Author: Legal Week
14 Dec 2009 | 00:13
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One of the City's most established and respected firms, the ancient blueblood is regarded alongside Linklaters and Slaughter and May as part of the 'inner magic circle' of London's elite corporate firms. However, belying its reputation for collegiality and conservatism, Freshfields Bruckhaus Deringer in its modern incarnation has repeatedly gone through dramatic change.
In the 1980s, the firm explicitly and very successfully repositioned itself to win transactional work and referrals from investment banks in the wake of the deregulation of the City. In the 1990s, the firm began dramatically expanding internationally, a push that would culminate with its much-vaunted - but problematic - merger with German giant Bruckhaus Westrick Heller Loeber in 2000.
After a lean period in 2002-2004 that saw the firm struggle to maintain profitability in the face of its post-merger bulk, Freshfields was once again to reinvent itself in 2006 as it embarked on a bruising partnership restructuring that would ultimately see the firm shed 100 equity partners, generate a high profile discrimination claim and keep the firm in the headlines for much of 2007.
With the restructuring and related fall-out now largely behind it, Freshfields looks poised to cement its position as one of the world's leading law firms. A sustained purple patch from the firm's much-vaunted corporate practice in 2006 and 2007 did much to raise confidence, and in 2008 the high-stakes restructuring helped propel the City giant's bottom line to record levels, with profits per equity partner surging nearly 40% to hit £1.435m. Turnover at the firm rose by almost a fifth to sit at £1.178bn for 2007-08, up from the previous year's figure of £986m.
Even slimmed down post-restructuring, the firm is London's second largest law firm in revenue terms after proving an outstanding performer in the turbulent markets of 2008-09.
With Freshfields having gotten its partnership restructuring out of the way well before many rivals that are now undergoing similar processes in response to the recession, the firm appears strongly placed to continue its challenge at the top end of the world's legal services market.
Freshfields can trace its history back to 1743 when it was appointed solicitor to the Bank of England, making it the oldest firm within the magic circle and also one of the most historied of the world's major legal practices. One contributor suggests the firm is behind only Slaughters as the most prestigious firm to work for in the Square Mile.
Yet despite the image of continuity, Freshfields has been through many changes in its time, having morphed from its original focus on private client and acting for the Old Lady of Threadneedle Street into the slick cross-border M&A machine of today. As such, the foundation of Freshfields in the modern era was laid after the 1986 'Big Bang' deregulation of London's wholesale financial services markets. During this period a group of go-getting corporate partners - particularly Anthony Salz, Gavin Darlington, Barry O'Brien, James Davis and Alan Peck - lobbied for the firm to target investment banks to win more of the corporate takeover work that was sweeping the City. The move was controversial internally given Freshfields' lead adviser role to the Bank of England, which was at the time responsible for bank regulation. However, it proved highly successful, cementing Freshfields' position in the rapidly-consolidating legal elite, which in the 1990s became known as the magic circle.
The 1990s also saw Freshfields begin a period of rapid international expansion, with the firm launching offices in 10 cities globally, including Moscow, Beijing, Shanghai and Washington DC. This push culminated in Germany where the firm - perhaps surprisingly - secured two mergers, the first with the 120-lawyer Deringer Tessin Herrman & Sedemund in 1999. But it was the 2000 tie-up with elite corporate firm Bruckhaus Westrick Heller Loeber that caught the imagination but also hobbled the firm with thorny strategic issues. Crucially, Bruckhaus' strong bargaining position meant that Freshfields had to give significant ground to secure the deal (a first attempt in April 2000 was rejected). This meant the Bruckhaus was added to the global brand, the Germans slotted pretty much directly into the firm's lockstep partnership and a dual Anglo-German management structure was created.
Once the corporate slump began to take hold in 2002, this meant Freshfields was stuck with an unwieldy partnership and painfully slow decision-making. So while arch rival Linkaters was able to dictate a restructuring of its global network from London during this period, Freshfields was forced to look on as Links and a number of global rivals began to pull ahead in terms of profitability.
The first sign that change was in the air was a gradual but sustained restructuring of the firm's Asian network which began in 2003. This ultimately slimmed down its network in the region, shut its Bangkok and Singapore branches and refocused its practices on China and Japan. Crucially, the Asian restructuring also saw the firm introduce its first fixed-share partners, the first decisive break with its cherished all-equity partnership.
The departure of long-time senior partner Anthony Salz in 2005 was also significant, triggering a leadership contest that led to the election of Guy Morton as co-senior partner alongside German co-head Konstantin Mettenheimer (pictured right).
