Now here's an exclusive for you: Wragge & Co, the Birmingham-based powerhouse, deals drugs. According to managing partner Quentin Poole himself, the boxes of files delivered daily to the Colmore Row office are all lined with crack cocaine, presumably making senior partner John Crabtree Daddy of the Birmingham underworld. Unfortunately, while this would be the greatest scoop of legal journalism for all time, the look on Poole's face when he confesses is less than serious. Which constitutes a disappointment on two fronts: first on the part of this legal hack who will not enter the league of fame alongside Woodward and Bernstein, and second for Wragges' competitors, none of which will gain an easy explanation for the firm's soaring profits and success.
For the last financial year, Wragges reported a profit increase of 45 per cent alongside turnover up by 40 per cent, giving average profits per partner of £257,000. Given that the firm does not deal drugs (and just for the sake of any overzealous libel lawyers reading this piece, the above claim was a joke), how has it managed to bring in such figures?
The explanation advanced by employment partner Jonathan Chamberlain is that the firm is a bit like a cult. After training at Slaughter and May, Chamberlain made the move to Wragges and confesses: “At the first partners conference I went to a couple of years ago, I thought after a couple of hours that I'd joined the Moonies.” There are compelling arguments for this being true. Very few people leave the firm; the attrition rate is about 3.5 per cent annually, and Poole says that half of those return after a few years. And when this reporter spent a day with the Wragges partners, everyone seemed eerily happy. Not in a “I've been told to look happy by the marketing woman” kind of way, but in a 'bouncing jokes off each other' fashion.
There is frequent reference to certain practices being the Wragges way or not the Wragges way. The Wragges way seems to be a rather happy clappy love-in. Not being nice to junior members of staff is not the Wragges way. Keeping people tied to their timesheets is not the Wragges way.
Chamberlain himself, later described by a colleague as being in Tigger mode that day after his allotted slot with The Lawyer, is to be found fidgeting outside the boardroom eager to share details of his personal project to teach lawyers to write letters in plain English. The scheme is an example of the Wragges way.
While not every partner seems to quite match up to Chamberlain's bouncing, there also seems to be a dearth of Eeyores, perhaps because the firm has over the last few years done away with the gloomy places where the morose donkeys would find a home. This firm is spooky.
“At the first partners conference I went to a couple of years ago, I thought that I'd joined the Moonies”
Jonathan Chamberlain, Wragge & Co
Even Wragges' competitors have to admit that the firm has undergone a remarkable transformation over the last few years, and today it is hard to fault.
The rather boggy and sad place where Wragges found itself 10 years ago was, according to Crabtree, in a terrible recession and a Birmingham firm that no one had heard of outside the Midlands. It was faced with the growth of the national firms such as Dibb Lupton Broomhead (now DLA) which were growing out of Leeds on the back of debt collection work. The only thing it could build on was its reputation within the Birmingham market, which was undergoing major changes as the traditional metal bashing industries that had been Wragges' core client base went to the wall or were forced to diversify. The firm had to do something different. The Birmingham market was divided evenly among the big four – with Wragges, Pinsent Curtis (now Pinsent Curtis Biddle), Eversheds and Hammond Suddards (now Hammond Suddards Edge), each holding around 15 per cent of the market. There was nowhere to go within that market, so Wragges had to start competing in the national market against the expansionist national firms.
Poole says the firm's secret is fantastically simple. It is obsessed with two things – its people and its clients. But that hides the transformation that was at times painful over the last decade, and particularly over the last four years. At the core of the change was what Crabtree calls “giving up”.
“Four years ago we had lots of partners running their own practices in different corners of the same market. I spent four years trying to break that down,” recalls Crabtree. “The expression we had for that was 'giving things up'. For example, the litigation department would be doing a bit of construction work and a bit of employment. We encouraged them to give that up and concentrate on major commercial litigation. That approach suddenly started to take off about four years ago. Now that's the way we are and that's part of why we're successful.”
As part of this process, the firm also identified areas that it thought would be in demand over the next few years. This began in the recession when Poole proudly claims that the firm did not lay anyone off and did not turn trainees away. This strategy, paid for out of partners' pockets, meant that when the good times came again, the firm had the lawyers ready and waiting. The payoff for keeping people was that the younger lawyers were retrained into the up-and-coming areas – commercial lawyers were retrained in intellectual property/IT specialisms, for example. As a firm, specialities were refocused along sector areas with an emphasis on cross-selling.
Over the last four years, practices in construction, utilities and aviation work have sprung up, seemingly through the entrepreneurship of individuals within the firm and the willingness on the part of management, and in particular Crabtree, to indulge partners with the freedom to experiment. As a result, in those two particular areas, Wragges now has the largest utilities team outside London and claims to be the only firm in the regions with a specialism in aviation.
The sector-based approach means that Wragges has dedicated lawyers to each of its clients and only that team will work on any deal. If a lawyer has a particular desire, for example, to work on a Heinz deal, then they can only do that on completing an induction course on that client, covering aspects from what the strategic vision is right down to whether the client prefers to communicate by telephone or email. Wragges will also introduce the lawyer to the client and ask the client whether the addition of that lawyer is acceptable.
