Judgement day looms for Herbies corporate partners

Performance comes under scrutiny as department misses budget target

James Palmer
James Palmer

Herbert Smith is gearing up to put its corporate department under the spotlight after it missed its budget target by £20m last year.

Industry sources close to the firm say it is poised for a wholesale cull of partners across the global corporate practice, with some ­suggesting up to 15 or 20 could face the axe.
The news comes as questions are being raised about the corporate team’s profitability and performance compared with the firm’s flagship litigation practice.

The average profit ­generated by each corporate partner at Herbert Smith is understood to have been £500,000 last year. That was outstripped by litigation partners, who brought in an average profit per ­partner of £1.4m.

Average revenue per partner (RPP) in the corporate team was £1.7m for 2008-09, but that has dropped to £1.6m for the past two years, putting it in the same league as Macfarlanes, behind CMS Cameron McKenna’s £1.75m and significantly behind the magic circle.

In contrast, Herbert Smith’s litigation practice posted an average RPP of £2.3m during 2009-10 and £2.1m in the past financial year.

A former Herbert Smith partner said: “Despite all its efforts it’s still viewed as a litigation firm. It’s made a lot of progress in corporate, but it hasn’t reached the magic circle, and is in fact being challenged by the likes of Ashurst and Macfarlanes. It’s still struggling to get involved in big-ticket work.”

Herbert Smith global head of corporate James Palmer denied that any cuts were in the pipeline, saying: “I can honestly say there are no redundancy plans going on in corporate anywhere in the world at the moment.”

But sources say the firm plans to quietly manage out corporate partners, and over the past couple of years has already given ’taps on the shoulder’ to around 12 underperforming partners in areas including corporate, litigation and real estate.

The looming cuts ­coincide with the firm’s commissioning of management consultants PricewaterhouseCoopers to conduct a year-long systems review of the firm to examine ­utilisation and productivity among fee-earners.

Tensions between the firm’s litigation and corporate teams have been brewing for some time, with some litigators complaining that disparate profitability, coupled with a rigid lockstep, means they are propping up the corporate team.

A source said: “They still have quite a few good ­partners in their corporate team, but the issue is that so many of them have plateaued. They need to look at how they remunerate, but they just won’t do that.”

For an analysis of Herbert Smith’s strategy and management team, click here.