Review of the year 2008: Cometh the crunch
15 December 2008
8 February 2008
11 February 2008
24 November 2008
26 September 2008
12 March 2007
Cadwalader Wickersham & Taft gave us a taste of things to come when it laid off 35 associates. By the end of the year nearly every firm would be doing the same.
Lovells marked the end of an era with the departure of former corporate chief Hugh Nineham for McDermott Will & Emery. The exit had been expected since he lost out to John Young in the 2003 senior partner election, but it was a loss nevertheless. McDermott had hoped that Nineham would provide the gravitas to broaden out its European corporate team.
The ;departure ;of property partner Vinay Veneik from Berwin Leighton Paisner (BLP) was not quite as dignified. BLP insiders claimed that Veneik had hidden the fact that at the end of some deals he had omitted to pay stamp duty and register the transfer of property. One former client was seen at a party going absolutely ballistic at the mere mention of Veneik’s name.
It was all change at Slaughter and May as the firm appointed a new management team to replace the retiring duo of Tim Clark and David Frank. New senior partner Chris Saul grabbed the public attention with his vow to make sure his colleagues had a lot more fun.
Saul’s primary method of having fun involved attending as many rock gigs as possible. 2008 would see him going to see everyone from prog rock band The Mars Volta to Madonna. Saul said he wanted to correct the image of Slaughters’ lawyers as “a bit stiff”. He probably succeeded, although one partner was not convinced after watching Saul boogie the night away at The Lawyer Awards in June.
The Lawyer’s new team in New York was busy breaking new ground with the early revelation of US firms’ financial results. Latham & Watkins and Skadden Arps Slate Meagher & Flom were both happy to see revenues climb over $2bn (£1bn) for the first time.
Latham was so pleased that it followed that news with a three-pronged attack on the Middle East. The Lawyer revealed the firm’s plan to launch simultaneously in Abu Dhabi, Dubai and Qatar.
Also coining it were the barristers working on the Diana inquest. The Lawyer revealed that the total cost of the case was set to top £10m. Cue general hysteria on Fleet Street.
Herbert Smith was also causing a bit of hysteria among its ranks of Indian associates. Following a cultural integration course Indian associates accused the firm of racism. English language lessons were seen as ‘condescending’ and ‘discriminatory’.
Slaughters picked up what seemed like a fairly unique instruction when it advised the Government on the nationalisation of Northern Rock. It was the first nationalisation since 1977 – and it was not to be the last.
In his first interview since being elected senior partner, Allen & Overy’s (A&O) David Morley rather rashly pledged to defy the credit crunch. “We’ll weather any downturn and come out stronger on the other side,” he vowed.
Morley said he had been through three economic cycles as a partner. One gets the feeling that he has probably not witnessed one quite as savage as this one is becoming. “Onwards and upwards,” he cried, dizzy with anticipation. Morley moved to New York later in the year. Let’s hope his optimism has endured.
Optimism was in short supply at White & Case after two of its most senior London partners, Maurice Allen and Mike Goetz, walked out to join Freshfields Bruckhaus Deringer. The pair were aggrieved at the lack of voice that London had in senior management.
Eversheds chief executive David Gray came up with an innovative plan to red card partners who were sloppy with getting their bills paid. Later in the year he would red card himself to spend more time with his “best friend” – his wife. Aaaahhh.
Clifford Chance, meanwhile, was being hit with a $75m (£37.5m) race discrimination suit in New York and a sex discrimination suit from a pregnant associate in Budapest.
Banking lawyers got all het up over cheap debt buy-backs. That was at a time when banking lawyers had work to do. It seems like a very long time ago.
Their clients, though, were struggling with a lack of lawyers, rendering them unable to cope with an upsurge in disputes. They would have a few more as the year dragged on.
Not content with a disco-dancing senior partner, Slaughters elected a female corporate chief. Frances Murphy thought it no big deal. We begged to differ.
The partnership promotions round brought about a huge surge in the number of female partners. One who caused a storm was A&O patent queen Nicola Dagg, who clocked up a bill in excess of £5m for a five-day trial on behalf of BlackBerry manufacturer ;Research ;in Motion.
And it was not just Dagg under fire. Mr Justice Peter Smith got a slap on the wrist from the Office of Judicial Complaints for failing to recuse himself from a case where he had a conflict of interest.
Meanwhile, Freshfields greeted the return to the equity partnership of corporate star Barry O’Brien, who was labelled a “superhero” by one of his partners. O’Brien had opted to become a consultant when the firm restructured its partnership.
Herbert Smith’s early year-end meant it was the first UK firm to announce its financial results. Senior partner David Gold greeted a “bumper” year when turnover rose by more than 20 per cent to in excess of £400m.
