Freshfields has undergone a tumultuous 12 months that could have rocked lesser firms. But chief executive Ted Burke believes the firm can use recent events as a springboard to bigger things
The 2006-07 financial year was Freshfields Bruckhaus Deringer’s annus horribilis. The period of painful restructuring that saw 100 partners culled from the magic circle’s equity was always going to be tough. But chief executive Ted Burke has also had to cope with unforeseen troubles such as lawsuits and the tragic death of an associate in the past 12 months.
As the face of Freshfields, it must have been tough at times for Burke to keep his composure.
“The fact is, we got through the year and we’re now in very good shape,” says a smiling Burke, an affable American who joined Freshfields in 1998 from US firm Milbank Tweed Hadley & McCloy.
Burke himself does not particularly relish the title of being ‘the face of Freshfields’. He is keen to push the point that he works constantly in tandem with co-senior partners Konstantin Mettenheimer, Guy Morton and managing partner Peter Jeffcote in steering the behemoth firm through troubled waters or otherwise.
But no one could criticise ‘management’s’ motivation for the firmwide overhaul. Profitability – no matter what other rival firms might argue – is still viewed by both staff and rivals as a key indicator of a firm’s health. As Freshfields was well aware, arch-rival Linklaters had gone through its punishing transformation two years earlier. Linklaters was promptly rewarded with a 26 per cent leap in average profit per equity partner (PEP), pushing it past the magical £1m barrier in 2005-06.
And anything Silk Street could do, Fleet Street could do better… right?In its favour, Freshfields approached its restructuring at the height of the M&A boom, when the firm’s deal flow could not have been better. Throughout the overhaul there was an odd dichotomy at play: while partners not based in London (particularly those not in corporate) have been wondering what way the axe will fall, top-flight corporate partners such as David Higgins or Will Lawes have been at the top of their game in the past year, almost oblivious to the carnage going on around them.
One of the architects of that carnage, Burke, has always been frank about the restructuring – unlike the Linklaters approach.
“If we didn’t do it, where would we be?” says Burke.
In a slightly happier place, some might argue. Problems still loom as a direct result of the overhaul, not least a claim from former insolvency partner Peter Bloxham next month at the London Central Employment Tribunal over age discrimination. The Bloxham case, sure to be scrutinised both by other firms’ management and by press alike, will set the tone for other potential cases that could hit the firm hard in the coming months.
In a delicious irony, it is Freshfields’ former co-head of disputes Jo Rickard, now at Shearman & Sterling, who could bring a potential claim against her old firm over the non-compete clause in her Freshfields pension if a compromise is not reached. She has called in the big guns, too, with veteran litigator and Herbert Smith senior partner David Gold advising her.
In both cases the controversial pension reforms are the root cause of current ill-feeling. But it is widely felt within the partnership that these pension reforms were necessary. One partner said it was not so much a question of whether Freshfields would go through such a restructuring, but when: the management had been hands-off for years before Burke took the reins.
One topic about which Burke is less than revelatory is how he feels about being seen by the outside world and by staff alike as the executioner, admitting only that there were some very difficult days. Burke is an unlikely axe-wielder. The Massachusetts native, who attended the same high school as President George Bush, Phillips Academy in Andover, was a project finance partner before management took up all of his time. Ironically, projects is one area in the last year that has been (in Freshfields speak) “repositioned”, with projects lawyers being submerged within larger sector groupings.
London-based corporate partners, at least, warm to Burke. They say he is open, honest and not full of the normal management speak so endemic today at senior levels in firms. This rings true when meeting Burke: there are no politicians’ answers and he maintains eye contact and replies directly to questions.
He does, however, prefer to look forward. It is too early to tell whether Freshfields’ overhaul will bring the same success as Linklaters’ did, but preliminary indications are positive. Despite the restructuring, which eventually cost £55m, turnover increased by 12 per cent in the 2006-07 financial year, bolstered by frenetic corporate activity. PEP leapt by nearly 18 per cent, smashing the all-important £1m barrier – at least officially. The figure is based on an average of 474 equity partners over the year.
The proof, as they say, is in the pudding. When it became obvious that restructuring was taking place, the figure of £1.2m PEP was bandied about as a target for the 2007-08 financial year. So the pressure is most definitely on for the next 10 months to achieve similar growth – an increase of more than 15 per cent is required to take PEP to this target.
While his partners busy themselves on deals, Burke has decided that clients and people will be his priorities for the next 12 months.
