PEP debacle forces Watson Burton to open up its equity
2 July 2007
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Watson Burton to open up its equity" />What a difference 12 months can make. At this time in 2006, equity partners at Newcastle's Watson Burton were the envy of the Geordie legal world, bagging an average profit per equity partner (PEP) of £712,000 - far clear not only of local rivals, but of most City firms too. Yet just a year later PEP has fallen by almost £500,000 to £220,000. What happened?
Senior partner Rob Langley describes the drop as "feasible and foreseen" and blames the eye-watering results on the end of revenue generated by the Government's coal miners compensation scheme, to which Watson Burton had previously dedicated a team of around 60 lawyers.
Not only that, Langley adds, but the blockbusting 2005-06 PEP figure of £712,000 was radically downsized to £460,000 following an official audit after some fees from the miners' compensation scheme were repaid.
The other major cost has been the London office, which opened in June last year. Langley says the firm had been "looking long and hard at London because we could see the coal money tailing off" (The Lawyer, 12 June 2006).
That last point seems like something of a turnaround. As readers may remember, the other significant difference between Watson Burton this time last year and Watson Burton now is that in 2006 Andrew Hoyle was the man at the helm. Now a partner at local rival Ward Hadaway (The Lawyer, 16 April), Hoyle was hired for the very same reason he was ejected by Watson Burton nine months ago (The Lawyer, 26 September 2006): his ambitious drive for growth outside Tyneside.
This irony will not have been lost on Hoyle, Jamie Martin and the other partners at Ward Hadaway, where PEP has risen by a respectable 10 per cent, cracking the £400,000 mark for the first time to hit £405,000 (www.thelawyer.com, 20 June), and the firm is pressing ahead with plans to open in Leeds, Manchester or both within 12 months. A PEP of £405,000 is no £712,000, but it is significantly better than £220,000.
And Hoyle and Martin are not the only partners rubbing their hands in Schadenfreude. Over at famously cautious Geordie giant Dickinson Dees, where Hoyle's past showmanship has been met with equal parts envy and disdain, PEP is up by a healthy 14 per cent after last year's slight drop to hit £321,000 (The Lawyer, 25 May). And the firm says its own growth strategy, which saw it take new rented space in London and acquire Philip Ashworth & Co in York in the past 12 months, is delivering results.
All of this creates a dilemma for Watson Burton. Rivals have long observed that key to the firm's eye-catching PEP has been its vice-like grip on the equity - granted to just seven full equity partners last year and, so it is understood, just five presently after Hoyle left and John Williams retired at the end of April. The firm has already lost Leeds founding partner and corporate specialist Mark Warburton to the York office of Dickinsons (The Lawyer, 23 April), and with healthy profits and expanding practices there and at other local rivals, Watson Burton partners are aware that loosening their grip on the equity is the carrot essential to prevent further departures. So aware, in fact, that they have already confirmed plans to begin a consultation about how to do just that (The Lawyer, 5 March).
Yet, in a year when PEP has already fallen by almost £500,000, full equity partners must surely be reluctant to explain to their bank managers that they have approved a scheme that will diminish their pay packets yet further, nor to be discussing yet lower PEP with lawyers, recruiters or PR consultants. Langley's first year at the helm will be a rough one.
•Watson Burton: A year in the life
5 June 2006: Watson Burton announces an average profit per equity partner (PEP) of £712,000.
17 July 2006: Firm sets up shop in the Gherkin.
21 August 2006: Senior partner Andrew Hoyle emerges as the best paid lawyer in Newcastle, banking £850,000.
26 September 2006: Partnership coup ousts Hoyle.
5 October 2006: Construction partner Rob Langley is crowned the new senior partner.
30 October 2006: Eighty one MPs sign an early-day motion calling on Watson Burton to refund compensation money to miners.
5 March 2007: Firm announces plans to consult on opening the equity.
16 April 2007: Hoyle joins Ward Hadaway.
20 June 2007: Ward Hadaway breaks £400,000 PEP barrier.
26 June 2007: Profit plummets at Watson Burton.