Herbies: not making the cut

Here’s the official word from Exchange House: there will be no partner redundancies in Herbert Smith’s corporate group, no sirree, and not yet anyway.

Quibbling aside at the semantics – yes, we all know that partners aren’t strictly speaking made redundant, so nice try – let’s examine Herbies’ corporate problem.

The group missed its target by £20m, but this is not an issue confined to the past financial year. It has 18 more partners than in the firm’s ­breakthrough year of 2007-08, when it acted on a raft of transactions for BAA, First Choice and Tata. Even in the fat years of 2007-08 and 2008-09, ­Herbert Smith managed an average revenue per partner (RPP) of only £1.7m. Critics maintain that it’s too obsessed with chasing enormous ­mandates instead of getting a throughput of ­smaller deals. RPP is now back down to £1.6m, on the same level as at CMS Cameron McKenna and Macfarlanes. Not great for the old amour-­propre, that.

Meanwhile, the discontent among the litigation partners is rife. When you’re raking in an RPP average of £2.3m, it must be galling to be raided by US firms and the magic circle when you can see that your colleagues are dragging down ­profitability, particularly when you’re being ­conflicted out of juicy mandates.

There’s a bigger structural issue, and that’s the semi-detached alliance with Gleiss Lutz and Stibbe. Where are incentives to refer work? It’s bordering on scandalous that they’ve managed to persuade the M&A tables to treat them as one firm when so few deals are sourced collectively; in fact, you ­usually have to prod a Herbies or Gleiss corporate partner to talk about the alliance at all. Sure, ­Herbies gifted the Germans an intro to Simpson Thacher and ­Blackstone a decade ago, but ­essentially the alliance has remained in aspic.

For the past 10 years Herbert Smith has styled itself as the sixth member of the magic circle. On the corporate figures alone, that doesn’t wash. But it’s also a question of culture: the magic circle is actually a lot more ruthless than Herbies partners fondly imagine. Any of those firms would have sharpened the knife a long time ago.

catrin.griffiths@thelawyer.com; www.twitter.com/lawyercatrin