Another firm with a different year-end was pensions boutique Sackers, where plateau partners caused envy across the City with their £1m pay packets. The firm is a real success story. Average profit per equity partner (PEP) was £882,000.
May saw the launch of The Lawyer Transatlantic Elite supplement, which heralded a ‘Sweet Sixteen’ of law firms that dominate the transatlantic transactional market. The magic circle made it. Shearman & Sterling did not.
Anglo-Scottish private equity powerhouse Dickson Minto scotched Willkie Farr & Gallagher’s transatlantic ambitions by vowing to remain independent when the US firm attempted to merge with it. The pair did resolve to enter into an alliance though.
Tyco legal chief Trevor Faure was back in the headlines as he renewed his innovative one-firm-fits-all deal with Eversheds. The Lawyer revealed that the deal came very close to collapse as Eversheds struggled to cope with the influx of work. The firm was set some challenging diversity criteria as reward for its hard work.
Eversheds passed its diversity demands down the food chain until it was slammed by recruiters. The agencies put the blame squarely on the shoulders of the profession.
The story really inflamed readers’ passions. “I am middle-class, white, public school-educated, with a first-class Oxbridge degree… and Eversheds still rejected me. Hurrah! Eversheds treats everyone equally badly,” read one post on TheLawyer.com.
The economic apocalypse drew a little bit nearer as a whole raft of US firms started making redundancies. Two of them – Heller Ehrman and Thelen Reid – would not exist by the year-end.
Freshfields, though, was celebrating. It scooped the Firm of the Year gong at The Lawyer Awards and saw PEP jump by 39 per cent to £1.44m.
Over at Linklaters a storm was brewing after the firm accepted instructions from Barclays Bank to sue Bear Stearns. After JPMorgan bought Bear Stearns, Linklaters was left suing a £24m-a-year client. Oops! It was unceremoniously dumped.
Queen’s Bench Division judges were fed up with working too much. “It’s a worrying state of affairs that the division is so chaotic,” opined one judge. Another said he had not had a break for 10 months.
The US firms may have had a bumper year in 2007, but their UK counterparts were not to be outdone. As we reported at the beginning of July, all four magic circle firms had a stonking 2007-08, with each raking in a revenue of more than £1bn.
While the near collapse of the banking sector a couple of months later would go on to dent their finances, the firms are still looking on track to post robust earnings for the current financial year.
Law firm financials were big news for most of the month – we also broke the astonishing news that the UK’s top 30 firms had seen their PEPs rise by an average of 93 per cent since the turn of the century, while revenues had risen by 145 per cent.
Despite this, there had been little change in the pecking order of the top 10 by turnover, with only Ashurst managing to break into the elite list over the eight-year period.
Latham, which earlier in the year had revealed plans to launch three Middle East offices in one go, began dramatically scaling up in the region, with global finance chair Bill Voge predicting that the firm would be the leading US heritage firm in the Middle East by the end of the year. There are still a few days in which the firm can achieve this target.
Clifford Chance was also looking to up its presence in the Middle East by sending a funds team to Dubai, while Denton Wilde Sapte drafted a policy that would see associates willing to relocate to the Middle East fast-tracked to partnership within a year.
Back on home turf, July saw Bevan Brittan draw up plans to oust chief executive Stuart Whitfield from his role as part of a management restructure designed to pep up falling profit at the firm. The plans were okayed and Whitfield returned to fee-earning in September.
By August firms had decided on which newly qualified lawyers would return as associates in September, with firms such as DLA Piper, Linklaters, Lovells and McGrigors seeing significant decreases in trainee retention rates.
As we reported a few weeks later, US firms fared better than their UK counterparts in terms of London retention, albeit the actual number of trainees qualifying at each firm was significantly lower. Bingham McCutcheon, Cleary Gottlieb Steen & Hamilton, Debevoise & Plimpton and Dewey & LeBoeuf were among those to offer (and have accepted) places to all their qualifying lawyers.
At the same time, Simpson Thacher & Bartlett introduced a mid-year performance review for associates following a slowdown in M&A work, which forced the firm to take a tough stance.
International issues were very much to the fore during August, with Ashurst announcing that its long overdue foray into the Chinese market would be spearheaded by senior partner Geoffrey Green, who is set to move east in January when he hands the management crown to Charlie Geffen.
Like most international firms, Clifford Chance had its eye very much on the Indian market and, being a canny firm, it used its Indian knowledge to help save it a bob or two. The firm embarked on a plan that would see its Indian outsourcing staff handle a large proportion of the low-end work previously handled by trainees and paralegals in London.
For Hammonds, making it in the US was top of the agenda and, as we revealed, the firm gave itself three options for success on a transatlantic scale, mooting a merger, a strategic alliance or the expansion of existing relationships.
