Lawyers desert Dorsey for being too tough at the top

Dorsey & Whitney is not having a happy time in London. A fractious 2005 ended with its hugely successful tax litigation team splitting in half when barrister Simon Airey and a team of three associates quit for DLA Piper Rudnick Gray Cary.

It was a typically audacious move by DLA Piper, which secured the group’s signatures in the very same week the team had won Marks & Spencer’s (M&S) groundbreaking tax relief case against the Inland Revenue.

Dorsey’s management was furious – and no doubt highly embarrassed – at the timing of The Lawyer’s revelations, but it may now have bigger headaches. The London office has lost almost 40 per cent of its associates in the past three months.

Associate attrition rates were big news during the last quarter of 2005. Allen & Overy and SJ Berwin, both with 25 per cent attrition rates, have taken significant steps to appease associates. But those attrition rates are nowhere near Dorsey’s. In addition to the DLA Piper four, five more have left in recent months out of a total of 24 associates. It does not bespeak a happy ship.

Dorsey London managing partner Paul Klaas states firmly: “These are highly individual circumstances and I don’t comment on whether these were voluntary or involuntary departures.”

He will only add that the aim is always to improve performance. While the recent exodus does not seem to cause the London management much concern, it has certainly ruffled a few feathers internally. Dorsey sources say that, under the stewardship of previous managing partner John Byrne, who quit last summer, the firm grew steadily, was a happy place and had few departures.

Dorsey had issues with its London operation way before the December departures, however. Klaas, an international arbitration lawyer, and Jim Pedersen, a corporate partner and head of European operations, transferred from the US last year in an attempt to demonstrate the firm’s commitment to its international offices after eight senior partners left the firm in New York, complaining about Dorsey’s lack of international ambition.

Klaas and Pedersen argue that their intention is to provide a bridge between the firm’s offices. For a long time the London office was seen internally as semi-detached from the rest of the firm. “Both Jim and I have a very broad and deep knowledge about Dorsey resources around the world,” says Klaas.

It is also becoming clear that a tougher management style was thought to be necessary to boost profitability. Average profit per partner across the firm was just $480,000 (£273,000) in 2004.

Ironically, Byrne’s recruitment of Simon Whitehead’s tax litigation team from Landwell in February 2003 was a business coup that put the London office on the map. The M&S case and the related loss relief group litigation orders (GLOs) have been a real cash cow. The litigation has been groundbreaking stuff; the downside was that it was never built to last. Philip Martin, who was an important member of the Dorsey team, was the deputy head of tax at M&S. A brilliant tax lawyer, Martin was also seen as a maverick who left the firm last year.

Whitehead, described by Private Eye as “taciturn”, is universally recognised as an excellent lawyer with a complete lack of man-management skills. Now his team has been split in two and he retains just two associates, a South African barrister and a tax adviser.

Whitehead has been ferociously criticised by Dorsey insiders. The Lawyer reported in December 2005 that the departure of half the tax team was in part due to two lawyers not having been supported for partnership by Whitehead.

One departee tells The Lawyer: “They have a very odd attitude to partnership. Unless you’re doing thousands of hours per year, you don’t stand a chance if you’re outside the US.”

The official target for potential partners is 1,800 hours per year. This is tough for UK associates, who do not have the luxury of the firm’s US-based clients to feed the timesheet. However, it is understood that UK associates achieving 1,600 hours or more are generally considered to be on the right track.

Klaas argues that the standards are global and do not split naturally along national lines.

The discontent is understandable. Dorsey has made up just two London-based associates in the past three years, while bringing in six partners from other firms. The recruitment of three senior associates from Slaughter and May seems to have put a few noses out of joint too. The internal promotion of corporate associate Frances Doherty and real estate head Nadeem Khan to the partnership in 2006 redresses the balance, but it has come late in the day.

It has been a rough ride, but Klaas appears to be holding his nerve. Wisely, the strategy is to widen the firm’s offering. It recently expanded the capital markets team with the hire of John Chrisman from Coudert Brothers, and the litigation team has been rounded out so that it is less reliant on Whitehead’s team. But Klaas will have a lot of work still to do in 2006.