Do middle-tier firms need to grow?

Chris Schulten, chief executive, Richards Butler

Geffrey Green, senior partner, Ashurst Morris Crisp

Charters Macdonald-Brown, managing partner, Gouldens

Davies Arnold Cooper's decision to "focus on core strengths" by sacking 90 staff last week, was a timely reminder of the pressures facing middle-tier City firms. So what are the challenges and options available to them?

Chris Schulten, chief executive of Richards Butler, says the pressures on middle-sized firms will continue for the foreseeable future. "The ability to maintain practice variety is much more difficult for smaller firms. The clients are getting more complex, more international, and it's getting much more difficult for smaller firms to service them.

"You frequently find a transaction is substantial and cross-border, so clients want you to throw a big team at it. Pressure on margins means that strategic direction and choices are exceptionally important for management. Carrying on as you are is simply not an option."

Despite the collapse of merger talks with Theodore Goddard several weeks ago, Richards Butler is retaining the idea of a merger as a strategic option, says Schulten.

"Size isn't everything, but it's important in some respects. You need resources to develop infrastructure support, which is essential these days.

"Merger is still a possible opt-ion… You should always assess and reassess what you do as a firm."

So what is Richards Butler doing?

"We're focusing our growth in certain client sectors – media, shipping, banks, insurance, property and commodities brokers – where we try to provide most legal services. Our selling point centres around being able to offer a partner-focused service, the international breadth of the firm, and a strong reputation in certain sectors," he says.

Geoffrey Green, new senior partner at Ashurst Morris Crisp, comments: "I wouldn't generalise. I think it's a great mistake to group firms together merely because they happen to have a certain number of lawyers.

"It's yet to be proven that size equals excellence. There is always room – and always will be room – for people who provide a top-quality advisory service."

But firms must continue to monitor their strategy. Green explains: "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."

Ashursts' strengths are in City finance and property. "We have never been into vanilla bond issues in capital markets. Clifford Chance and Linklaters are superb at it, so we'd be daft to compete," he says.

What about mergers?

"We don't set our face against mergers at all, but I don't believe that merging merely to achieve size is right."

What about the DAC approach?

Green says: "You must ensure your departments are sufficiently supported to maintain profitability. And you've got to have at least one specialism."

Charters Macdonald-Brown, managing partner at Gouldens, one of Britain's most profitable firms, believes that getting the culture right and prioritising clients' needs are the key to success. "It's quite a broad practice, and we ask our clients if we're getting it right.

"The firm is client-led rather than being led by what we think we should be doing. We're rigorous in our policy of recruiting the best lawyers, and we have a very low turnover of staff – we've not lost an equity partner in 27 years. We don't have a partnership deed, or restrictive covenants, and we don't have an overdraft.

"People like staying here. We know each other well, so we work very well together."

"You don't necessarily double a firm's stature by doubling its size. We've grown organically, slowly… I think that's the basis on which, say, Macfarlanes has succeeded."

What about mergers?

"We'd never rule it out, of course, but it's not a preferred option."