Searching for success at CMS

CMS, the European alliance launched by Cameron McKenna that was heralded with such promise, has undergone a year of mixed blessings. Fiona Callister reports on where the firm goes from here

It is a little over a year since Cameron McKenna launched its European alliance, CMS.

With an April launch in Berlin, it looked very promising. Camerons opted for a structure similar to Linklaters & Alliance, with an exclusive alliance leading to full economic integration.

But Camerons went one better – where Linklaters & Alliance had five members at that time, the new CMS alliance had six.

However, to an independent observer, the first year of the alliance has been one of mixed fortunes.

Only two months into the alliance – which was launched with the promise of full economic integration within four years – Schluter & Hald, the founding member in Denmark, merged with fellow Danish firm Dragsted & Helmer Nielson, which was a member of the World Law Group, a looser alliance than CMS, but nevertheless it was a move that brought up questions of allegiance.

In October last year, the two firms found another partner in Aros Advokater and became Dragsted Schluter Aros.

Although the firm is now Denmark's largest, former Schluter partners are in the minority so the CMS membership is on hold.

Dragsteds currently has observer status on the CMS committee and is considering its long-term future within the alliance.

A month after the Aros merger, there was another shock for CMS. Swedish founding member Tisell Advokatfirma called off its engagement with CMS and leapt into the arms of accountancy giant Ernst &Young.

Only one partner, Peter Lonnquist, decided not to join the accountants. Lonnquist was executive partner of the CMS committee. He has now set up his own firm.

According to sources close to CMS, the merger with Ernst & Young came as a complete surprise to both the CMS committee and Lonnquist himself, neither of whom knew about it before the announcement was made.

Camerons' new chief executive Robert Derry-Evans is sanguine about it. “It was quite clear that Tisell needed within its own market to effect a merger. I would rather it had been with a law firm, but once it had decided that E&Y was the best solution, it had to leave the association because it went against the association agreement,” he says.

After a year of turmoil, Derry-Evans has decided to trade in his position as managing partner of Camerons for that of chief executive.

The new position has been created to concentrate on strategic development of the whole of Camerons, but in particular to focus on bringing the alliance closer together.

Derry-Evans starts his new post with some good news for the alliance – it has signed up a Swiss member, von Erlach Klainguti Stettler Wille, an eight-partner banking and corporate firm based in Zurich.

The alliance is also in talks with Italian firm Studio Legale Tonucci, and Derry-Evans hopes that an announcement can be made within weeks.

“We have decided on jurisdictions where it might be useful to have a CMS member firm and talks with the Swiss firm have advanced quicker than with other firms,” he says.

But there are still obvious areas where CMS does not have a presence, including France.

Derry-Evans says: “In France we are aware that there is a gap in coverage. But leading French firms are either branches of London firms or accountancy firms. There are relatively few good, sizeable, quality French law firms with the right range of skills. Those few firms are considering their options and either trying to stay independent or are being courted by everyone.

“We always thought it would take longer [to find a member] in France but we definitely want to do something there. If we can't find a partner then we will look at what we can do as CMS.”

According to Derry-Evans, the good news about CMS has outweighed the bad.

“[The two departures] are not big blows,” he says. “By far the most important thing that has happened since the launch in April last year was the merger in Germany.”

The German merger was between member Sigle Loose Schmidt-Diemitx and Hasche Eschenlohr, which created a top five German firm by size.

Admittedly, this is an impressive member to have in any alliance, but what Derry-Evans does not volunteer is that the German merger happened on the same day that the CMS alliance was announced.

Which is a bit like a husband and wife saying on their first anniversary that the only happy memories they have are of their wedding day.

As for the two firms who found comfort in the arms of another, Derry-Evans holds no grudges, although he does finally admit that the departures were negative.

He says: “Schluter & Hald merged with a firm that was the leading firm and the biggest firm in Denmark. It wanted to make absolutely certain before it commits to CMS that it was in the interest of the new firm.

“Put in [its position] I would have done exactly the same and I do not hold anything against it.”

Derry-Evans adds that by the end of the year, he wants Dragsted Schluter & Hald to have made up its mind about whether it is going to commit to CMS or move on. The alliance will then have to work out what it is going to do in Scandinavia.