With the duo appointing US managing partner Ted Burke as chief executive, the new management team moved quickly to address what they believed were key structural issues affecting the firm. This included tackling its notoriously expensive partners' pension scheme, ditching its all-equity partnership and slimming its equity. In 2006 the firm introduced a less generous pension scheme, offered early retirement to older partners who wanted to lock in the more generous benefits and began a programme of de-equitisation. The net result what Freshfields' equity partnership fell from a high point of 524 in 2005 to 421 by May 2007, when the programme was completed. Unsurprisingly, such a robust restructuring - which was seen to retrench the firm around its corporate practice - proved controversial and generated a stream of headlines in 2007 (For an in-depth look at Freshfields' restructuring by Legal Week US sister title The American Lawyer, click here).
However, that was nothing to what the firm faced when it emerged that former restructuring partner Peter Bloxham was launching an age discrimination claim against the firm related to the 2006 pension reforms. Though the firm was to ultimately win the case, the high-profile hearing at an employment tribunal was a bruising affair.
In any other year it would have marked the low point but Freshfields had already faced even harsher scrutiny following the death of one of its assistants, Matthew Courtney, which led to claims in the national press that the work pressure had contributed to a suicide. Though these claims where were not supported by a subsequent inquest, the episode triggered an anguished debate about work pressures in the City and left the firm visibly shaken.
As such Freshfields was glad to see the back of 2007. Indeed, it said much about the firm's year that two controversies over conflicts of interest (relating bids for Northern Rock and Marks & Spencer) seemed like minor asides. Yet ironically, the firm's top-tier corporate practice has been a star performer through this turbulent 2005-07 period and Freshfields entered 2008 in what looked to be fighting form.
On 1 May, 2008, Freshfields officially became a limited liability partnership, leaving Slaughters as the last magic circle firm yet to convert.
The magic circle giant was not immune to the tough market conditions impacting on many firms in 2008, with the firm announcing it was to lay off a handful of real estate associates, but the firm fought back strongly, and in 2008 picked up the M&A team of the year award at the British Legal Awards.
However, February 2009 saw Freshfields become the first UK law firm to break assistant lockstep, with the City giant announcing that 2009 salaries for associates will be held at 2008 levels, a which move which will save millions of pounds in annual staff costs.
Unveiling its financial results for 2008-09, Freshfields outperformed most comparable firms with revenues increasing 9.3% to £1.287bn, which was enough to see the firm overtake Clifford Chance's fee income. At the same time the firm was one of the few top 50 practices to maintain profitability despite the recession, with profits per equity partner holding level at £1.44m. With the firm's key practice lines on sparkling form and its partnership restructuring far behind it, Freshfields has never looked better placed in the international legal market.
Very go-getting. It's not the kind of firm where you are expected to just sit around waiting for work to come in. The hours are pretty tough whenever the markets are busy. On the other hand, "the partners are OK; compared to some firms, they generally don't ask you to do things that they don't do themselves".
"Freshfields is a fantastic place to be," says a loyalist, with one caveat: "...once you navigate the nightmare that is their HR." Critics would contend that the firm has done some damage to its culture with its prolonged restructuring but whether there is substance to these claims remains to be seen.
However, despite being one of the few major firms to avoid formal redundancies, there has been some resentment built up internally with some associates criticising excessive cost-cutting and the aforementioned pay freeze proving unpopular (even though it was widely adopted by peers).
Freshfields is very much a corporate firm - even before you take into account the recent slimming-down of finance and various niche areas that have shifted its centre of gravity even further towards M&A. Everything else is arguably viewed as secondary, with the exception of the top-tier competition team, while private equity has made a lot of ground in recent years within corporate.
In cross-border M&A, many neutral observers would say the firm has no equal in Europe. But even before the far-reaching partnership restructuring that has hit the department harder than most, in finance Freshfields trailed the likes of Clifford Chance and Allen & Overy, opting to concentrate on niche areas in structured and asset finance.
However, the opportunistic-looking hire of White & Case banking duo Maurice Allen and Mike Goetz in March 2008 seemed to put something of a reverse on that policy. That was until August 2009, when Allen and Goetz announced their departure after what was conceded a move that simply hadn't worked. It seems clear that corporate remains firmly in control of the firm's direction.
'Wide but uneven' is perhaps the best way to describe Freshfields' international reach. The firm's 2,400-lawyer practice currently covers 27 business centres around the world. Two mergers in Germany have given the firm a very strong local presence, while its French arm is a solid player and a growing Spanish practice has secured some decent work of late.
The legacy of its all-equity partnership means it doesn't have the widest network in emerging markets but the firm has still been effective in some key jurisdictions, such as China and Japan. Much is also riding on the firm's Dubai office, which was opened in 2005.
Bank of England, Compass Group, Kingfisher, Ferrovial, Thomson Reuters, Royal Bank of Scotland and Tesco are key clients. On the banking side the firm is close to Goldman Sachs and also acts for CSFB, Merrill Lynch, Morgan Stanley and Nomura. Cinven and CVC are the backbone of the private equity practice, while Apax often uses the firm as well.