It is an approach that is welcomed by Heinz's head of legal Dan Vogus, who has been instructing the firm for about two years after meeting the team on the opposite side of the deal table. He also uses Clifford Chance, Shoosmiths and Eversheds.
“I use them because of the quality of their work – they do high-quality work, no doubt about that – but the second thing is the support and cooperation during the work,” says Vogus. “They work well with not only the in-house legal team, but also the businesspeople in our company. We have very good contacts, and as part of that they listen very well and understand.” At the moment Vogus uses the firm for transactional work, but he has just started to refer both litigation and commercial work there as well.
Alongside the more general sector-based approach, Wragges started targeting specific FTSE companies to add to its client list. While realistic enough to realise that the firm cannot come in and start taking top-end M&A work away from the City big boys (the corporate finance department does M&A work for only 11 companies from the FTSE 500), it has nevertheless started making inroads across the firm and now acts in one capacity or another for 39 of the FTSE 100.
Richard Haywood, the corporate finance partner who started the offensive around 18 months ago, says the firm initially targeted 10 companies. Of these, Wragges has signed up five as clients, including Marconi, with another three currently being work in progress. It was decided that the other two did not have a foothold available for the firm. “The legal market is an imperfect market,” says Haywood. “Buyers don't know what the sellers are selling and the sellers don't know what the buyers want to buy. This process helps us to gain a greater understanding.”
After initial research, Wragges approaches the company for a meeting when the gaps in knowledge are filled in. Then it will return to the company with suggestions of where it might be able to help.
Competitors are sceptical about the long-term future of the sector-based approach. Chris Rawstron, managing partner of DLA's Birmingham office, says that it is all well and good in the current economic climate, but he questions the sanity of the approach when times become hard. “The firm's aiming to become a City practice operating out of Birmingham, filing off the edges of tables of the magic circle firms,” he says. “This is a sound move in the strong economy while the magic circle is busy concentrating on the investment banks, but when the next recession comes, you'll find the magic circle loving its big plc clients again.”
Crabtree, though, believes that come the next recession, Wragges' strategy will become even stronger because then the emphasis will fall on cost and the firm can capitalise on the lower overheads associated with its Birmingham base.
In addition to its FTSE 100 client base, the firm has also done particularly well in the booming private equity market. Maurice Dwyer has masterminded this growing area, and conflicts permitting, the firm now does all of 3i's Midlands-based work, with the average deal value handled by the team standing at £80m. Such has been the success of the practice that Dwyer says he has had approaches from a number of City firms anxious to start a presence in an area that has become enormously fashionable. One such firm, claims colleague Ian Metcalfe, who does M&A work within the technology group, was offering Dwyer four times his current pay packet.
Since 1993, Wragges says it has been in the top 10 of firms in private equity for the number of deals it has carried out and in the top 20 for total deal value. As well as 3i, the firm also acts for Barclays Private Equity and BridgePoint. But while it has a strong position within the Midlands private equity market, Dwyer admits that it now needs to gain strength within the London and national arena. To try and build the practice, one of the 21 lawyers working with the team is employed full time on deal generation, keeping an eye on the wider market. And to free up lawyers to work on deals, Wragges has formed a specialist department to do all of the due diligence on deals, with Graham Spalding at its head.
Bill Jones heads the technology group, and he admits that it, too, needs to widen its aspect. While the link-up with London-based IP specialists Needham & Grant has led to Wragges gaining a strong name in that market, Jones says that the technology, media and telecommunications (TMT) niche is not quite where he wants to be yet.
“We're weighed down by the weight of our history acting for Midlands metal bashing manufacturers,” says Jones. “While the internet bubble has gone, in its original form a lot of the economy is now within the TMT sphere. My agenda is the frustration of us putting clear water between us and our regional competitors, but now we want to compete on a national level.”
While he believes that the practice is at least as good as many London firms, Jones says that Wragges' geographical position makes it harder, as the directories tend to be London-centric, ignoring the fact that his two main clients are Cap Gemini Ernst & Young and another investment bank, which is not willing to be named, but is one of the big boys.
The firm hopes to gain ground in TMT as its traditional clients move into the new economy. As an example, Jones cites Glynwed, a company that traditionally made pipes with a sideline in making Aga ovens. Although the pipes accounted for 75 per cent of its revenue, the company decided to demerge that part of the business to concentrate on the Aga business, which is booming in the US. As part of the restructuring, the company introduced web-based technology to sell Agas online, which Wragges was able to help with.
Jane Pittaway, who heads the commercial team, backs up Jones's argument by pointing out that her specialisation in aviation work grew naturally out of Wragges' traditional car manufacturing client base. She joined the firm from Fox & Gibbons in Dubai a week after British Airways (BA) selected Wragges to join its panel, and since then the firm has grown a general aviation practice.
“There was a huge automotive industry in the Midlands, but because of various pressures on the marketplace a large number of those who have been in the vehicle industry are moving into aviation work. Venture capital houses are now setting up in the aerospace industry, so we now have a cross-firm aerospace group,” explains Pittaway.