He is evasive on the subject of full integration. “We want to move to full economic integration as soon as possible and that is one reason why I have changed roles within the firm. We need to work out which model we are going to use,” he says.

One issue that will need to be dealt with by the alliance is that of differing profitability.

The founding members were firms that had had relationships in the past which grew into a closer network. So profitability was not, according to sources who were involved in the formation of the alliance, a top priority in deciding who could join.

It is believed that the departure in March of Frits van Hees, who left to join Ernst & Young, was connected to this issue. Formerly at CMS' Dutch member firm Derks Star Busmann Hanotiau, van Hees also sat on the CMS committee.

While van Hees refused to talk about his departure from the Dutch member, a source close to him says that it was linked to Derks Star's profitability and growth.

“As I understand it, he was concerned that Derks Star was not up to joining CMS,” says the source.

“The profitability is a lot lower than Cameron McKenna's which is an essential element in any alliance. I understand that profitability was part of the problem with Allen & Overy and Loeff Claeys Verbeke and why they decided against a merger.

“Related to the firm's profitability is the issue of development of new business, and there is a feeling among some that the firm needs to be more dynamic.

“Otherwise the firm risks not playing a full part in CMS. Before joining with CMS, Derks Star did not do much international work. Now the tax department has gained a lot of work, although generally there is not a huge increase in the work coming in.”

According to a source close to the firm, around half a dozen partners have left in the past three months.

And given that Dutch law firms generally tend to be more profitable than other continental European law firms, it is not unreasonable to assume that this is also an issue with other CMS members.

Given Derry-Evans' other ambitions for his firm, the profitability issue may soon rear its ugly head.

He is beginning to look seriously at the alliance's US strategy. The firm already has a Washington office but is after a USmerger partner.

He says: “We closed the San Francisco office [last year]. Although it was doing excellent work, we decided that there was no point in having two operations to service that type of work [energy and projects] so we relocated San Francisco to Washington.

“Over the next two to three years we have to decide what we do about putting a US strategy in place. It's illusory to imagine that you can claim credibility as a global firm without a partner in the US.

“In the past it hasn't been top of the agenda for US firms to merge with a UK firm. I think that it is now rising up the agenda and more US firms are asking themselves what they are going to do not only in relation to the UK but also in Europe.”

Derry-Evans says that no merger talks have started but the firm has good working relationships with several US firms including Thacher Proffitt & Wood, with which Camerons agreed a link-up recently because it needed corporate law back-up in the US.

“Our joint CV [to a client] is going to be better than any independent one,” says Derry-Evans.

At the moment it is a case of 'suck it and see', with Camerons assessing what it would need out of any merger partner. Derry-Evans says that talks have not progressed towards full integration.

But one stumbling block in any link-up with a US firm is Camerons' profitability.

Last year, profits per partner at the firm were around £272,000 but Derry-Evans says that this year will see them rise to around £350,000.

“In terms of the targets that we set ourselves when the two firms [Cameron Markby Hewitt and McKenna & Co] merged [in 1997], we are doing very well. We need to get profitability up to £400,000 by year five,” he says.

“But the game plan with a US firm isn't going to happen overnight. We are looking realistically at two to three years to improve our profitability.

“Our predictions for the next year and the year after are that we will exceed our principal objectives.”

Profitability has already been addressed with the cutting of partners in overpopulated practice areas, especially litigation, which sources close to the firm say is being parred right down. “There have been a number of partner departures reported in the press where those departures have been in the overall interest of the business,” says Derry-Evans.

He refuses to specify which departments are still not as profitable as they should be, but litigation appears to be one of them. Outsiders claim that the corporate department is also not all that it should be, although Derry-Evans says that the corporate side of the practice has had a fantastic year, together with the property department, which is recruiting.

Another problem is that the area which the firm has the best reputation for, its energy projects and construction department, mainly works in areas such as Eastern Europe where fees are lower. A US link would help it tap into the more profitable market across the Atlantic.

Tied in with profitability is the thorny issue of salary increases for assistants.

Derry-Evans says: “We have no option but to match the current salaries. Our salary review happens on 1 July which is later than others but by then we will have more market information and will have carried out our research.

