When CC took a chance on Cornell

So was Peter Cornell just lucky? Or can ‘the man from Spain’ - as one partner described him on the day he was elected managing partner - take the credit for steering the firm out of the crisis that gripped it during much of his term?

There is one sense in which Cornell, who will be leaving Clifford Chance (CC) at the end of they year, was definitely lucky. In normal circumstances, he would not have been an obvious candidate to lead the firm. But the summer of 2002 could not in any sense be described as normal. The merger that the firm had forged with Rogers & Wells two years earlier had run into the trouble. And the partnership, which felt it had not been consulted properly about the deal, was angry.

The stage was set for an outsider, untainted by the internal politics that were raging in London. The firm’s European managing partner, who was based in Madrid, was just such a person.

“I was determined to rebuild trust between partners and management within the firm,” says Cornell. “I invested a lot of my time talking to the partners. I was determined to make the partners feel that they had a say.”

True to his manifesto, Cornell set about overhauling the firm’s governance. Partners were consulted more and there was a seemingless endless round of elections as a succession of management vacancies were filled.

From today’s vantage point, Cornell concedes that the governance structure he introduced was excessively democratic. But he insists he had little choice in the circumstances. The result may have appeased the partners but it also slowed down decision making. Having been given the vote, the partners exercised it enthusiastically - and they were not afraid to give Cornell a bloody nose.

Cornell spent months attempting to build a consensus over the highly contentious issue of partner pay. Logic said that if the firm was ever going to make inroads in New York, it needed to be prepared to hand above-lockstep deals to certain partners. Cornell and his management team duly put together such a package. He remembers warning the partnership that if it did not approve the blueprint US partners would leave and profitability would be hit. But London rebelled and voted down the plans anyway.

No doubt the leaking of that infamous associate ‘padding-gate’ memo a few months earlier had a bearing on the partnership’s reluctance to give their New York colleagues a pay rise.

The memo, which can be seen in full here, was drawn up in October 2002. It painted a devastating picture of an office at war with itself. But it was the specific claim that high billing targets “encouraged” padding that turned the memo into an international story. Cornell now concedes that there was a period when he feared the memo might have brought down the firm if it had not succeeded in getting its message across that padding had not actually taken place.

“Had the story continued for another 48 hours I felt it could have been the end of the firm,” he says. “You have to remember the atmosphere at the time – what had happened to Andersen. The partnership was certainly nervous. And yet when you look back, nobody had done anything wrong.”

In the event, the firm rode out the immediate storm created by the memo. But 2003 and 2004 were torrid years, peppered by partner departures in New York and Washington DC and falling profits across the network.

Looking back over these years now, a number of partners have tried to argue that the firm’s difficulties were confined to the US. But in May 2004, CC came within a whisker of losing the cream of its European private equity practice to a US rival (see story). In hindsight, James Baird and Matthew Layton’s decision not to join Weil Gotshal & Manges can be regarded as a turning point for the firm. A few months before that, Cornell’s tenure had entered a new phase with the appointment of head of corporate David Childs as chief operating officer.

“I was working with David quite a lot,” he says. “He was running corporate and he came to California to resolve the issues we were having with our offices there. We got on well. He was the obvious choice when I felt we needed to get a handle on costs.”

The lean post-Enron years demanded a new type of technocratic managing partner, typified by Linklaters’ Tony Angel. Childs was cut from the same cloth and is credited with getting costs at CC firmly under control. In many ways he became the firm’s de facto managing partner long before Cornell quit the post. Indeed such was Childs’ status, Cornell was able to relocate to New York at the start of 2005 in order to devote his full attention to the firm’s US practice.

“From a personal point of view, going out to New York was a big wrench,” he says. “That said, I was made to feel very welcome by all of my New York partners.”

His presence there undoubtedly helped to build bridges between New York and the rest of the network. But attention was already switching away from New York. The European cross-border M&A market was finally spluttering into life. What is more, it was playing to the firm’s strengths.

The swiftness of CC’s subsequent return to form - and profitability - has been remarkable. But it would be wrong to downplay the difficulties CC had got it itself into. Cornell expresses immense satisfaction that he has been able to leave both his post – and the firm – on his own terms. It is not a luxury that was afforded to many of his immediate predecessors.