The firm's sector-based approach seems to be working when it comes to winning work. Poole estimates that the firm's hit rate when it comes to beauty parades is between 60 and 64 per cent. So are there any consistent reasons when Wragges loses out?
“There are usually two or three strands that are common to our failing,” says Poole. “One is chemistry on the day; another is price, particularly in the public sector, which buys on price; and the other one we get – which is frustrating, but I think we shouldn't be changed on this – is that we're not big on hourly rates. We don't do them much as we don't think it's a good idea. Hourly rates are a way of dumping hours on a transaction.” Poole adds that a fixed-fee deal allows Wragges to capitalise on its investment in IT and background knowledge, claiming that you get a lot more law per hour with Wragges.
So much for the Wragges success story. Where exactly does the firm perceive its weaknesses to be? According to Crabtree, the partners need to look further afield for new opportunities. “Most of the 1,200 people here, if you ask them what they're doing internationally, would talk about their holidays. Getting them to think internationally is hard,” he says.
International expansion is, all partners admit, fairly limited at the moment. The firm has two partners based between Brussels and Birmingham, but otherwise has no permanent presence overseas, preferring to work on strong relationships with various foreign firms. While Pittaway, who is an international partner and thus responsible for building relationships overseas, admits that Wragges has lost firms to alliances and mergers, she declines to name names and stresses that the firm is committed to its current approach.
The firm also has one partner, David Birch, devoted full time to building up relations in the US. As 45 per cent of money invested in the Birmingham area is from the US, such a strategy from Wragges makes sense, with the firm now planning to make contacts with companies directly rather than merely with US firms.
Crabtree is also concerned that the firm is not giving a consistent message to the market and is not able to communicate how Wragges is distinctive. He believes his fellow partners can come over as triumphalist, and sounds a strong word of caution. “We're only doing a bit better than our competition at the moment,” he warns. Maybe so, but there are still plenty of green eyes currently turned on Wragges.
|Commercial - includes technology, media and telecommunications (TMT), intellectual property (IP), European Union (EU) and competition.
Percentage of total gross fees: 17
Sample deals for IP: Major multinational patent litigation for: French kitchenware manufacturer SEB; US-based pharmaceutical company Enzon; British Airways (BA); and Unilever. Brand splitting in the Heinz-Frank Cooper corporate deal.
TMT: Outsourcing for BA; advising Ordinance Survey on IT infrastructure for its digital mapping databases.
Corporate - includes private equity, the plc group, IT and the M&A department.
Dispute resolution - includes construction.
Finance and projects - includes utilities.
Human resources - includes employment and pensions.
Property - includes retail and leisure.
|Wragges has a strong partnership structure, a fact that even its competitors recognise. At the heart of that structure is the remuneration committee, and profits are shared out on a merit-based system. The committee is made up of three members and three elected partners, of whom three are elected annually. They look at the overall contribution made by the equity partners, with target billed hours as just one element of that. Partners are expected to bill around 1,000 hours a year, with heads of departments expected to bring in half that amount. Those who exceed that by a long way are not rewarded for it; in fact, they could see their share of the profits go down.
Senior partner John Crabtree explains: "Anyone can do 2,000 chargeable hours, it's getting marketing and our marketing profile right and penetration that lawyers find difficult. [The remuneration process] is an art, not a science, and we tend to reward people who are making the effort rather than on their success. We've given a lot of support to people who say, 'I've got this big practice, but I'm going to give up corners of it'. We don't expect that partner to produce a huge turnover in the next three years, but we reward that spirit."
Poole emphasises that treating partners and staff well is at the heart of Wragges' philosophy. "The people here aren't going to be phenomenally different from other people in other firms," he admits. "You're not going to get a competitive advantage that way."
Poole and the firm are against what he terms the 'mushroom farm' approach. He says: "If you cover them in shit and keep them in the dark, you're not going to get the best out of them. If you're very focused on the way that you treat your people, you're going to get loyalty and they're going to be motivated and do the extra mile.
"If you can do all those things, then you're going to get a lot more out of your people; if you treat them like a commodity, half of them leave and you feel it doesn't matter because you'll recruit the next one. I'm on dangerous ground here - I think in most law firms they're undermanaged. They're obsessed with partner hours, but they should be obsessed with getting their strategy right."
As a result, Wragges boasts an attrition rate from the firm of 3.5 per cent annually, and Poole claims that half of them return to the firm after a few years. Those who leave tend to go to City firms rather than regional competitors, "to do London" for a few years.
Competitors, however, are sceptical as to whether Wragges can maintain its closeness as a firm if it maintains its current rate of growth. One partner in another Birmingham practice who did not wish to be named said that his firm was beginning to see more applications from junior lawyers at Wragges who were beginning to feel neglected.
Chris Rawstron, managing partner of DLA's Birmingham office, believes that while the partnership culture is strong and retention at the moment is good, the firm is growing aggressively on the back of a strong economy, so both aspects are easy at the moment. He believes the true test will come during the next recession.