Cads offers less slices of equity pie

Cadwalader hopes fewer shares of greater value will prove more attractive to partners

Cadwalader Wickersham & Taft’s decision to reduce the number of shares available for equity partners from 401 to 332 will have a significant impact on partners in the real estate finance and ­capital markets groups.

With fewer shares to go round, it makes sense for partners in the practice areas most affected by the recession to take the hit.

While this sounds like more bad news for the firm, and indeed it is bad news for the partners affected, a spokesman argues that the reduction in shares is actually a positive step.

He points out that, while the reduction from 401 to 332 represents a fall of 17 per cent, ­Cadwalader expects to maintain overall profitability over the course of this year, meaning the value of each share should rise signifi­cantly. This, the spokesman claims, will help the firm come out of the recession from a position of strength as this will allow it to attract new talent.

A source close to the firm says: “Cadwalader is doing this because it needs to have a long-term view. Reducing the number of shares makes the firm better equipped to recruit in the market. It wants to take advantage of the opportunities that are now starting to flood the market.”

Hiring opportunities have ­certainly increased, with widespread associate and partner cuts across the international legal ­market meaning there is plenty of talent to pick from.

But given Cadwalader’s recent history, will the promise of an enhanced profit share actually give it the pulling power required to attract real stars?

“Cadwalader got rich quick and paid the price of focusing on ­structured finance,” according to a UK-based partner at a rival firm. “Layoffs, together with management overhauls, have left the firm ­pretty vulnerable. From a lateral ­partner’s perspective, it’s not a very attractive option.”

Cadwalader’s troubles began last year when it was the first US firm to make layoffs, shedding 35 associates across its network last January, followed by a second round of 96 during the summer of 2008.

In November, then chairman Bob Link was ousted from his position on Cadwalader’s ­management committee as partners revolted against the firm’s poor financial performance (The Lawyer, 17 November 2008).

The firm has also suffered a number of partner defections on both sides of the Atlantic, with US restructuring duo Bruce Zirinsky and John Bae defecting to Greenberg Traurig in January. The ­London office has seen a seven-partner team including Michelle Duncan and Charles Roberts defect to Paul Hastings Janofsky & Walker.

While Link has been parachuted into London to help recruit and rebuild the office, there is ­scepticism in the City about ­Cadwalader’s strategy.

“They’ve been attempting to recruit into private equity in ­London,” says one former partner. “It’s a tough sell at the moment and I’m not sure private equity is the right direction for Cadwalader to head in.”

Despite such negativity, sources close to the firm say Cadwalader is upbeat about its London office and its relevance to the firm’s wider global strategy.

“We want to make sure our London strategy fits well with our US strategy in terms of the practice areas we should be focusing on,” says one Cadwalader partner. “Building up restructuring and private equity in London is an important part of that.”

And if the firm needs to build up any office, it is London, which now houses just four partners and 12 associates. Making itself ­financially attractive for recruitment clearly makes sense for ­Cadwalader, then, but any kind of profit-share tinkering will always be hard to swallow for those already at the firm.

“If you’re reducing partner points and adapting the share value there are bound to be a lot of partners who are very unhappy,” says a source close to the firm. “For most, Cadwalader will be a very different firm from when they joined.”

But while it is important for a firm to keep its people happy, it is also vital for it to position itself for the future. According to one London-based consultant the stance Cadwalader is taking will allow it to face the realities of a very different market with a fresh approach.

“During a boom time you pay partners very well who may not actively seek work but get fed work,” he adds. “This recalibration means you get the minders and finders of core client relation­ships. They, ultimately, will be the future.”