“We need to make sure that our stars are being paid at the right rate. Part of our salary review will be to look at bonuses linked to productivity, because that is the key to profitability.”

Also critically important, says Derry-Evans, is that the firm is able to extract the right number of hours from each fee earner. Rather than this being the chilling message that that assistants should cancel their social life for the next 10 years, Derry-Evans says that it is more a matter of making sure that support services, such as 24-hour IT support, are in place.

But it is in the younger generation that the firm's hopes lie. Last year Camerons proposed that the move to equity partner should be sped up with the introduction of junior equity partners to try to balance the discrepancy between the amount paid to senior partners who do not bring in the fees.

It is an issue that has still not been decided and needs to be settled if the firm is to fulfil Derry-Evans' dreams.

France

Cameron McKenna has always aimed to have a CMS member in Paris, but talks have so far failed to find a suitable willing partner. But if Italy's Studio Legale Tonucci joins the alliance, it will bring a Paris office with it for CMS to build on. Derry-Evans recognises that the European alliance urgently needs a French capability.

THENETHERLANDS & BELGIUM

CMS Derks Star Busmann Hanotiau came to the alliance through its relationship with Sigle Loose. The firm has around 80 partners in its offices in Arnhem, Hilversum, and Amsterdam in The Netherlands, and Berlin, Dusseldorf and Belgium outside. It is also a member of the World Law Group, a loose network of 42 law firms throughout the world. It specialises in property and corporate and commercial work.

GERMANY

CMS Hasche Sigle Eschenlohr Peltzer was created from the merger between Sigle Loose Schmidt-Diemitz, which had the original relationship with Cameron McKenna that led to the creation of CMS, and Hasche Eschenlohr Peltzer Riesenkampff. It is now a top five German firm in terms of size with more than 200 lawyers, and has particular expertise in M&A and cross-border transactions. It has eight offices in Germany with an additional one in Brussels that is now a joint CMS office.

DENMARK

Dragsted Schluter Aros is the product of the merger of three Danish firms last year. Firstly Schluter & Hald, a CMS founding member, merged with Dragsted & Helmer Nielson to form the largest law firm in Denmark. Then that firm merged with Aros Advokater, Aarhus, the largest Danish firm outside Copenhagen. The firm has 55 partners and specialises in cross-border work and international taxation. Due to the merger, former Schluter partners are now in the minority so the firm has been relegated to an observer position in the CMS network and is deciding whether it will pull out of the alliance or become a full member again.

ITALY

Studio Legale Tonucci is in talks to join the CMS alliance and, according to CMS, an announcement is expected within the next few weeks. The 11-partner firm has offices in Rome, Milan, New York, Paris and Tirana in Albania, with a total of 83 lawyers worldwide. However, a spanner may have been thrown in the works by the recent merger of its New York office with boutique firm Pavia & Harcourt.

AUSTRIA

CMS Strommer Reich-Rohrwig Karasek Hainz is a 10-partner firm based in Vienna focusing on corporate law, employment law and pensions mostly in the construction and utilities sector. Arbitration also accounts for 20 per cent of its work. Its clients include Ericsson, Shell, Magna, Société Générale and Bayer.

SWEDEN

Tisell Advokatfirma AB was a member of CMS until the end of last year, when all 17 partners apart from one, executive partner of the CMS committee Peter Lonnquist, voted to merge with Ernst & Young. Under Swedish bar rules, Tisells' partners had to leave the bar. It was also a member of the Hansa Law Group which was a grouping of law firms in the Baltic Sea region.

CIS – a centre of discontent

A subject that is off limits with Robert Derry-Evans is Cameron McKenna's CIS offices.

As exclusively revealed by The Lawyer in June 1999, the Tashkent office has been at the centre of allegations of racial and sexual discrimination.

Three of the six claims relate to the behaviour of senior assistant Ilia Iaroslavski, who headed the office. His clients included mining companies Lonrho and Newcrest, chemicals giant ICI and the British Embassy in Tashkent.

He was due to become a partner in May 1998, but the promotion was put on hold following claims of sexual harassment from his secretary Veronica Pescud, who left the firm in January 1998. She settled in August 1998.

Further complaints followed from other women in the office. Natasha Lobova, a former assistant in the CIS group accused Iaroslavski of sexual harassment and Elena Kirillova, head of the CIS group, of victimisation. She settled in June 1999.