He thinks it might take a year or so for the restructuring to have an effect on recruiting, both at the junior and partner levels. “But success breeds success,” insists Burke. “The key thing is to make sure that people recognise they can have a great platform and get the best training at Freshfields. We have to focus on continuing to recruit, train and retain talented people and put everyone here – lawyers and non-lawyers – in a position to succeed.”
Burke thinks growth will most likely come in New York and Asia, specifically China and Japan. Dubai, meanwhile, remains a jurisdiction “with a great deal of potential.”
The New York office has certainly been a bright light in an otherwise bleak year. It outperformed London on the profit front and the US as a whole (Freshfields also has a small Washington DC offering) reportedly generated a revenue per lawyer (RPL) of more than $1m (£508,000). This figure is even more impressive when compared with its magic circle peers’ results. New York success is hard-fought, if not elusive.
Burke tells The Lawyer that he has no ideal headcount in mind for the New York office. “We don’t set targets in that way. If you have a fixed target, you might be tempted to compromise in order to meet that target,” he says. “We prefer to react to real client demand, not potential demand, and even then will only grow if we’re not compromising on quality. The competition for talent in New York is obviously fierce.”
New York, of course, has long been the subject of much speculation surrounding a potential merger ever since Morton wrote in a 2005 manifesto: “We should work towards a substantial US business in our principal practice areas, if possible through a merger with a high-quality US firm.”
Freshfields currently has 85 lawyers in the US. The benchmark for a significant New York capability is widely viewed to be 200. So could the restructuring be tantamout to a makeover to lure a US merger partner – a little trimming of fat here, a slashing of all-equity there?Burke demurs on this point. On the subject of a US merger, the general consensus by Freshfields’ London partners is: why would we want one?”We’re profitable enough,” says one, while another says: “New York firms now need us more than we need them.”
Burke does agree that New York is in danger of being overtaken by London as a capital market. “The financial world no longer operates on two poles only,” he says. “You can’t just sit back in London or New York and wait for the clients or deals to come to you.”
On paper Freshfields is a leaner, hungrier and ultimately healthier beast than it was a year ago. There are now 420 equity partners out of a total of 450, compared with 530 at its height the preceding year.
But with the privilege of hindsight, is there anything Burke would have done differently?”I’m sure that we could use some do-overs, but I don’t think we have any major regrets,” he says. “My biggest personal challenge is finding a way to be more accessible to everyone in the firm, which is not so easy when you have more than 5,000 people in 27 offices.
“The meetings with associates and staff have been helpful, but I know that they’re not enough. I have to improve my time management skills – not a real strength of mine – and also find some more efficient, regular ways of communicating.”
It is a poignant admission in the wake of a gruelling tour round global offices in a charm offensive targeting associates.
It is perhaps apt that Burke is speaking to The Lawyer at Freshfields’ Fleet Street offices on one of the sunniest days of the year. He is certainly hoping that the doom and gloom of the year gone is firmly in the past.
• Freshfields’ nightmare year
Matthew Courtney The national media had all the ingredients for a front-page story when Matthew Courtney, an IP/IT associate, died in February aged 27. He was young, he was successful and he died at a highly visible London landmark. He also happened to work at Freshfields.
One headline screamed “Stressed-out lawyer dies in late night fall”.
Most insinuated that Courtney’s job at Freshfields drove him to his death. A worthy, if misplaced, debate on work-life balance at law firms ensued.
To its credit Freshfields was not drawn in, and a May coroner’s verdict of accidental death in some small way vindicated the firm for its and Courtney’s family’s terrible loss.
Up until last year Freshfields was the only firm in the City at which current partners funded the retirement of previous partners. Most other firms abolished this system more than a decade earlier. It became clear in late 2005 that Freshfields had woken up to the fact that it would have to overhaul its costly system. Eventually 30 plateau partners retired from the equity, with 24 remaining at the firm as principal consultants, saving the firm around £14m.
But former insolvency partner Peter Bloxham, who retired in October 2006 to take advantage of the old pension’s terms, decided to sue Freshfields for age discrimination. News then broke that former co-head of disputes Jo Rickard was considering filing a claim over the non-compete clause in the pension if a compromise was not reached. Under the old ‘Schedule 2’ pension, the partnership council had the discretion to suspend a retired partner’s pension payments while they competed with Freshfields. This applied to the 30 partners who retired.
Breaking the budget
The final tally for the restructuring stood at £55m when the books were closed on the 2006-07 financial year. This was £15m (or 37.5 per cent) overbudget and wiped out any initial savings made from the pension reform. Moreover, the extra £15m came in the final month, when at least 13 partners left the firm.