Pays and means

One thing not to say to Mayer Brown Rowe & Maw (MBR&M) senior partner Paul Maher: that MBR&M is now a US firm. Maher will insist, in tones unwearied by repetition, that his firm is as English as it ever was, despite Rowe & Maw’s merger with Mayer Brown & Platt in 2002.

To a large extent this is true; in culture and spirit, the London office is essentially unchanged. But MBR&M is part of a bigger transatlantic consolidation. The US and UK partnerships may be separate for regulatory and tax reasons, but are unified in management and brand terms and on the basis of shared profits.

What The Lawyer’s exclusive publication of MBR&M’s limited-liability partnership (LLP) accounts underlines is that Mayer Brown & Platt really did pay a premium for its merger with Rowe & Maw, although you have to burrow deep to discover this.

The premium does not lie in the £3.6m goodwill (see facing page). Nor does it lie in the cheap £4m loan made by the US partnership to the London practice. The premium lies in the flexibility of the UK firm to hike partner remuneration wherever it feels.

MBR&M is currently finalising its global remuneration structure, which insiders guess will be largely merit-based but with something resembling a lockstep for the first three years of equity. The two firms pool profits. As board member Jeremy Clay explains: “Our LLP is a partner in the US LLP. All the money we generate here goes into a pot and is distributed.”

The remuneration structure has taken on a strategic importance that is not necessarily there in other midsize London firms.

According to the accounts, £37.6m was paid out to the 98 equity and fixed-share partners, equating to £372,000 per partner.

“What we pay people is fundamental – it’s the only way you can run a professional services firm,” argues Maher. “We need to anchor partners in London. It’s my philosophy that I want our key partners to be unpoachable, so they have to be paid at a level that they could expect to command at a magic circle firm or a transatlantic firm.
People tend not to move for 10-20 per cent differential unless they’re unhappy, but anyone might be tempted by [another] 50 per cent.”

Maher, the undoubted force behind the firm in London, has certainly seen his profit take grow. Before the merger, he was the highest-paid partner in London, at some £725,000. He is now on annualised drawings of £830,000 (the accounts state £1,175,492 for the 17-month period). Six other partners, or ‘members’ as the LLP terms them, are drawing more than £650,000. Maher and his colleagues are being remunerated on a level appropriate to the global, rather than the local, business – and herein lies the key to the flexibility in pay. “We’re trying to get away from the profit centre mentality,” says Maher.

The last few years have been relatively kind to MBR&M. “We’ve had a three-year buffer to do the engineering,” says Clay candidly. “Now it’s a revenue generation issue.” That, and executing strategic decisions. Two years ago, at the time of the merger, the London partners talked ambitiously of the opportunities in finance to complement Mayer Brown’s established structured finance business in the US. It would have kickstarted a securitisation practice had it managed to hire former Clifford Chance securitisation head John Woodhall last year, but Woodhall opted for Sidley Austin Brown & Wood at the last moment. The fact of the matter is, two years after the merger, and despite its admirably hardheaded grasp of market realities, MBR&M is still nowhere near to building the finance capability it ought to have.

This willingness to pay transatlantic rates is shored up by a financial management culture that verges on red-blooded American.

The LLP accounts clearly show that cash management is strict. Indeed, MBR&M sources say that financial management has become tighter over the last two years. MBR&M partners in London have two pushes on getting bills out in the year, rather than most firms’ single push in April. The global firm operates on a calendar year basis, which means a billing surge in December. The UK LLP also has to submit accounts for tax and regulatory reasons at the end of April, which means another billing surge in that month. This is partly why work in progress (WIP) is relatively low at £11.5m (although WIP is conservatively valued in the accounts at £4.5m).

The pressure is on because no less than 85 per cent of partner drawings are paid out in the same year, with the balance coming by February. That cash-in, cash-out policy – despite the fact that MBR&M prepares its global management accounts on an accruals basis – has motivated partners to get the bills out as fast as possible.

Hawkish cash management and flexible remuneration are two obvious conclusions to be drawn on MBR&M’s accounts. The third (invisible) element is partner performance. The new remuneration structure will not be tied to individual numbers, but there is no doubt that the London equity partnership is being quietly whittled down. “It’s undeniable that some of the people we’ve got and have had in London are not going to make the step up,” admits Maher. MBR&M sources say that the firm wants to reduce the London equity partnership by as much as 20 in the next two years.

Other notes:
The £112m revenue figure covers a 17 month period, annualised at £79m. The revenue is generated from London; the UK LLP includes MBR&M's two French partners as members for regulatory reasons, but does not include French revenue.