Which way now for Ashursts?

A byword for conservatism and quality, Ashurst Morris Crisp now finds itself at a serious disadvantage in the head-long rush towards globalisation. Dominic Egan explores the options open to the firm.

Ashurst Morris Crisp is a class act. For close to 180 years the partnership has maintained the strictest quality controls, frequently rejecting candidates that just about any other firm would happily embrace. And it has paid off: Ashursts is held in high esteem throughout the legal profession. It punches well above its weight, say admirers. Pound for pound, there is no better firm.

But the fight has become a mismatch. Compared to the heavyweights of the big five, Ashursts is no more than a plucky middleweight. With 94 partners and 483 other fee-earners, it is substantially smaller than Slaughter and May and lags way behind Allen & Overy, Clifford Chance, Freshfields and Linklaters (see box 1).

That used to matter little. But in the rush towards globalisation, Ashursts now finds itself at a serious disadvantage. No foreign office of any merit was ever created without heavy investment and Ashursts' resources are a mere fraction of the big five's. The firm may have seven bases outside the UK, but those outposts were all established relatively recently and are not large enough to threaten the foreign offices of the likes of Clifford Chance and Freshfields.

Last week's issue of The Lawyer revealed that Ashursts is in advanced merger talks with US firm Latham & Watkins. But more of a mystery is why Ashursts has not done something long before now. Ashursts declined to be interviewed this week, but the firm's history and reputation offer clues to its present strategy.

Life has been good at Ashurst Morris Crisp. First and foremost, the firm has always made money. Last year's The Lawyer 100 revealed that Ashursts' average profits per partner in the 1998-99 financial year were £425,000. Partners at the top of the firm's equity structure earned a very respectable £600,000, while those at the bottom earned £240,000. Although those figures were bettered by each member of the big five, Ashursts and Herbert Smith led the chasing pack (see box 2).

With the business going relatively well, most of the firm's partners would like things to stay as they are. The Ashursts' partnership has always been very much a club and the partners remain anxious to preserve the firm's culture. Consequently, a tight grip has been maintained on the equity and, until recently, all decisions of any importance were taken during partnership meetings.

In fact, Ashursts only appointed its first managing partner as late as 1997, leaving that other great bastion of conservatism, Slaughter and May, as the only major City firm without a managing partner. It may not be purely coincidence that Slaughters was formed by two former Ashursts partners.

The consequences of Ashursts' failure to grow more rapidly are evident in 1999's The Lawyer 100. The firm may be on the big five's coat tails in most of the tables, but there is a huge gap when it comes to gross fees. Ashursts' turnover of £105m in 1998-99 only gained it thirteenth place nationally. That figure is less than half the sum posted by Slaughters and well under a quarter of that posted by the biggest member of the big five, Clifford Chance (see box 3).

Ashursts would surely have grown more rapidly if it had shown greater interest in diversification. However, the corporate department continues to maintain complete dominance. No fewer than half of the 70 fee-earning partners in the London office do corporate work. Of the other fee-earners in London, 283 work in the corporate department and just 200 in all the other departments combined (see box 4).

Even though the firm is home to some excellent lawyers, the property and litigation departments have never been allowed to grow. Indeed, they have been kept artificially small because they are back-up departments existing to service corporate clients' occasional needs.

Ironically, on the one occasion in recent years that Ashursts has tried to build a new practice, it all rather blew up in the firm's face. In 1991, Ashursts recruited Barlow Lyde & Gilbert partner Stephen Mostyn-Williams with a view to building a banking practice. However, after a dispute over his commitment to the firm, Mostyn-Williams quit Ashursts in 1997 for US firm Shearman & Sterling. The next year, three other banking partners trod exactly the same path and in 1999 they were followed by Adrian Knight, the head of Ashursts' investment banking group.

Of course, Ashursts is not the only City firm where corporate is alpha et omega, Slaughters is the prime example. But any similarity between Slaughters and Ashursts is superficial. Most City lawyers grudgingly accept Slaughters is without peer as a corporate practice. It not only has a long string of top-class clients, but it does an immensely broad range of corporate work for them.

Ashursts' client list is not nearly as impressive. Furthermore, it is viewed by many of its rivals as something of a one-trick pony, a boutique corporate finance practice with particular strength in the management buyout field.

It may be that Ashursts has recognised its limitations and no longer sees itself as a full-service firm. In February 1999, senior partner Geoffrey Green told The Lawyer: "I think that all firms have to look at the quality and depth of their practice. At Ashursts, we want to be a top-quality international firm, focused on Europe, and at or near the top of every service we're providing. But we shall not be seeking to sell everything to everyone."

