Stalemate in Singapore

The bulk of legacy Freehills’ Singapore team has walked out on Herbert Smith Freehills in a move that highlights the challenges both legacy firms are facing over integration

The apparent discontent and spats within Herbert Smith Freehills’ Singapore office provide a micro-representation of the challenges the firm is facing in integrating Herbert Smith with Freehills.

HSF’s Singapore office has had the hallmarks of an unhappy place since the two firms merged in October 2012 (28 June 2012). It was the only jurisdiction where both firms had an office and, following the merger, the Freehills team moved into legacy Herbert Smith’s office.

At the time, Freehills was home to around 18 lawyers, including three partners, in the city. Since then, no less than two partners and nine associates of the original Freehills’ team have quit. Most recently former Freehills Singapore managing partner John Dick, a veteran of 30 years, upped and left (21 November 2013). 

While people are leaving from legacy Freehills, the Australian offices have relocated corporate partner Nicola Yeomans from Sydney (23 April 2013) and recruited financing partner Rod Howell from Allens to fortify its footing in Singapore (2 February 2013).

Word on the street is that there is a growing tussle between London and Sydney as to who should control future strategy in Asia and who should succeed the office managers.

One insider told The Lawyer: “It was a very unhappy place and several associates left because they felt miserable”, adding: “Herbert Smith is notorious at managing ‘underperformance’.”

Another former Freehills lawyer commented: “Herbert Smith’s Singapore team was very unfriendly and arrogant to the Freehills’ team from day one of working under a single roof. The two sides barely talked to each other.”

A source close to legacy Herbert Smith claimed the friction was caused by the difference in the two teams’ billable revenues. “Herbert Smith’s partners generally view the Freehills team as a second-rate practice which doesn’t make enough money,” the source alleged.

Tensions mounted further when partners started to hear tales of a legacy Herbert Smith partner allegedly badmouthing his new colleagues to a client. This was not the kind of friendly welcome anyone was expecting.

One former Freehills lawyer said: “Freehills’ Singapore office used to be a much happier and collegial workplace. Herbert Smith’s short sighted and narrow-minded emphasis on making money is partially to blame, but Freehills management is no saint in this.”

Going further the source commented: “I couldn’t believe how Freehills would allow Herbert Smith to slaughter its Singapore team like that. Freehills didn’t make any redundancies even at the deepest of the global financial crisis. This is not the firm I signed up for.”

The hostility toward the international bases appears to have been generated by both Freehills and Herbert Smith. One source suggested that in Australia the legacy Freehills partners saw such ventures as an expensive investment that failed to generate returns.

For instance, the firm opened in Vietnam in 1994 and closed again in 2000. The Singapore office also closed for a number of years before reopening in 2000. Many inside Freehills were hostile toward the move and repeatedly requested a reprieve.

Legacy Freehills management resisted. Sources suggested that such a U-turn would not be welcome while the firm’s peers were rapidly expanding in the region. With economic growth waning in Australia, it now appears that Asia is a base from which to grow. There was also pressure to push for an international merger.

“Freehills is widely regarded as an Australian equivalent of the magic circle firm. It very much felt the pressure when Allen & Overy and Clifford Chance set up their own offices in Australia while most of its top-tier peers have joint force with an international firm,” said a former partner.

Another source added: “It was a done deal from the beginning of the discussions and the agreement reached swiftly without too much thinking through. What happened in Singapore was a result of the assumptions from both sides haven’t been met.”

Retrospectively, some close to the combined firm believe that the legacy Herbert Smith Asia network has failed to live up to Freehills’ expectations. One source goes so far to say that the office was in “survival mode” and that the firm had done little to encourage growth.

The cultural clash between the two firms stands out in Singapore like nowhere else in the combined firm.

“Freehills’ management wondered whether London has been sending their ‘second team’ to Asia, a team which is colonial in attitude, doesn’t speak the languages and doesn’t understand the Asian cultures,” one lawyer said.

The criticisms continue to shower. Even Herbert Smith’s qualifying foreign law practice (QFLP) licence in Singapore is condemned for lacking practical advantages.

“There are only a handful of Singapore qualified lawyers in the office. It’s too small for large projects and meaningful work,” the lawyer adds.

Cultural differences, opposing management structures and different business philosophies have helped to create what looks to be a toxic mix. Added to that is firm’s inability to fully integrate the two financial systems to form a single global partner remuneration system that encourages client-sharing and internal referrals.

Another bone of contention is that legacy Herbert Smith doesn’t track or award credit for bringing in new clients and matters, but Freehills does. Under Herbert Smith Freehills’ interim arrangements, Freehills partners who refer work to their colleagues from the Herbert Smith side are not financially rewarded.

While the Singapore office encapsulates all that is wrong with the merger, one well-placed source suggests that this could be the final storm before calm ensues.

The two firms are close to reaching an agreement on financial integration and a unified partner remuneration system is due to be announced in coming weeks.

“There are always hiccups in global mergers and sometimes the problems are much more severe than just hiccups,” the source said. “But we, as one firm, are very committed to Asia and will continue to grow there. We already work closely with each other and our clients benefit greatly from the merger. There is no ‘us’ and ‘them’ in the firm.”

The source also pointed out that following the departures over the year, the size of the Singapore office now is roughly the same as a year ago when the two offices first integrated. Currently, the office has 13 partners and 43 other fee-earners, which is only two fee-earners down from a year ago.

The legal fraternity is eager to find out what Herbert Smith Freehills’ aligned remuneration structure will be. But don’t hold your breath expecting the departures will stop at once.