Author: Legal Week
14 Dec 2009 | 00:13
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The firm stands slightly apart from its three larger rivals - CC, Freshfields Bruckhaus Deringer and Linklaters - for deliberately not pursuing international mergers in the late 1990s and early years of the new millennium, when UK law firms starting going global in earnest. However, the firm has still expanded considerably through external recruitment and has a large, well-established European and Asian network.
Likewise, building its strategy around organic growth and team recruitment, the firm also committed itself to expanding in the US under its own steam, a stance that until recently had been studiously avoided by rivals. Aside from its commitment to foreign expansion, the last 10 years have seen A&O invest heavily in its corporate practice, building a respected M&A team to complement its much-vaunted finance practice.
However, by 2005, the firm had suffered a number of reverses as its growth started to lag its key rivals. This coincided with the departure of a series of respected partners, mostly to the London offices of US law firms, and a period in which it is acknowledged that A&O's finance practice was dogged by poor morale and high staff attrition. It was not until well into 2006 that the firm started to show demonstrable success in dealing with these issues, when the firm unveiled a substantial overhaul of its pay, benefits and career management that was well received by staff.
Evidence of its revival was confirmed in 2007, when it unveiled financial results showing revenues up by 20.5% to reach £887m, while total profits increased by no less than 36% to take its average profits per equity partner past the £1m mark for the first time. Even coming in a busy year for M&A and finance markets, the results outshone the firm's key UK rivals.
"For a firm that used to have a really bad rep from assistants for bad hours and poor morale, A&O has really managed to turn it around," observes one contributor, mindful no doubt of the concerted push made by the magic circle outfit to address associate attrition. "It's easy to be cynical about some of the touchy-feely stuff that the firm has done on the HR side, but people have been much more willing to take it at face value because it wasn't done instead of more cash."
He adds: "The pay shake-up that was announced last year has put the firm at the top of the market and the changes to the bonus scheme have made a big difference, particularly to galley slaves in acquisition finance, where the hours are particularly mental."
The firm was, understandably given its finance-heavy client-base, to face more turbulent times after the onset of the global recession and banking crisis in late 2008. The full impact of this was made apparent in February 2009 when A&O announced the most sweeping restructuring yet seen from a top City law firm, which was ultimately to claim around 450 jobs.
However, despite challenging markets, A&O emerged as one of the stronger performers among major UK law firms in the 2008-09 reporting season, with revenues rising 7% to hit £1.091bn. With a well-regarded management team in David Morley and Wim Dejonghe and the restructuring behind it, the firm looks well placed to ride out what will continue to be tough markets.
Founded in 1930, A&O has for more than a generation been regarded as one of the City's top finance law firms - some would claim the finest - across a range of products and practice lines. The firm's modern history was shaped to a considerable extent by head of banking Bill Tudor John, who became managing partner in 1992, before taking on the senior partner mantle two years later. Forceful and single-minded, Tudor John was one of the most successful law firm leaders to emerge in the 1990s, when the commercial legal profession in the UK was beginning to go through seismic changes. He was to drive the firm to modernise its style from a practice long renowned for producing technically superb banking lawyers into a more commercial and service-driven outfit.
He also led a sustained and aggressive period of international expansion to help the firm catch up with rivals including CC and Linklaters that had already expanded substantially abroad. Key moves of the period included merging with the Italian practice Brosio Casati & Associati in 1998, ending its alliance with Paris firm Gide Loyrette Nouel to build up its own French practice and the recruitment of a large team from top Dutch firm Loeff Claeys Verbeke. The period helped the firm ditch the 'Allen & Overcautious' tag that had previously plagued it and took the number of its international offices from six to 20 within a decade.
Given Tudor John's record, there was genuine shock in the City legal community when he was beaten in an election for a second term as senior partner in 1999 by head of corporate Guy Beringer. The election was noteworthy not only for ushering in an M&A lawyer to lead the notoriously banking-centric firm but also as one of the first examples of a contested election at a top City law firm.
A&O was led in the following years by Beringer and managing partner John Rink. The arrangement was somewhat tense in that, as a close colleague of Tudor John, Rink by all accounts had an uneasy relationship with the new senior partner. The tension between the two men was reported to have been a factor in Rink's decision in 2002 to stand down a year early, making way for the firm's popular banking head, David Morley, to take on the managing partner role. With Beringer staying on until April 2008, the pair ran the firm together for nearly five years.
Beringer's tenure has seen the firm deal with the prolonged slow-down in the world's corporate markets between 2002 and 2004. As a firm that had avoided sizeable mergers, A&O escaped some of the fall-out that affected its peer group. The firm's history since 2000 is also notable for its organic expansion in the US - unlike rivals that have either secured a merger (as in the case of CC's turbulent takeover of Rogers & Wells) or avoided expansion to improve their chances of a US tie-up, as with Freshfields and Linklaters.
