29 November 2004
There’s one thing that David Harris would like to get straight. Nothing he says should imply any criticism of the ancien régime. Let us applaud his sensitivity; Lesley MacDonagh is a hard act to follow, and no managing partner-elect wants to sound churlish.
Unfortunately, this delicate sense of honour means that Harris, on the second day after the announcement of his election as Lovells’ new managing partner, ends up in verbal gyrations. There’s lots of uplifting talk about building on success, taking things forward, embracing change and so on, only for him to box himself in with immediate caveats, and his syntax occasionally sounds over-rehearsed. “I want us to make the most effective use of the platform-that-Lesley-has-so-successfully-created,” he says in a rush.
Poor David. The politics are horrendous. Who would have thought that Lovells – one of the cuddliest, most consensual partnerships in the City – would have ended up having not one, but two contested management elections in the space of a year? Who would have predicted that former senior partner Andrew Walker lost his bid for
re-election, that hot favourite Hugh Nineham was overtaken by outsider John Young and that Lesley MacDonagh would resign just months after backing Nineham publicly for the senior partner job?
On this performance, though, Harris looks to have the right social skills to navigate the next few years. You can’t help warming to a bloke who would prefer, on the whole, to discuss the genius that is School of Rock, or the opening riff of Johnny B Goode. The fact that Harris also plays polo in his spare time is another clue to his character. Anyone who can move seamlessly between chukkas
and Chuck Berry can presumably have partnership politics licked.
But there are hard questions. After years of strong growth, Lovells has gone off the boil. Average profit per partner (PEP) dropped from £644,000 to £590,000 last year, according to The Lawyer UK 100 Annual Report. And as The Lawyer revealed last week, current revenues at the six-month mark are 21 per cent behind budget at £160m, which would translate into an average PEP of £472,000 – a fall of 20 per cent.
There is a strong element within Lovells – those who voted for John Pheasant – which believes that the only way forward is to sharpen the knife. Harris doesn’t have quite the same reputation as a hard man, but he knows what’s at stake.
“It’s imperative we improve profitability,” he declares, although he adds that it is not the size of the equity partnership that is at issue. “The question is not in absolute terms if we have too many [partners], but do they contribute? And if not, why not?” Nor is there necessarily a problem with the number of plateau equity partners, he argues, despite the fact that there is clearly resentment in some parts of the firm that there are too many 60-point (plateau) partners doing no fee-earning. Lovells’ management has to contend with the ever-present worry that younger partners might be tempted to jump ship to magic circle firms; banking star Adam Freeman’s resignation to join Linklaters last month was a warning to Lovells to cosset its more junior partners.
In fact, one theory circulating in Lovells is that the firm’s two years of profit glory merely masked deeper structural issues. The thing is, says Harris, Lovells probably wouldn’t have made tough decisions two years ago, even if profits had not as been so high. “Culturally, as a firm, we’ve not been so quick to deal with those issues as others,” he laments.
Rather than opting immediately for macho downsizing, Harris seems most preoccupied by generating revenue and being smarter on utilisation rates. He won’t be drawn on clients, but the fact is that two of Lovells’ biggest clients are litigation-based and have a finite life: British American Tobacco (BAT) and BCCI. Corporates such as ITV and SABMiller are pretty much wedded to the firm, but the trick for Harris is to ratchet up lower-level commercial relationships with Merck, Ford and Tesco, to take three random examples. As for Barclays – well, Lovells still does a fair amount of work for it, but it’s common knowledge that Clifford Chance has replaced Lovells in the bank’s boardroom affections. Given that Harris is the relationship partner for Barclays, that must have rankled, although he maintains a discreet silence on the firm’s relationship with the bank.
Harris may have to spend some of his time pacifying his backbenchers, but it’s Lovells’ foreign policy that will be the defining moment of his term. Harris will have to determine whether to cull the firm’s loss-making operations in Asia and make a decision on the US. He is known to favour merger in the long term, but he is aware that he will have to beautify his firm first. Although there is a profit target of £1.2m a year for plateau partners, this will be a long haul.
And so the talk turns to The Lawyer’s front page story last week about Lovells’ horribly disappointing six-month figures. Yes, that was a fantastic start to what should have been a triumphant week, Harris jokes ruefully. Yet if he is as canny as he ought to be, then those half-year results will give him some legroom. “We have to take difficult decisions promptly,” he warns. Lovells partners, having had their wake-up call, may now have the stomach for a fight.