Paralegal Liza Horstkamp also left the firm in 1998 with a stress-related disorder and began proceedings alleging mistreatment by Kirillova and Iaroslavski.

Camerons was further embarrassed when The Lawyer published a document which cast doubt on Iaroslavski's qualifications.

Iaroslavski had claimed to have qualified as a master of law from Tashkent State University in the former Soviet republic of Uzbekistan in 1989.

However, The Lawyer obtained a copy of a document from the university stating that Iaroslavski was not listed among students.

In response Camerons produced a copy of a certificate purporting to have been issued by Tashkent Lenin State University, as the institution was then called.

It then launched an urgent inquiry into the matter.

However, in February this year, Iaroslavski resigned from the firm on grounds of ill-health.

He returned to his family in Israel where Camerons said he suffered a heart attack.

Camerons says it is not available for comment regarding the complaints until all claims have been dealt with.

CMS: a year to remember

March 1999

The Lawyer reveals that Cameron McKenna is planning to launch a European network.

April 1999

The CMS alliance is unveiled in Berlin with six members.

June 1999

Camerons' Hong Kong office hires the head of Denton Hall's Hong Kong office, Christopher Clarke as senior partner, swiftly followed by corporate partner Janine Canham.

The Lawyer reveals that Camerons is being taken to an industrial tribunal by former CIS lawyer Natasha Labova on the grounds of race discrimination.

Head of tax Stephen Charge leaves to join accountants Deloitte & Touche – the second lawyer to leave the position in a year.

Schluter & Hald merges with Dragsted & Helmer Nielson.

The Bristol office loses insolvency partner Trevor Fox to Bond Pearce.

July 1999

The firm announces that it will shut its San Francisco office after just eight months.

August 1999

Orrick Herrington & Sutcliffe takes project finance partners Martin Stewart-Smith and Paul Stock.

Banking partner Robin Parsons leaves to join Eversheds.

Camerons merges its Brussels office with that of Dutch and Belgian CMS member Derks Star Busmann Hanotiau.

Alliance agreement with Singapore insurance law firm Niru & Co is signed.

September 1999

Two more claims are filed for discrimination by staff from the CIS group.

The lawyer at the centre of the CIS claims, Ilia Ioroslavski, is denied partnership in the immediate future.

The Lawyer reveals that the firm is planning to make changes to its equity partnership by abolishing the distinction between junior and senior equity partners to better reflect the contributions of the junior equity partners. Partners fail to pass the changes in a first vote.

October 1999

Legal alliance with two South African firms, Canca in Cape Town and Jowell Glyn & Marais in Johannesburg, is unveiled. The alliance will concentrate on winning restructuring work within the energy industry.

CMS member Dragsted Schluter Helmer Nielson merges with Aros Advokater to become Dragsted Schluter Aros.

The Lawyer reveals that Camerons has instructed George Staples, former head of the Serious Fraud Office, to investigate two unfair dismissal claims against the firm from its Tashkent office.

Property finance partner Penny Bruce moves to an in-house role at Barclays Bank.

November 1999

Tisell Advokatfirma drops out of the CMS alliance to merge with Ernst & Young.

December 1999

Head of commercial technology group Julian Thurston moves to Arnold Porter and IT partner Jeremy Newton moves to Sun Microsystems.

January 2000

The Lawyer reveals that Ilia Ioroslavski was not recorded at Tashkent State University, where he claimed to have done his training.

February 2000

Pensions partner Julia Miller leaves to join Sacker & Partners.

Ilia Ioroslavski resigns.

Head of Africa practice Paul Biggs is poached by US firm Cadwalader Wickersham & Taft.

Derks Star Busmann Hanotiau partner and member of the CMS committee moves to Ernst & Young's Dutch law firm Holland van Gijzen.

CMS Cameron McKenna unveils its new management structure which is designed to speed up its international expansion. Managing partner Robert Derry-Evans becomes chief executive while corporate partner Dick Tyler steps into his shoes.

March 2000

An immigration practice in Hong Kong is set up.

Association with New York law firm Thacher Proffitt Wood is established.

April 2000

Energy partner Paul Luch moves to mining giant Billiton.