What is going on at Lovells? If things go on as they are, the City firm will end up with lower profit per partner than both DLA and Berwin Leighton Paisner.
From an average of £590,000 per partner last year, the Lovells bluebloods will take home just £475,000 compared with the Northern upstarts at DLA, who could take home £540,000.
In Lovells’ defence, the firm had a much better year than many of its rivals, partly because of its strong litigation practice, which cushioned it from downturn.
It is true that revenues tend to be higher in the second six months as firms push to bring in work in progress (WIP). But because of the way the WIP cycle works, it will be impossible to recoup fully what on this showing is at least a 20 per cent fall in profits. Because any changes will take time to impact on the bottom line, this year is a write-off. The firm needs to start thinking about next year.
One option is to cull its loss-making Asian operations now. Neither Singapore nor Tokyo has ever made a profit. Singapore is about to break even, but Tokyo, where the firm has just signed up to a new office lease, is way off profitability. Singapore looks a better prospect. It is staffed only by salaried partners and last year sent a £1.5m arbitration case back to London. Toyko, however, loses money and is staffed by two rated equity partners there who, were they in London, could bill £1.5m-plus a year – effectively a double-whammy.
But axing a couple of underperforming offices is just fiddling around at the edges. The malaise goes a lot deeper. The core areas of corporate (apart from private equity) and finance (which recently lost rising star Adam Freeman to Linklaters) have underperformed, both in the past six months and historically. That’s what the firm needs to address.
Over the past five years Lovells has made huge strides in every department, but in the past year, management has really taken its eye off the ball. By the time you read this, the firm will have chosen its new managing partner from a shortlist of John Pheasant, David Harris and Andrew Skipper. The incumbent, Lesley MacDonagh, will stay on for at least another year to hand over the reins, but it is imperative that her replacement moves quickly to arrest the slide. MacDonagh, universally admired for the progress she has made with Lovells, does not deserve to go out on a low.