Herbert Smith slashes equity to attain magic profit figure

Herbert Smith is to de-equitise around 15 partners, which represents 10 per cent of its equity partnership, as it seeks to attain magic ­circle-level profitability in the wake of its Project Blue Sky strategic review.

The firm wants to remove 1,200 equity points from its corporate and finance teams and has identified a number of partners who will be asked to either move from ’A’ partner equity status to ’B’ partner salaried level or leave the firm.

The move comes in the wake of Linklaters beginning its own restructuring last week aimed at cutting 30 partners from across its network (TheLawyer.com, 8 December).

In 2010-11 Herbert Smith posted an average profit per equity partner of £900,000 against the magic circle average of £1.2m. The average profit generated by each corporate and finance partner at Herbert Smith was around a third of the £1.4m generated by the average litigator. Meanwhile, across all practice groups, those entering the equity on 43 points received a profit share of £433,000, while plateau partners on 100 points received £1m.

A source close to the firm said: “They’ve gone to 15 partners in corporate and finance and said you can either leave the firm and get paid out for a year or you can become a ’B’ partner at an agreed salary that will be correct relative to the ­contribution you’re making.”

The firm is also preparing the ground for a potential tie-up with Australia’s ­Freehills. Partners will vote imminently on whether to hold formal discussions with Freehills as part of what is seen internally as an aggressive new international ­strategy that will also see it open in New York and target Germany, South Korea and francophone Africa.

The Australia push is being led by London corporate partner Greg Mulley, who began his career at Allens Arthur Robinson in Sydney. Mulley is Herbert Smith’s Australia territory partner. He is understood to have held preliminary talks with Freehills in the past few weeks, with ­management now looking for partners to back more formal talks.

Herbert Smith declined to comment.