When the music’s over
22 November 2010
1 November 2010
1 November 2010
22 October 2010
25 October 2010
19 March 2012
The failure of SJ Berwin’s talks with Proskauer Rose has opened up a schism at the heart of the firm. Can Rob Day turn the ship around?
Sometimes rumours and law firms can resemble dogs and fleas; the more they scratch the itch, the worse the infestation gets.
Noises about SJ Berwin seeking a transatlantic merger started rippling across the market more than a year ago. The whispering had grown to a veritable clamour by the time the news broke that first Orrick Herrington & Sutcliffe had abandoned talks and then that Proskauer Rose had stepped into the breach.
That was in the spring. When, earlier this month, it emerged that the protracted negotiations with Proskauer had also come to nought the process had been going on for some nine months. For many, it was simply too long an engagement.
“It’s like in personal relationships,” says one senior partner at a rival firm. “If it’s taken you nine months to decide whether to get married or not, you probably shouldn’t do it.”
Proskauer and SJ Berwin have so far offered a unified line when carving up the blame for the break-up. A statement released jointly by the two firms stated that talks “began on the basis of a longstanding and profound mutual respect”, adding that they ended “with the same profound respect”.
Since then the Proskauer side has remained silent, while SJ Berwin has embarked on something of a charm offensive, emboldened no doubt by some strong half-year financial results. The rumour mill, however, has continued to churn away on both sides of the Atlantic.
Going, going, gone
Talk in the market says that the internal problems SJ Berwin has experienced recently would have made it seem an unsatisfactory partner for a US firm in a relatively buoyant state.
There have been a number of high-profile departures from SJ Berwin, while last month’s election for a new managing partner, which saw Rob Day triumph by the skinniest of margins, has yet to have a unifying influence on a factionalised partnership.
The Lawyer spoke to numerous lawyers, both inside and outside the firm, and there was plenty of candour on display.
“Division, disarray, confusion, uncertainty,” is how one SJ Berwin partner characterises the atmosphere in the corridors at the firm’s riverfront offices. “The whole place is a mess.”
Unsurprisingly, it is not a view shared by everyone, particularly those in the firm’s management.
“If there are disgruntled people, they’re not the ones speaking to me,” shrugs Day. “My experience is that people are seeing markets and activity pick up. Enthusiasm is noticeably higher.”
Day, a well-liked figure in the corporate group and beyond, has already spoken of the need to improve communication with partners. However, unhappy noises from some quarters had already drifted across the Atlantic clearly enough to make Proskauer partners feel uneasy about the combination.
“My view would be that Proskauer got a bit freaked about what’s happened in the past few months,” says a source with ties to SJ Berwin. “All the departures are a sign that things aren’t quite as they should be.”
Those departures include a large swathe of partners from the firm’s real estate group - widely seen as one of the best in the City and a pillar of SJ Berwin’s meteoric rise in previous years.
The exodus began in January, when real estate partners Nick Minkoff and Stephen Hughes left for Mishcon de Reya, followed quickly by fellow property partner Michael Scott’s defection to Shepherd & Wedderburn.
The pied piper of SJ Berwin
However, the effluent really made contact with the cooling system last month when property chief and strategy committee member Jon Vivian led a team of four partners to Irwin Mitchell. They have since been joined by 16 former SJ Berwin staff, including 12 more lawyers.
While few have suggested that Vivian’s exit was related to disquiet over the potential merger, it has been painted by some close to the situation as a divisive event.
The fact that this could be allowed to happen, not with an unsettled rank-and-file partner halfway down the equity, but with someone perceived to be at the forefront of firmwide strategy (whether or not that was ultimately the case) would not have gone unnoticed in the US.
“Considering he was head of department and on the strategy committee, it was remarkable,” admits one partner.
Another source takes a different view. “People were apoplectic with rage that someone in that position could be so brazen as to walk around the office trying to poach people,” the source says.
Vivian refused to comment on the allegation. However, an Irwin Mitchell spokesman said: “The facts of this are that the team, including the partners, followed John for his reputation and for the chance to continue working with him. Nothing else.”
Whichever side was to blame for the mass walkout, the picture is not one of a united firm.
Internal strife is one thing, but the perennial issue of partner profits was hardly an irrelevance.
Day admits that the profitability chasm between his firm and Proskauer was “one of the issues”, adding that other factors were involved, notably the fact that, after a certain length of time, “a natural deadline” came into play.
“These combinations need to maintain a certain momentum and not spend too long in the public eye,” explains Day, adding that the unusually public nature of the courtship made matters come to a head more quickly than either party might have liked.
The number’s up
While that has the ring of truth, raw numbers are often what merger talks come down to.
