Do departures herald a rocky road ahead for Jones Day?

Emma Vere-Jones on how Gouldens’ merger with Jones Day has affected the real estate group

Jones Day?” />Jones Day Gouldens has suffered its first partner departure, that of legacy Jones Day partner Linda Fletcher to Paul Hastings Janofsky & Walker. The question on everyone’s lips is: “Will it be the first of many?” Is this going to be another Dechert?

The firm itself kept relatively quiet about Fletcher’s departure, although that’s not particularly surprising. Even in the days before its merger, Gouldens was known for its reticence towards the press. No news is good news was the Gouldens motto. Largely, the firm was known for its good rates of pay, its unusual art… oh, and its stoic independence (okay, so we can’t get it right all of the time). So, in February, when plucky little Gouldens signed its merger with the sprawling giant that is Jones Day, there was surprise and consternation – was there any way these unlikely bedmates could achieve a happy marriage?

For a few weeks, questions were asked, eyebrows were raised and everyone seemed pretty perplexed. But then there came stories of Allen & Overy conflicts, Clyde & Co’s launch in Iraq, the fall of Altheimer & Gray, and soon the Gouldens merger was largely forgotten. Except of course by those who were at the firm, those who were charged with the unenviable task of bedding down the merger.

I for one am not sure that the word ‘integration’ really describes the process that has taken place in the Jones Day Gouldens real estate practice in the past six months.

Let me explain: integration suggests the merging of two entities, but in this case, one has been decimated while the other remains standing. After the departure of Fletcher and senior associate Emma Bucknall last week, nothing remains of what was formerly the Jones Day real estate practice. (Although there is still one environmental lawyer who was in the Jones Day government and regulatory group.)

In London, the real estate practices couldn’t have been two more different beasts. Gouldens had a mid-sized practice with around nine partners and 16 other fee-earners and in the 2001/02 year it generated around 30 per cent of the firm’s £42.3m income. With a strong developer base, it holds some key Gouldens clients, including Ashtenne, Miller Developments, Pillar Properties and Arlington Securities.

Some of the firm’s largest deals came out of real estate rather than corporate. The £400m sale of a group of Pillar retail parks to the Hercules Unit Trust dwarfed any of the corporate team’s transactions in the past couple of years.

The Jones Day London real estate practice was a David to Gouldens’ Goliath. It was headed by Fletcher, who joined the US firm in 1998 from Reynolds Porter Chamberlain, after spending eight years in-house, including a stint at Marks & Spencer. Unlike the Gouldens team, which was very much a standalone department, Jones Day’s real estate practice was built largely on the back of corporate work. Most deals were for US clients, such as Westbrook, on acquisitions and disposals in Europe. There was also considerable work for chemical manufacturers because of Fletcher’s experience in environmental work. Fletcher, the only real estate partner, headed a team of just five lawyers.

As a result, it is probably not surprising that at the time of merger, it was legacy Gouldens partner David Roberts that took on the role of head of property. But as well as the issue of power, there was also the issue of pay. While partner profits at Gouldens might have been more than those at Jones Day, at a lower level the Jones Day lawyers were enjoying a healthier pay. It took Jones Day Gouldens more than a year to address the issue, and there’s nothing like disparity in wages to rile the troops.

The department was also hit by the round of redundancies made by the firm, which resulted in a handful of real estate lawyers, both legacy Gouldens and legacy Jones Day, taking voluntary redundancy. That said, Roberts maintains that the departures have been incidental, rather than an indication of anything more significant, and that the integration has gone well.

Perhaps more importantly is whether the recent departures, both redundancies and otherwise, are going to have much effect on the real estate practice? My guess is they won’t. Because the legacy Jones Day team was largely corporate support, the recent departures are not likely to result in a significant loss of business.

While real estate never really played a major role in the plans for the tie-up – according to one source, a handful of powerful corporate partners had the deal in the bag before anyone else knew about it – the merger is already having its benefits.

The team has picked up one big UK real estate deal for Westbrook, which would have previously been too big for the legacy Jones Day team. They’ve also won US work from UK client Highcroft Group, which has just launched a £200m US equity fund. No doubt the team will be trying to get some work for key Jones Day client Morgan Stanley Real Estate Fund.

It also seems unlikely that this will be another Dechert, which changed the strategy for its real estate team post merger. Roberts insists that the focus will remain unchanged in London – what is more, he’s hoping to keep the department’s turnover at around 30 per cent of London’s total income. That’s going to be a hard job if the corporate department manages to win a few decent jobs from the US clients. Apparently, the London corporate team has already picked up work from heavyweights IBM and BP.

Internal ructions in recent months have probably not done wonders for the perception of the merger in the market. But the real estate department is well placed to continue picking up some big deals not just from its global client base, but also from that of that of the legacy Jones Day firm.