A&O instead made a point of actively hiring corporate lawyers, including its much-hyped recruitment in 2001 of Cravath Swaine & Moore heavyweight Dan Cunningham. The firm also, with some success, marketed itself to the US's top law schools. However, US expansion proved expensive for the firm during the downturn, with the practice at once point in 2004 estimated to be costing the firm £16m annually after partner drawings.
This drain was one factor in the firm's profits falling and a number of high-profile partner departures afflicting A&O between 2004 and 2005. Often these were younger partners moving to the London arms of US law firms, where they could make more money thanks to A&O's notoriously long equity ladder, which takes 15 years to transverse. The firm was also unsettled by persistent claims of discord between finance and corporate, with the latter practice perceived to be underperforming at the time.
An email at this time from highly respected head of leveraged finance Tony Keal that accidentally went public, which warned of low morale and the need to substantially raise pay for finance associates further aggravated tensions and Keal himself was to the leave the firm in 2005 for New York law firm Simpson Thacher & Bartlett. Another key departure saw Keal's protege, Stephen Gillespie, quit the firm for 2006 for Kirkland & Ellis.
With questions mounting over the firm's strategy and growth prospects, A&O responded in October 2006 with a sweeping overhaul of benefits, which ushered an alternative to partnership, updated its bonus scheme and substantially raised pay for junior lawyers. The combination of measures proved to be successful at dealing with morale and a confident financial performance in 2006-07 left the firm in a stronger position.
The next major issue for the firm to address was its leadership, with Beringer's term ending in April 2008. The firm - which in 2007 began expanding internationally again with the launch of three new offices and was in buoyant mood going in to 2008 - handed Morley the reins as senior partner, with Belgian chief Wim Dejonghe (pictured right) becoming the firm's first managing partner based outside of the City.
A&O's progress was highlighted by its 2008 results, when the firm joined the select band of firms boasting £1bn-plus revenues. The firm saw a 15% rise in turnover to reach £1.01bn, up from £887m during the previous year. Profits climbed by 9%, bringing the average profits per equity partner to a total of £1.12m. However, the firm did opt to freeze its associate salaries for 2008 - becoming the first magic circle firm to hold back from handing pay-rises to its junior lawyers that year.
However, in October 2008 the firm suffered a blow with the loss of a seven-partner Hong Kong team to US firm Latham & Watkins.
And in February 2009, the firm rocked the legal market with the news that it was implementing a sweeping restructuring, including radical plans to slash partner, fee earner and support staff positions with the loss of more than 400 jobs. The restructuring, which also saw the firm freeze salaries and billing rates at 2008 levels, is expected to cost the City giant around £44m.
Click here to read a commentary on the firm's restructuring.
The firm is credited with having the most supportive culture among London's global big four, a background that made previous claims of poor morale so damaging. Current indications are that the firm has done much to recover its former strength.
Perhaps to a surprising extent, the firm appears to have managed to keep this reputation intact despite its sweeping restructuring, in part because the firm was given credit for transparency and for spreading the cuts at all levels of the firm. Legal Week Intelligence's 2009 Employee Satisfaction Report, which surveyed 103 UK assistants at the firm, found A&O still received above average satisfaction rating from its staff. In particular, A&O assistants rated the firm above average for culture and the extent to which they felt valued.
A&O has long been feted - internally and externally - for the depth of its finance expertise, which "remains the best finance practice around".
The firm's strength in finance stretches across the board in all the key lines - including loans, acquisition finance, capital markets and structured finance. In addition, A&O has what is regarded by some as the world's best global projects team. The firm's derivatives practice is something of a finishing school in the business, one reason why A&O has suffered particularly from predatory recruitment from investment banks.
But is the long talked-of corporate push now starting to pay dividends?
"Corporate is definitely seen as less prestigious than banking," notes one A&O spotter. "But it's still a good team and the prospects [for promotion] are better than at some magic circle rivals." However, that view is not unopposed. One A&O contributor scathingly describes promotion prospects as "basically zero - especially in corporate".
Not really viewed as a full-service practice, A&O has a smaller property team than many rivals and is seen as less of a force in competition than its peer group. Unusually for a top City firm, it still has a private client practice. Also has a small but respected employment team.
The impact of A&O's recent restructuring on its highly-rated leveraged finance practice has been much discussed, with five partners in its London practice believed to have left.
With over 26 offices worldwide, the firm is well represented throughout Europe and Asia, while A&O also has a larger US practice than any London rival except CC. However, A&O has faced criticism that its practice is over-represented in the Benelux region, where A&O is viewed as the top international firm. Recently moved to expand its international network again with office launches in 2007 in Duesseldorf and Abu Dhabi and a formal-tie up with Saudi practice Abdulaziz Al Gasim Law Firm. In July 2007 it secured an alliance in Paris with a respected insolvency boutique.