The strains in the financial markets were starting to show in September, with a study from Deloitte showing that first-quarter revenues at the UK’s top 100 firms had dropped significantly from the same period’s levels the previous year.
That did not stop A&O making bold plans to put litigation at the heart of its global strategy, aiming to increase the practice’s contribution to overall revenue by 50 per cent within four years.
According to senior partner David Morley, the strategy would be crucial to developing and managing client relationships.
He said: “Litigators are some of our most versatile lawyers and some of the best at managing large, complex client relationships because of the breadth of their experience and knowledge.”
While there was good news for women when we revealed that more females than ever before were breaking into the top ranks of the UK’s leading law firms, the second half of the month was overshadowed with news of the collapse of the banking sector.
Bad news for the banks was good news for the lawyers, with Linklaters set to pocket up to £20m for advising Lehman Brothers’ administrator PricewaterhouseCoopers.
Law firms were not left unscathed by the dire economic news, though and, as we revealed at the end of September, US firm Heller Ehrman was the first to succumb.
As we reported in a front-page story, lawyers in the firm’s London office had an agonising wait to discover where their futures would lie. In the end Orrick Herrington & Sutcliffe entered as their saviour.
Former Hammonds partners embroiled in a £3m profit litigation with the firm spoke publicly for the first time – to The Lawyer, of course – to accuse their former partnership of allowing the case to drag on for three years longer than they believed was necessary.
As they prepared for a courtroom showdown with their former firm, which is due to be resolved in the New Year, seven former partners told us that if Hammonds had disclosed documents at an earlier stage then litigation may not have been necessary.
More doom and gloom came when we revealed that law firms that had signed up to take on new buildings could be in for a tricky time financially after failing to find anyone to sign up for their current spaces.
Reed Smith was likely to be the worst hit, having signed up for a new building when prices were at a premium and not being able to find anyone to take over the rent on one of its existing office buildings.
Richard Norton, a director at property agent Jones Lang LaSalle, told The Lawyer: “It’s pretty grim. The hardest ting is that, even if the opportunity to move is there, funding the cost of the move and the fit is impossible.”
While banks were facing unprecedented troubles, we reported that they were emerging as key players in reshaping the legal market by stepping in to convince cash-strapped firms of the need to merge, sell off or restructure their businesses.
Despite this the legal sector was proving a beneficiary of the banks’ woes, with the number of students looking for openings in the law rocketing as investment banking careers were shunned.
Our coverage of legal job losses could have served to change their minds, though. By the end of October the total number of jobs lost or in consultation had hit 760.
By the end of the year that figure was well over 1,000.
The news just kept getting worse and worse as the year wore on. In November we revealed that firms’ half-year financial results were starting to suffer as the effects of the credit crunch really began to show.
With law firms across the board reporting mixed results, just CMS Cameron McKenna and Lovells were on course to report double-digit growth.
This level of pessimism hit partners where it really hurt – in their pockets. We reported that Eversheds decided to hold back up to two-quarters worth of distributions in a bid to tighten its lockup.
Our New York office continued to scoop the market, reporting that Cadwalader partners had revolted against their managing partner following a disastrous year in which revenues had all but dried up.
With Bob Link due to be ousted from the top job, one Cadwalader partner told us: “Bob has to be the fall guy. His strategy has failed and he has to go.”
Despite the pessimism in the market, we had some good news to reveal at the end of November when we unveiled the list of firms due to benefit from an upsurge in cross-border litigation and arbitration. US firm Skadden topped the table, having generated more revenue from litigation, arbitration and disputes than any other firm in the world during 2007.
December kicked off with news that Herbert Smith had been forced to ditch a plan to overhaul its financial reporting system after a gloomy profit outlook made it look likely that partners would have been left out of pocket.
While the firm was on course to achieve reasonable financial results, its plans to shift its financial year-end forward a month to allow partners to defer tax payments were put on hold because profit at the firm was unlikely to continue rising.
Meanwhile, energy company E.ON was looking to save on legal costs by rolling out an in-house mediation service to resolve disputes within its subsidiaries. Also, the legal chief at The Guardian Nuala Cosgrove left the newspaper after six years to join media regulator Ofcom.
Media firm Davenport Lyons was also making the headlines after we revealed that it was beefing up its client list with porn clients, while the jobs market hit a new low with Milton Keynes outfit Kimbells putting a raft of lawyers onto a four-day week.
We ended the year with a revelation about the world’s biggest law firm, Clifford Chance. The magic circle giant had been forced to call off merger talks with Australian leader Mallesons Stephen Jacques after economic conditions had rendered the union unviable.