Simmons & Simmons last week announced that it is on a profits drive, setting a global profits per partner (PPP) target of £400,000 in 2004-05. The City firm has a mountain to climb given that average PPP in 2002-03 was just £300,000 and will be at best flat this year.
But Simmons has two new weapons in its arsenal to ensure it reaches the goal: partner de-equitisations and the introduction of targets of 1,700 billable hours for assistants. Simmons partners have also finally voted through a change to partner compensation, introducing a floor which will give management a bigger bonus pool to placate star partners in bad years.
As first revealed on www.thelawyer.com (21 April), to boost profits the firm will be getting rid of 12 per cent, or a maximum of 11, of its 94 London equity partners, either by de-equitisation or by forcing them out altogether.
Senior partner Janet Gaymer said the move is merely “a stepping-up” of the sort of spring-cleaning the firm does on a regular basis, but this is misleading.
Simmons had a minor cull in 2000, which, along with a fantastic business climate, helped the firm post its best-ever PPP in 2001 of £412,000. Aside from that, there have been few performance-related departures.
In fact, Simmons is one of the most overpartnered firms in the City. When we compiled The Lawyer 100 last year, Simmons’ leverage ratio in London was 2.1:1. Even if all 11 partners were to leave, the firm would still only have a leverage ratio of 2.45:1 – much lower than most of its City competitors.
Gaymer and managing partner David Dickinson were keeping quiet about where the axe will fall. The firm’s strongest practice is currently finance – the average PPP in London is already £450,000, with some pockets bringing in more than £600,000 – so it should be safe.
A key target will be the firm’s corporate and commercial departments, which were merged last year, despite objections from some partners.
Historically, commercial has been the strongest, particularly the competition and IT practices, but it is on the wane. Corporate did some pioneering work on accelerated initial public offerings last year, but is regarded internally and externally as the firm’s weak spot.
Stuffed with fiefdoms, the department could be a political minefield when Dickinson wields the axe.
If you de-equitise partners, there is no doubt that profits will go up – just ask DLA, which has successfully pursued that tack. And there is no doubt that Simmons does need to make cuts.
However, in broader strategic terms, can the firm ever become first choice outside the magic circle? Yes, Simmons has made progress in finance, but in corporate just take a look at the M&A tables. In the UK, the firm’s heartland, Simmons has not made Thomson Financial’s top 20 by value for M&A deals in 2002, 2003 or 2004.
Cutting a few partners is only a quick fix.