In its City corporate practice, only Slaughter and May could be said to out-do the firm in bench-strength, such is the range of Freshfields' corporate talent. Stand-out names in London include Mark Rawlinson (pictured left), Tim Jones, Will Lawes, Barry O'Brien, Ed Braham (pictured below right), Chris Bown, Julian Long, Graham Nicholson and David Sonter. Braham was in 2009 named as global head of corporate.
In competition, highly respected lawyers like Deidre Trapp, David Aitman and Rachel Brandenburger would also be counted among the firm's best. Freshfields' other traditional area of strength is equity capital markets, where Jones, Simon Witty, Julian Makin and Sarah Murphy are client favourites.
Not great, at least in London, with the firm making up very few partners in the City in recent years. With the current restructuring, chances of partner promotion are especially thin in support areas. Even in corporate, you'd better be hard-working and very good.
Legal Week Intelligence's 2009 Employee Satisfaction Report underlined the slim hopes of partnership with the firm's own associates giving Freshfields low marks for partner prospects. Against this backdrop, the recent initiative to grade and assess associates on the basis of 'milestones' as opposed to the years' of post-qualification experience will be watched closely.
As mentioned above, the firm in early 2009 led the market by breaking the associate ‘lockstep', in effect putting in place a pay freeze for current assistants and introducing a lower pay band for newly-qualified lawyers starting in 2009. This means that pay for newly-qualifieds fell from £66,000 to £59,000. First years now get £66,000, rising to £73,000 in year two and £86,000 for three years' post-qualification. Nevertheless, the firm remains at the top of the market for UK law firms as most rivals followed suite by freezing salaries.
Freshfields also offers a bonus structure which sees all newly-qualified lawyers eligible for a performance related payout of £20,000 a year after six months with the firm. At the two and a half years' PQE, the bonus potential rises to £35,000. Unlike many rivals, Freshfields' bonus scheme is regarded as pretty generous in practice.
"The interview process was a lot of fun compared to some of its rivals, taking the form of mainly just a casual 'chat' with two partners," says one overseas applicant who landed a place with the firm. "My overall impression was the friendliness of the partners in interview. Several other magic circle firms adopted a much more adversarial approach to interview, which put me off. "
It's not all good news, however. In particular, the firm's HR procedures and decision to outsource some elements of its recruitment have gone down like a lead balloon. As one poster says: "While the partners have always been fantastic, HR was truly awful. Getting a reply from my HR contact was like getting blood from a stone and it caused me quite a lot of grief when trying to organise a work permit, accommodation, a bank account [and so on]. The firm needs to make an effort in this area or good candidates will go elsewhere as it is simply too stressful when coming from overseas to be dealing with people who don't seem to have any idea what is going on."
In early 2008 Freshfields gave senior corporate partner Mark Rawlinson a lead role on graduate recruitment with a view to making sure the firm continues to have a decent crack at the best talent.
Even by the standards of top City law firms, Freshfields does have a reputation for being demanding in terms of hours, especially at a time when some comparable firms - notably Linklaters and Allen & Overy - have had some success at introducing more career flexibility. Indeed, one of the firm's nicknames, the Spitfire Pilots, refers to the demands of life at Fleet Street, meaning the team is "always tired and always ready to go".
The firm, for its part, responds that it is working to encourage flexible working, estimating that at least 8% of staff are currently on such arrangements. Still, those cynical about life in City law firms may view the provision of onsite health adviser, doctor, nurse, dental service and gym more as evidence of Freshfields' determination to get work out of its staff than anything else.
"Rumour has it that although there are supposedly no billable hours targets, anything less than 2,000 hours per year is considered by the partners to be an 'underperformance'," suggests one contributor, although he reasonable queries "whether this is really all that different to others".
Pro bono/corporate social responsibility
Viewed as one of the City's more committed pro bono supporters, the firm describes its own diversity efforts: "Freshfields encourages its staff to get involved in volunteering and pro bono legal work by providing extra time off to volunteer. The philosophy is to promote active employee participation, rather than simply fundraising. The programme is based around pro bono, homelessness, education and one-off team challenges. In 2005, for example, 40% of staff in London took part in one or more community or pro bono activities, contributing 26,000 hours of volunteering. Freshfields is building a strong reputation in the area of CSR and it received the award for CSR Firm of the Year at the 2007 Legal Business Awards."
The firm describes its own diversity efforts thus: "[We are] the first City firm to support the Global Graduates Diversity in Law scheme to help people from black and minority ethnic groups to enter the legal profession. Freshfields has an active involvement with programmes designed to attract applicants from non-traditional backgrounds and there has been a significant increase in the proportion of trainee recruits drawn from minority ethnic backgrounds in recent years. Since 2001, 12.5% of the firm's trainees come from minority backgrounds."
The firm's 2008 partnership round saw five new female partners made up - an increase on the previous year's unimpressive total of just two but still representing just a fifth of its total promotions. Freshfields' high-profile firmwide CSR report, the first of which came out in early 2008, made increasing its share of women partners a key target for the future. Watch this space.
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