The scale of the senior departures at Freshfields as the City giant restructures its partnership has confounded expectations that the firm would fudge the issue. Charlotte Edmond tracks the shake-up and impact on the firm’s practice
For a firm such as Freshfields Bruckhaus Deringer, which is not used to either radical internal changes or partner departures, a partnership restructuring must be heavy work.
But the firm is continuing to shed a string of respected partners from its equity, in a restructuring that has particularly impacted on its finance and litigation practices as well as its
The latest high profile departures to emerge include dispute resolution partners John Goddard and Ian Taylor and corporate heavyweight Patrick Gaynor. All three have taken principal consultant roles at the firm.
Taylor, who specialises in investment banking and financial services litigation, is acknowledged as one of the stars in Freshfields’ dispute resolution group while banking litigation specialist Goddard is known for his work representing the Bank of England on the mammoth BCCI litigation. Gaynor advised on Ferrovial’s £8bn takeover of BAA last year and has acted for private equity clients including Warburg Pincus and Bain Capital.
The trio represent some of the more senior names to have left the magic circle firm’s equity since a drive to boost profits by a new management team — consisting of co-senior partners Guy Morton and Konstantin Mettenheimer and chief executive Ted Burke — led it to begin dramatically restructuring its partnership last year.
Other departing names to recently come to light include corporate partner Peter Streatfeild and litigation partner Lindsay Marr, who are also becoming principal consultants at the firm. Streatfeild has worked on the restructuring and privatisation of several of the
These are in addition to high-profile departures that include finance partner David Ereira, who resigned last month for arch rival Linklaters, former litigation head Jo Rickard, who moved to Shearman & Sterling, and environment partners John Bowman and Paul Watchman and property lawyer Graham Prentice, who all joined LeBoeuf Lamb Greene & MacRae last year.
Head of restructuring and insolvency Sandy Shandro also this week announced he is to leave the firm to take up a role as dean of the faculty of law at University College London, while head of corporate finance Barry O’Brien and head of risk and compliance Julian Francis have left the partnership to remain as consultants.
The principal consultant role is just one of the ways Freshfields has moved to reduce its partner numbers. Around 30 partners have taken on the status although some have now left the firm altogether.
All partners aged 50 and over — or 53 in
This could generate a number of claims against the firm, in addition to the age discrimination claim that has been brought by former insolvency head Peter Bloxham. Bloxham’s claim relates to the fact that his pension has been affected because he retired before he was 55.
Legal Week understands that a number of ex-partners are considering claims against the firm over the length of time they will have to wait before they receive their pension payments.
In total, the changes have resulted in around 50 partners leaving the equity since the beginning of the financial year. In May 2005 the firm had 524 equity partners, a figure that fell to about 500 by May 2006. That figure is expected to have falled sharply by the end of the current financial year.
One of the hardest hit areas to be hit so far appears to be
Duesseldorf-based corporate partner Andre Kowalski is the most recent German departure to emerge.
Of the eight practice groups, finance has been one of the most affected. Thirteen partners from the practice, which has around 300 lawyers, have left the equity so far, with more expected to leave in the coming weeks.
A recent reorganisation of the firm’s practice groups is also set to see some sub-groups combined, including project finance, which will no longer exist as a free-standing group. At least five of the firm’s nine
Aviation finance, one of Freshfields’ smaller specialist areas, has lost Glenn Matheson in
Dispute resolution has also seen a significant number of departures, with eight partners leaving the team so far. Three partners have taken consultancy and a further three have left the firm altogether in
Freshfields denies it is focusing the restructuring on any particular office or practice group, stating that the cuts from the equity will come in proportion to the size of the office and department. Mettenheimer says: “Our restructuring is taking place across every practice group and every country and, although some people might be leaving, there is no particular spotlight on finance.”
However, Freshfields partners privately concede the changes are the result of a focus on the firm’s highly-successful corporate practice. The firm has been accredited with establishing
One ex-partner comments: “The firm is obviously making moves to boost PEP by putting more profit points back in the pool. They are taking a ‘Slaughter and May’ attitude and concentrating on corporate.”
Some ex-partners also, however, point to the difficulty of sustaining the new model across a wide range of departments as well as criticising the firm’s handling of the cuts. One former partner adds: “It is a great firm with great lawyers and great people, but while this down-sizing will work in the short term, the question is: can they sustain it in all practice areas?”
Another challenge facing the firm will be keeping partners happy in the newly-created rank of non-equity partner, a role that is to be used in less profitable practice areas and jurisdictions.
Between 30 and 50 partners are expected to be affected by the de-equitisations, with former partners indicating demoted partners will be in line for 50%-60% of their current equity drawings. Newly-promoted partners taking the non-equity rank will draw about 40% of what they would have done as an equity partner.
If there is a change in market conditions or if an individual is performing strongly, there are circumstances where demoted partners may return to the equity, although it is understood the conditions to regain equity status include stringent hours and billing targets.
With many of the firm’s established names out of the equity and unlikely to return, much will now depend on Freshfields’ new generation of rainmakers. The firm will also be hoping that its dependency on corporate does not lead to a backlash when market conditions change.
Rivals may be critical of the new approach but they agree that, on current performance, Freshfields may well make it work.
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