Editor's Comment: Onwards not upwards

However upbeat partners were feeling last week at the firm's 125-year anniversary celebration, the reality is it has been an awkward year for Herbert Smith. After all, 2007 ends with its international strategy no further on than before, while several benchmark rivals have outgunned it. Likewise, the slow process of modernising its partnership culture is moving, but painstakingly.

First, let's address that international strategy - or strategies, since the firm still operates two just-about-complementary approaches. The more successful strategy has been the development of its own network with an emphasis on emerging markets. The other side is the formal alliance with Gleiss Lutz in Germany and Benelux giant Stibbe. The latter arrangement has worked better than expected, largely by letting the firm concentrate its limited resources, but it is hard to escape the feeling it is a dead-end. That sense has been reinforced by this year's alliance review, which has ended in some tinkering toward integration. But how else could it conclude? The ideal solution would be a Herbert Smith/Gleiss merger but the German firm remains obsessively committed to independence. Likewise, attempts to expand the alliance have yet to yield results, with Cuatrecasas continuing to bluster. This is all very well in the short term, but is no real solution. Every year the magic circle polish up their global networks, inevitably making it harder to sell the Herbert Smith alliance to clients.

There are also vexing, if less intractable, issues facing the firm at home. It will have been noticed that one of its key rivals, Ashurst, has put in a sparkling two years. Perhaps more worrying, its closest M&A peer, Allen & Overy (A&O), moved up a gear in 2007; if Herbert Smith is to have a hope of challenging Linklaters and Freshfields in corporate, it must first prove it can keep pace with A&O.

One solution to some of these issues is the attempt to modernise its partnership to bring in a stronger performance culture and firmer smack of leadership. One plank of that, the creation of a partnership charter, led to odd claims of giving the firm back to the partners. It was nothing of the sort, unless interpreted as a New Labour-style attempt to give with one hand while locking in a whole plank of responsibilities with the other. Ultimately the firm is attempting to usher in clearer performance benchmarks and more powers to deal with under-achievers, but the clock is ticking.

The over-riding sense is that the firm has yet to find the answer to many of the challenges it faces. Herbert Smith is a very fine firm, but one that has spent a little too long avoiding tough decisions. That may cost it.

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