SNR Denton – careful what you didn't wish for

It's an irony that as SNR Denton faces a tough post-merger period, a fair number of partners seeking to explain the firm's struggles have sought to pin the blame on Denton Wilde Sapte's previous management.

The argument goes that the UK firm persistently ducked addressing difficult performance issues in the years preceding its US merger. You can make a solid case for that assertion, but long-time Dentons-watchers are also likely to ask how much the firm as a whole was ready to stomach that sort of medicine.

After all, Virginia Glastonbury, the last chief executive to attempt to administer some robust treatment to what ailed the firm, was left isolated and faced bitter opposition from chunks of the partnership. In her replacement, Howard Morris (pictured), Dentons probably found someone ready to push the firm as far as it was ready to be pushed.

But it does appear now that what nudging there was simply wasn't enough. As confirmed this week, the firm's profits per equity partner are down more than third - falling from £360,000 to £232,000, while turnover has fallen 8% to £154.4m. This means that the transatlantic practice's UK arm is now generating less in fees than it did in 2000-01, the first full trading period after the union between Denton Hall and Wilde Sapte. Back then the firm's revenue was £162.4m, while profits per equity partner stood at £330,700. By any yardsticks, that's a very poor long-term run for a major City firm.

Yet in some ways this turn of events is surprising. Despite the well-publicised problems the UK firm faced between 2000 and 2005, Dentons had been a solid performer during the credit crunch and aftermath of the banking crisis. With a restructuring and energy/infrastructure-heavy practice that looked well placed to cope with the current era of austerity, and the chance to relaunch itself via the merger with its larger US practice Sonnenschein Nath & Rosenthal, there appeared to be some cause for optimism. At the very least, a material shift from the status quo looked to be a good thing, even if mergers are hardly quick fixes.

But by the time that SNR Denton's half-year numbers for 2010-11 indicated that revenue and profits would be substantially down, it was obvious that this deal could not count on a honeymoon period of goodwill to whisk it quickly through the integration period.

The firm also has an awkward story regarding its management in the UK. The firm argues that the leadership change this March which saw Morris stand down as co-chief executive just five months after the merger went live was evidence of the speed of its integration process but, externally at least, the sharp change of direction with senior management looked less than assured. It also left Morris' replacement, Matthew Jones, with the unenviable challenge of having to quickly establish himself and provide leadership at a crunch moment despite previously having a relatively low profile within the firm.

There has also been the loss of a number of partners in recent months - among them major names like advocacy head Rory McAlpine and banking partner Michael Black, who respectively quit for Skadden Arps Slate Meagher & Flom and Norton Rose.

A former deputy chairman of Dentons, McAlpine was part of the team that negotiated the Sonnenschein merger less than 12 months previously while Black had been a member of Dentons' old strategy board. Black and McAlpine were also relationship partners for key client Royal Bank of Scotland. There was also the loss to Pinsent Masons of Ian Roberts, a social housing finance specialist and relationship partner for Lloyds, and several other established partners. With some of these departures being poorly received, particularly that of McAlpine, the firm is understood to be taking a robust line on exit terms for departures.

Of course, partner mobility is a fact of life these days, but law firms remain acutely sensitive to losing partners from their inner circle - it's generally bad for the partnership's morale and clients don't like it.

There is also the issue of the firm's shake-up of partner remuneration, which will this year introduce a merit-based model for the UK profit centre. While the theory is uncontroversial, there is some unease that partners still have only minimal details of how this will work (though this looks likely to be resolved in a matter of weeks).

If the negative has been prominently covered, what about the brighter side? Probably the biggest plus is that the firm says that the early trading in 2011-12 is substantially better than the previous year, which will go a lot further towards steadying nerves than any number of inspirational words from management.

The firm also pledges that the practice review it launched in the spring will soon deliver a clear sense of direction, unambiguously focus the firm on its strengths and better position the UK business to take advantage of being part of a $700m (£438m) transatlantic legal group.

There could even be some advantage to the current turbulence. The departures of Dentons' old guard should force SNR Denton to focus upfront on the key weaknesses of the business. More importantly, perhaps, it should unambiguously position the union as what it always was: a takeover of a solid but strategically challenged UK business by a larger, more thrusting US parent, rather than a merger of equals.

In the short term that could be bruising, in the medium to long term, it may well turn out for the best. But if this promised proactive stance is to have much hope of turning around the business - it will have to be now. The firm is getting to the point where inertia won't just result in gradual decline and disappointment - soon it could usher in something far more destructive.

For more, see:

• SNR Denton takes tough line on exit terms as partners quit and UK PEP falls 36%
• Post-merger turbulence puts pressure on for SNR Denton
• Second acts: Dentons-Sonnenschein tie-up offers a chance for reinvention