With the firm growing again internationally, A&O offers excellent prospects to young lawyers who wish to work abroad.
As you would expect, banks form the backbone of A&O's client base. Considering the breadth of the firm's practice it is probably faster to name a major bank that it doesn't act for than name those it does. Still, among the institutions the firm regularly represents are Royal Bank of Scotland, JP Morgan, Deutsche Bank, Citi, Goldman Sachs, Barclays and HSBC.
A&O hit the headlines in 2004 for advising Malcolm Glazer on his acquisition of Manchester United. Corporate has also advised influential infra house Macquarie. Other large clients include General Electric. A further boost came after being called in by ABN Amro to advise on its high-stakes merger talks with Barclays.
Key names in banking include Tim Polglase and Robin Harvey, who both joined the firm as part of a team from Norton Rose in 2002. Mike Duncan is the stand-out name in loans, though the firm has a wide array of respected operators including Stephen Kensell, Trevor Borthwick and David Murray. It is a similar situation in debt securities, where established heavyweights include Boyan Wells and Roger Wedderburn-Day.
At the structured end, David Krischer is respected in securitisation. Derivatives, where the firm is viewed as the City's undisputed number one, can field David Benton and Simon Haddock. Gordon Stewart and Ian Field are prominent names in insolvency and restructuring.
Turning to corporate, Alan Paul is still viewed by many as the firm's best at-the-coal-face M&A lawyer. Other prominent partners include Andrew Ballheimer, Mark Wippell, head of department Richard Cranfield, Susan Howard and private equity specialist Derek Baird, who was recruited from Lovells in 2006 to bolster the firm's private equity practice.
In October 2007, veteran projects partner and client favourite Graham Vinter - rated by some as Europe's top projects lawyer - quit the firm to join energy giant BG Group, but fellow projects specialist Anne Baldock (pictured) remains for now.
The firm has recovered after a rocky period in terms of internal morale. The shake-up of its pay and careers management last year has been widely praised. The move saw the firm introduce two new roles, a senior associate role for five years PQE and a counsel role, which is designed to be an alternative to partnership for high-performers. The associate role comes with a higher salary and a formal business development brief and budget.
With the firm growing confidently again there would seem to be excellent opportunities for ambitious lawyers in both finance and corporate, though, like all magic circle firms, opportunities in general commercial areas are more limited.
In 2008 the firm made up 28 new partners, including just eight in the City. The year before A&O had made up 32 new partners, as well as 17 to its new 'counsel' role, and 33 in 2006, so it cannot be accused of cutting back on partner numbers to increase profits. The number of promotions dipped in 2009, with the firm making up 20 partners.
However, there is a typical two-year period as a salaried partner before starting on the firm's marathon lockstep. Those who do make the cut have a 15-year wait before they reach the top level of A&O's earners, which on 2007 levels means plateau partners draw more than £1.5m.
Legal Week research in 2009 found that A&O assistants gave the firm above average rating for partnership prospects.
In common with most leading City law firms, A&O in 2009 froze pay for UK assistants at 2008 levels. This means that one year post-qualification lawyers earn £65,000, rising in year two to £71,500 and £84,000 the year after that. This puts pay in line with its magic circle rivals.
There are mixed reports on the firm's bonus system, though that is a common complaint in the City.
"They way they pay the bonus with a 15-month lag is a bit odd," he remarks. "Some people wonder why they should be waiting to get paid later when they are rushed off their feet now." Another contributor is even less impressed. "Pay is still dwarfed by the Americans," he argues.
A generous bonus system by market standards gives junior associates a bonus pegged to the value of an equity point. This system - which is directly benchmarked to partner earnings - is more generous for senior associates, who can earn around £50,000 annually in bonuses at 2007 levels.
For the firm's take on the recruitment process, click here.
Work-life balance? At a magic circle firm? The concept is not so strange at New Change, according to one contributor. "For the big City firms, [A&O is] probably the best for work-life balance," he says, "although there are bits of the banking practice that are still a bit macho."
"Work-life balance remains non-existent," counters an assistant, who is rather less complimentary about the firm as a whole. Perhaps he works in one of the macho bits of banking. For those fee earners that spend all day on Facebook, things are probably not too bad.
In October 2007 the firm introduced a holiday 'trading' scheme allowing its lawyers to buy and sell leave worth a limited proportion of their salary, in what marked the latest in a series of moves aimed to reduce associate attrition.
A&O has generally pitched itself at the more progressive end of the City legal market. For example, 40% of the 2009 promotion round were female and the firm recently launched an initiative to usher in more flexible working. Separately, the firm recently rolled out a venture called Smart Start to help encourage school children from deprived parts of London to consider a career in law.
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