But if Ashursts is to become a top-quality international firm, it has an awful lot of catching up to do. Last year, when the firm opened in New York, rivals suggested it was a case of too little, too late. In truth, however, that criticism could be made of Ashursts' entire foreign policy.

Once again, the inhibiting effects of Ashursts' inherent conservatism are apparent. The firm opened its first foreign office, in Brussels, in 1989. Freshfields opened its first foreign office, in Paris, in 1972. Ashursts has seven overseas outposts; Freshfields 20. Ashursts' biggest foreign office is in Paris, with seven partners and 32 other fee-earners; Freshfields' biggest foreign office is also in Paris, with 25 partners and 117 other fee-earners.

Most of Ashursts' foreign offices are still little more than footholds (see box 5). Clearly, a lot more investment is required if the firm is to become a genuine player in each jurisdiction.

But where will the money come from? Ashursts could continue to pursue a policy of organic growth, but the effort would surely cripple the firm, just as it did Wilde Sapte.

Like Ashursts, Wilde Sapte was a medium-size firm with an excellent reputation in just one field – banking and finance. The similarities do not end there. Wilde Sapte also had a warm, conservative, collegiate culture and was not the most forward-looking practice in the City.

When it did wake up to the challenge of globalisation and tried to play catch-up, severe financial demands were put on the partners, making them vulnerable to approaches from City rivals, accountancy giants and US invaders, all of whom waved their chequebooks about. With time, partners' loyalty was eroded and Wilde Sapte started to leak some of its best people. Once the breach was made, it proved impossible to stop the flow.

Ashursts must be aware of all this. It was one of the first firms to take advantage of Wilde Sapte's plight, pinching acquisition finance star Justin Spendlove in 1996. And having lost a few partners itself in recent years, Ashursts must realise that it is no longer immune to attack.

Thus, from an international prospective, a merger with Latham & Watkins, which has 265 equity partners and 832 other fee-earners, makes a great deal of sense on a number of levels. It would, at a stroke, give Ashursts a major presence in the US, where Lathams is the fourth largest-grossing firm and has a string of offices from the west coast to the east. According to 1999's American Lawyer 100, Lathams' turnover in the last fiscal year was $502m.

Ashursts would also put on weight in Singapore and Tokyo, where Lathams is established, and would acquire a presence in Hong Kong and Moscow. Most importantly, perhaps, the merged firm would be able to call on Ashursts' and Lathams' combined resources to finance further growth.

But will that be enough? The answer depends on what the Ashursts partners want. If they merely want to be a high-quality international corporate finance practice, then a merger with Lathams should do very nicely. What is more, with the vast majority of Lathams' partners remaining on the other side of the pond, the Ashursts partners would not have to make too many changes or sacrifice their precious firm culture. There wouldn't be any of that messy integration stuff that firms like Clifford Chance and Lovell White Durrant had to suffer.

But if, as Green declares, Ashursts wants to be "a top-quality international firm at or near the top of every service we're providing", then a merger with Lathams can only be the beginning. Linking up with a US firm is no solution to the challenges Ashursts faces in this country and in Europe. In its battles with the big five, it is still going to suffer from a lack of critical mass and from a lack of diversification.

In any event, Ashursts cannot afford to have limited aspirations. A law firm without the ambition to be the best is never going to be able to attract and retain the best people. Allow standards to slip, and Ashursts is doomed. After all, it is the quality of its people that has made the firm what it is.

And it is the quality of its people that will see it through. Ashursts' conservatism may have created certain problems, but it has also produced a firm that is lean, highly profitable and a centre of excellence. There are a good number of firms that have been just as conservative and are none of those things. Thus, no one need be unduly concerned about Ashursts' future – its many qualities mean that it has never been and never will be short of suitors.

Approximately two years ago, Ashursts received an approach from none other than Clifford Chance. Proud of their independence, the Ashursts partners were not prepared to be swallowed up by the world's largest law firm.

The time has come, however, for Ashursts to take the initiative. Instead of waiting for Mr Right to make an appearance, it should be actively looking for him. That way, Ashursts can go to the negotiating table from a position of strength.

If it continues to wait, it risks having to accept whatever terms are dictated to it. And if Ashursts' partners really want to preserve the firm's legacy, they need to accept that sacrifices have to be made and that some change is inevitable. Better to lose a little now than lose the lot in the end.