There is no doubt that Milbank has stolen the jewel of Freshfields Bruckhaus Deringer’s private equity practice with the Nussbaum, Rieger and Fuger trio. It has cut the heart out of Freshfields’ Munich office with a more ruthless raid than Weil Gotshal’s failed attempts to capture Clifford Chance’s Matthew Layton and James Baird. But Freshfields’ private equity practice will recover.
The firm has strength in depth, is adept at institutionalising clients and will always be the beneficiary of the IBM factor. Given private equity houses’ willingness to share legal advisers on auctions, Freshfields is unlikely to struggle in a sector where demand for top advice exceeds supply.
However, when Nussbaum and co leave to ply their trade at Milbank, taking key relationships for Apax, Carlyle and JPMorgan Partners, Freshfields faces a more fundamental challenge. Losing London-based partner Tim Emmerson to Milbank last year was shrugged off, but the defection of a fully functioning Munich team is a different proposition.
Bruckhaus’ previously impenetrable armour of teutonic cultural supremacy now looks like it could be breached by anyone carrying a suitcase of dollars. Worse still, the departures come on the back of a politically troubled year for Freshfields’ German operations.
Last June partners, mainly from Düsseldorf and Munich, sent a petition to management asking for a more democratic governance system. Since then, a cabal has been pressing for a more ruthless cull of underperformers at the top of the lockstep. One issue underpinning the Munich departures was the differential profit distribution between London and German partners.
London equity partners start on more money than their German colleagues, who don’t catch up until the fifth year of the 12-year lockstep. The rationale is that German partners are promoted younger and retire three years later than UK partners. This is a real source of intergenerational conflict between older Bruckhaus partners, who slotted in at the top of the lockstep, and rainmakers in the younger generation. Not to mention the obvious negative Anglo-German tensions it arouses.
Some German partners advocate tinkering with the lockstep to create a merit-based element, but this would be a disaster – the firm’s lockstep culture is its biggest strength. To minimise discontent, management desperately needs to tackle underperformers at the top of the lockstep and sell partners a fair compromise on the Anglo-German profit variant, or, in other words, sit tight and hold its nerve.