Between ;2001 ;and ;2004, Simmons’ PEP plunged disastrously from £412,000 to £275,000, just as it was attempting to build a global practice.
Such performance made it nigh-on impossible for it to attract decent enough lawyers to penetrate the mid-market, let alone the magic circle. At one point in 2004, 11 Simmons partners defected to other firms in the space of two months.
“The PEP was almost at the point of being embarrassing,” admits one former partner.
Dawkins stopped the rot with a partner cull: in all, 11 equity partners, or 12 per cent of the total, were shown the door.
At around the same time Linklaters was making similarly tough decisions. The magic circle firm had also seen its profitability stall. In 2001 PEP stood at around £800,000 after three years of rises and falls. By 2004 it had shrunk to £674,000 – behind that of arch-rival Freshfields Bruckhaus Deringer.
Then managing partner Tony Angel revived the firm’s partners with a ‘realignment’ programme, which led to the exit of scores of partners.
Between 2004 and 2005 45 partners dropped out of the equity.
“There are difficulties when you’re trying to get people to make a real shift,” Angel later told The Lawyer (22 January 2007). “But I never thought I was saying, ‘let’s de-equitise a load of partners’. The critical thing in that period was that we were aligning the firm behind a strategy.”
After wielding the axe in 2005, both firms’ fortunes were transformed. Simmons’ PEP has increased every year since. In 2008 it set the benchmark for the mid-market and smashed its PEP target of £600,000 by £47,000.
Linklaters has seen its PEP break through the £1m barrier, and its £1.3bn revenues is now only just behind that of Clifford Chance at the top of the UK 200 table.
Seen in this context, the New World programme is Linklaters’ attempt to become more profitable, not bigger, than its rivals.
“We’re confident that we’ve got our strategy right,” managing partner Simon Davies told The Lawyer (2 February). “We’ve made it very clear that we want to emerge as the leading global law firm. We’ve got a very clear path to achieve that.”
This means fewer lawyers and a smaller overseas network. Western Europe is understood to be the most vulnerable to cuts, while Eastern Europe has already been cut loose with the establishment of alliance firm Kinstellar.
Follow the ‘leader’?
So will Simmons follow suit? The firm has already begun to draw back its international expansion. Its entire three-partner Tokyo practice moved to Lovells in 2008. Then in 2009 Simmons announced that it would be closing its 27-partner Rotterdam office and moving all its lawyers to Amsterdam, as well as splitting with its 70-lawyer Portuguese offices in Lisbon and Madeira, as revealed by The Lawyer last week (9 February).
In further evidence of the parallels between the two firms, there are now rumours surrounding the future of Linklaters’ Portuguese practice, which currently numbers six partners.
Having so many international offices was always going to be a problem for a firm the size of Simmons if the world economy turned bad.
The management is understood to be watching a number of foreign offices closely as the firm strives to keep a lid on costs.
“Mark Dawkins and [senior partner] David Dickinson are good managers and good businesspeople. It’s all about looking at costs – what’s profitable and what isn’t,” says one London-based Simmons partner.
In addition to Rotterdam and Portugal, The Lawyer has learnt that Simmons also considered closing its small Brussels office, which houses five full-time partners.
It was decided that the office was too important for the competition practice to be allowed to close.
“They finished the consultation in Brussels and decided to keep the office. They’ve reduced their workforce, but they want to keep the office open. It’s not a bad decision,” reveals a source close to Simmons.
The firm is holding a meeting in April about whether to relaunch its bid to open an office in Beijing, which was put on hold following a raft of partner defections in Hong Kong during 2006. The result of that vote will be a good indicator as to whether the firm plans to expand or retract in 2009.
Another ;key ;component ;of Linklaters’ new strategy is to cut the number of its clients. As The Lawyer reported last year (20 October 2008), the firm wants to reduce the total number of clients it represents from 11,000 down to an expected 3,000 by the end of this year.
Once again Dawkins has followed in Davies’s footsteps. Shortly after the Linklaters story broke, Simmons revealed that it was hoping to halve the number of key global clients on its books this year, from 50 to 25.
“While the number of key global clients is likely to reduce, we’re extending the number of large national and regional targets within our key sectors to reach more effectively into countries,” Dawkins points out.
It has been a popular move within the firm. “I like that a lot,” says a City partner. “It’s focused more on really key clients. We had too many.”
The final list of 25 clients has not been finalised yet, but the decision will be made easier by the fact that some of the names on the list no longer exist.
Simmons, like Linklaters, lost an important client when Lehman Brothers went under, but unlike the magic circle firm it was not handed a landmark insolvency instruction to mitigate the loss.
Bear Stearns and Merrill Lynch were also on the Simmons roster, but the firm has clearly not lost faith in the sector’s ability to generate revenue.
Insiders expect between 10 and 12 of the 25 key clients to be financial institutions. “The world’s changed, but it hasn’t changed that much,” insists one partner.
Of course, the most important aspect of New World, from a partner’s perspective at least, is a reduction in headcount.
In London alone up to 270 Linklaters staff will lose their jobs, including between 100 and 120 lawyers. The firm is remaining tight-lipped about cuts outside the UK.
Simmons has just finished a major efficiency drive that saw 39 support staff leave the firm. Some eight lawyers have also been made redundant.
But this is a relatively small-scale reshuffle given what is happening elsewhere in the legal market. So will the firm be forced to look again at the number of lawyers it employs?
Simmons’ leverage is slightly higher than Linklaters’ – 1:4.8 to Linklaters’ 1:4.3. In boom times, when utilisation rates are high, having a large number of non-partner lawyers boosts profit; however, in a recession, these can quickly become a cost.
Linklaters has clearly decided that it is too highly leveraged and is set to axe 10 per cent of its associates across the board. Notably, leverage at both firms has been falling for the past two years.
Dawkins says he has no idea how the firm’s leverage compares with Linklaters’, adding: “All I can say is that we run our business as efficiently as we can according to our own requirements.”
With its reliance on financial institutions ;and ;a ;sprawling international network, Simmons needs to do something to avoid falling back into the spiral of falling profits and defecting partners.
The two firms may be poles apart, but Linklaters’ New World programme will not have gone unnoticed by those at its smaller rival. If history is anything to go by, Simmons is already preparing itself for its own new world.