Last term SJ Berwin’s average profit per equity partner (PEP) stood at £447,000, while Proskauer’s was a healthier $1.37m (£860,000). Notwithstanding the fact that most transatlantic mergers are unequal and that SJ Berwin’s half-year profit increased by 34 per cent, that is still a considerable gulf.
Shortly after it had become clear that Proskauer was now the only game in town, SJ Berwin laid out to partners one of the possible scenarios at their weekend retreat in the summer. It suggested that, despite having 35 per cent of the partners in a merged firm, SJ Berwin’s side of the tie-up would take closer to 20 per cent of the profit.
The numbers, which may never have been on the table as far as Proskauer was concerned, might have made sense from a purely business point of view, but they would have brought home to the partnership the stark reality of what it means to merge during a downturn.
“That was one of the big problems with it,” says a source close to the events. “Partners got scared because they recognised Proskauer may have been too big in terms of its partnership.”
Day says that no concrete numbers were put to partners.
“It’s a much broader question than [profit],” he explains. “It’s about a broader set of parameters; but people like simple facts, so maybe some did do their own calculations.”
The problem for some partners was that their own calculations, mixed with a relentless drip-feed of speculation, leaks and disinformation, was all they had to go on during the interminable talks.
What peace there was at the firm was well and truly shattered by this autumn’s managing partner election, triggered when Ralph Cohen announced he would stand down from the post 18 months ahead of time.
At first Day’s coronation seemed assured. He was the man who had stepped into the breach when Cohen took a sabbatical in 2009, and even the more rebellious elements at the firm accept that he is a more approachable, outgoing alternative to Cohen and senior partner Jonathan Blake.
But corporate partner Perry Yam’s candidacy took many people by surprise. Yam ran a hugely successful campaign on the premise that Day was part of a small group of partners who controlled the destiny of the firm through what is euphemistically referred to by management as a ”difficult time”.
Difficulties in the past few years include seeing PEP fall by nearly half since its 2007 high and being forced to withhold profit distributions for more than a year.
More recently there has been some frustration among partners that details of the merger talks were kept among a handful of insiders, which included fellow strategy committee members Blake, Steven Davis and Stephen Kon. The fact that Yam won the first round of voting by a margin of 16 was a warning shot to the cabal characterised by many as the old guard at the firm.
Following his narrow victory a few days later, Day denied vigorously that there was an old guard-new guard divide, as he did claims that partners has been intimidated into changing their votes in the week between the first and second rounds.
However, the shock of nearly having the chosen successor denied the throne would have shaken leading lights at the firm.
“For them, to have that warning shot and then do nothing would be remarkable,” says one source close to the firm. “If they go back to how it was before and just replace Ralph with Rob, it’s not going to work.”
The comment illustrates what everyone at the firm seems to agree on: that change, to some extent at least, has to come. And to many observers, the breakdown of the Proskauer deal could be the first glimmer of light at the end of the tunnel.
“It may be the wake-up call the partners needed,” says a managing partner at a City firm when asked about the failed merger. “The firm needed stronger, more confident leadership. They now have a firm leader. He knows he’s got to reach out to every constituency. But he’s not a testosterone-driven, meat-eating kind of guy, and that’s good for the firm.”
Day of reckoning
Day has already been doing the rounds of the firm’s European offices to test the water following the shock of the end of talks with Proskauer. He admits that the style of management could do with a shake-up.
“What seems like acceptable communication in a hot market doesn’t cut it in difficult periods,” he says. “Partners need more assurances about where the firm’s going and what it’s doing. People need to be able to ask questions of central management.”
What it is doing in the short term is forgetting about merging and concentrating on building its core business, in the process pushing profit back towards its pre-crunch level.
Day makes no secret of the fact that a transatlantic merger is still a long-term goal. A strategy paper from way back in 1994 stated that it was one of the firm’s aims, while more recently the fact that it engaged consultants Hildebrandt Baker Robbins to identify a merger partner shows that Proskauer was not an opportunistic move. But, with the market likely to see SJ Berwin as damaged goods for at least the next year, the focus has to change.
“It’s an important tipping point for the firm,” says the City partner. “It was seen as a success story - growing internationally and in profitability. Now it’s absolutely clear that [Day] should be rebuilding what the partners’ vision of the firm is. It needs to stop venting its differences in the trade press and start pulling together as a partnership.”
The half-year profit hike is the first small step in the right direction, but there is some way still to go.
“The primary focus goes back to building the partner groups and our platforms across Asia, Europe and the Middle East,” concludes Day. “In that context we’ve got an awful lot of good, exciting things going on, but a lot of work to do.”
Day is not alone in his optimism. “People have read SJ Berwin’s obituary prematurely,” concludes another source.