Revealed: Freshfields' £4m cash pot for partner payoffs

Freshfields Bruckhaus Deringer paid out nearly £4m in severance packages in the first quarter of this financial year as the firm embarked on a sweeping reform of its partnership.

The Lawyer can reveal that Freshfields has been withholding 5 per cent of its quarterly drawings in order to pay for severance packages, which would represent a total annual pot of nearly £16m - or some £32,000 per equity partner.

Partners were first alerted to the move when it appeared in the partnership minutes in September. The money is being treated as a business expense line within partnership documents. One partner said: "It was decided to hold back from the distribution quite a big number of partnership sharing points to create a fund to pay for the costs of getting people to go."

Nearly 25 partners are understood to have left the firm in the past year, in a combination of retirements and managed exits.

Chief executive Hugh Crisp denied the firm was making provisions within accounts for future exits. He said: "The only number I'm aware of is the number for the first quarter. Any number someone works out for the full year is speculation."

However, Freshfields sources say that the process is a root and branch restructure. Last November, The Lawyer reported that Freshfields was changing the way it dealt with underperformers. The power to remove partners has now been delegated to the partnership council rather than be subject to a firmwide vote.

Sources say up to 50 partners could be affected in the long run, with some speculating that the number could rise further. It is understood the firm is already in exit discussions with four Paris partners, while German sources say that up to seven partners may be leaving in the next year.

The focus on partner performance is also linked to a wider 'size and shape' review, which kicked off earlier this year, in which the management is examining relative profitability in different jurisdictions and practice areas. The shake-up of the firm's corporate department, following four years of no growth, is also part of the process. Freshfields sources say that this will lead to an eventual discussion on lockstep.