Rogers & Wells adopts lockstep as CC goes for US-style deed ...
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22 July 2013
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Clifford Chance is understood to have drafted a new partnership deed along US lines while Rogers & Wells has agreed to adopt Clifford Chance's lockstep pay structure as part of the pre-merger agreement.
It is believed that the previous Clifford Chance terms for partners were a sticking point of the lengthy negotiations between the two firms and that the London-based international firm has had to back down.
A source close to Clifford Chance says: "They have changed the partnership to a US-style deed. It now has a short notice period for partners leaving the firm and no restrictive covenants."
It is believed that at present Clifford Chance partners either have to work out a year's notice period or go on gardening leave for an equivalent period of time.
While details of the exact length of time partners will be required to serve as notice is not known, it is usually four weeks in US partnership deeds.
Such a move by Clifford Chance is unusual as there are often lock-in agreements attached to merger agreements, forcing existing partners to stay within the newly merged firm to prevent any impression of a troubled partnership.
Meanwhile, though Rogers & Wells has agreed to adopt Clifford Chance's lockstep pay structure, up to five US partners - the biggest earners at Rogers & Wells - will remain separate from the lockstep system.
The merger, which would create the world's largest law firm with annual revenue of $1bn, will go to a vote of partners at both firms on 9 and 10 July. If it gets the go-ahead, Rogers & Wells will have two years to adopt the Clifford Chance pay structure.
"They have two years to get to lockstep," explained an inside source at Clifford Chance. "After that it is possible that three, four or a maximum of five partners will remain outside the lockstep system."
During that two-year period, Rogers & Wells will basically follow a lockstep structure but with an extra percentage added on to provide a slightly variable remuneration in a gesture to the US partners.
The partners who will not fall under the Clifford Chance structure will be the very highest flyers who earn up to $2.5m (u1.56m) a year.
"The thought within Clifford Chance is that it is not the first company where overseas remuneration is not quite in line with the home country. For instance how many of the US banks pay their American executives exactly the same as those in London? It is the cost of doing business internationally," says the source.
Rogers & Wells worked under the lockstep system until about 10 years ago when it changed to a purely "eat what you kill" structure, but has been looking for a way to change back to lockstep. The proposed merger has provided the opportunity.
"The vast majority of Clifford Chance partners have never wanted to abandon lockstep as they believe it lends itself to a collegiate structure under which partners share work.
"It doesn't mean that partners do work that they shouldn't be doing because they are looking for personal profit and it means that people do not hang onto clients who would be better served by another partner," adds the source.
As to the forthcoming vote, it is highly unlikely, the source concludes, that there will be much dissension amongst partners, most of whom are very enthusiastic about the move.
A Client View
A leading client of both firms claims that Rogers & Wells can improve its client management by merging with Clifford Chance.
Leading investment bank Warburg Dillon Read's General Counsel Mark Harding says: "Clifford Chance is a big supplier of legal services to us and we also use Rogers & Wells.
Although I would not want to have just one point of contact within the merged firms as when you have an American law problem you want to speak to an American lawyer, it would be good if America adopted the same style of client management as in London."
Other shared clients are Airbus Industrie, Chase Manhattan, Citigroup, Merrill Lynch, Morgan Stanley, UBS and Volvo.