Author: Legal Week
14 Dec 2009 | 00:13
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Still not in the magic circle, still the best for litigation, still ambiguous about its international strategy. That'll be Herbert Smith, then. Nevertheless, the 238-partner firm is generally regarded as the most successful of the band of firms sometimes loosely referred to as the 'chasing pack', meaning the tier just below the magic circle and including firms such as Ashurst, Norton Rose and Simmons & Simmons.
The driver of the firm's ascent over the last 10 years has been its ability to reinvent itself from being London's pre-eminent commercial litigation outfit into creating a highly-respected corporate finance practice.
Until recently, the firm was by some way the most profitable of its tier and, indeed, outpaced some larger rivals during the deal slump of 2002-2004 as international expansion hit the bottom line of London's four largest law firms. Despite a dip in 2007 when the firm was overtaken in terms of profitability by a re-invigorated Ashurst, Herbert Smith remains a highly potent performer, and in 2008 the firm bounced back spectacularly with a record-breaking financial year, with profits per equity partner smashing the £1m barrier on the back of a 25% surge in turnover. Revenue jumped by a quarter from £334m in 2006-07 to £417.5m, while partner profits also grew by 25% from £820,000 to £1.02m, making Herbert Smith just the seventh firm in the Legal Week Top 50 to break the £1m barrier alongside the magic circle giants and rival City firm Macfarlanes.
The firm also fared pretty well during the 2008-09 financial year, the most challenging trading period to affect major City law firms for a generation, with its litigation practice helping to offset the slowdown in corporate and property work. Despite the challenging market conditions, Herbert Smith looks set to continue to be a strong performer at the upper reaches of Europe's legal market.
The modern history of Herbert Smith, long regarded as the City's top commercial litigation firm, has been defined by one man: highly respected corporate partner Edward Walker-Arnott, who took over the senior partner role in 1992. He had a vision for how the firm could be repositioned as a serious transactional practice and was to preside over a period in which the firm recruited a number of talented and energetic lawyers from rivals in the mid-1990s. This was a period when the City legal market was beginning to go through dramatic changes, in part because partners were starting to move between firms - at the time a dramatic shock for the staid legal sector.
Catching the mood and galvanising the firm, Walker-Arnott was remarkably successful at improving the firm's standing in the City to the point where the firm was viewed as the only serious competitor to the fast-emerging magic circle of five top firms by the end of the 1990s. By this stage, Herbert Smith's corporate practice had more than doubled in size in five years to account for 50% of the firm's revenue. Walker-Arnott was succeeded as senior partner by then head of corporate, the more low-key Richard Bond in 2000. This ushered in a more settled period for the firm, though the next major strategic decision came that year when the firm secured a formal alliance with respected German practice Gleiss Lutz. The move was an alternative to the frantic expansion in Germany of Herbert Smith's larger City rivals, at the time a near-obsession as advisers geared up for the predicted impact of the incoming single European currency.
The alliance was to be expanded in 2001 to include the sizeable Benelux practice Stibbe. The following three years were solid for Herbert Smith which, having not made the kind of international investment of many of its top 10 London rivals, coped better than many with the downturn. However, the revival in cross-border activity since 2005 has reopened questions about the firm's future direction.
One person wrestling with the issue is David Gold, the head of litigation who in late 2004 beat global practice partner Richard Fleck in a keenly-fought but amicable contest to take the senior partner role. Since then the firm has launched a number of initiatives to define its future direction, including in 2006 beginning a review of strategy that concluded the firm should up its investment in the key emerging markets of China, India, the Middle East and Russia.
The firm has also committed to major expansion of its finance practice along multiple product lines. Another recent shift saw the firm in 2004 recruit two prominent commercial QCs to launch an advocacy unit to act as an in-house 'chambers' for the firm's litigation practice.
In April 2008, the firm took the symbolic step of reintroducing the managing partner role it had ditched in the mid-1990s, handing former Asia chief David Willis (pictured right) the post with the aim of accelerating the firm's international development.
While Herbert Smith has - in common with most of its City peers - suffered at the hands of the recession that gripped the global economy from late 2008 onwards, the firm's much-vaunted litigation practice has served it well. As such revenue was up 5% in 2008-09 at a time when many firms were seeing flat or falling income, though profits fell by 18.4% to £845,000. But despite holding off longer than many rivals, Herbert Smith in April 2009 announced that it was to make job cuts.
Those who want to know more about Herbert Smith's origins should check out Tom Phillips's recently-published book, A History of Herbert Smith. Phillips, a former partner, has put together a surprisingly accessible and lively account of the firm's eventful history.
Once defined as braces 'n' pinstripes red-meat litigators, in reality the firm has changed considerably in recent years, partly thanks to the expansion of corporate. Viewed as a more progressive firm than some City rivals, partners are somewhat earnest, though in many cases more down-to-earth than rivals. Culture does, however, vary considerably between departments.
Think Herbert Smith, think litigation. One contributor (admittedly, one of the firm's own partners) describes the top 10 City outfit as the "perfect all-round litigation firm" offering "very complex and enjoyable work". With the fearsome reputation of some its litigators - including Gold in particular - it probably isn't a good idea to argue.
"Substantial corporate and banking departments as well," the partner notes loyally. Certainly, the firm's corporate team is regarded as a serious practice, barring its oddly underweight private equity team. Many would put the firm's M&A prowess domestically on a par with Clifford Chance and Allen & Overy, though it certainly cannot match the former for international reach. However, the firm would still be regarded as just below the very top corporate performers such as Linklaters, Slaughter and May and Freshfields Bruckhaus Deringer. Likewise, the firm's ranking in many deal leagues is effectively distorted as it is receives a combined ranking with its two formal allies.
The firm's property team has been a successful performer in recent years, focusing on the upper end of the market and picking up some eye-catching regeneration work.
Click here to read an analysis of the firm's attempts to build up its finance practice.
The firm has relatively little representation in Western Europe beyond a fair-sized Paris practice. The firm largely relies on its European allies. This lack of coverage has seen Herbert Smith this year launch in Spain after the failure of long-held discussions to sign up national leader Cuatrecasas as a member of its European alliance. The firm now has five partners in Madrid after in 2009 recruiting a well-regarded team from the local office of City rival Linklaters to launch the practice.
The firm's other offices include a respected practice in Moscow and a very successful Hong Kong/China team, which has secured major roles on a string of big-ticket floats in the region.
Of late the firm has concentrated its fire on the Middle East. In a key move, the firm recruited two respected partners from Norton Rose to launch its long-awaited Dubai practice at the beginning of 2007, with the office soon growing to six partners. A launch in Abu Dhabi is next on the agenda (when all the paperwork goes through) and that push continued when the firm nailed down a formal alliance with Saudi Arabian firm GPA in April 2008.
(Get the firm's take on the challenges ahead here: Editors' Blog: David Gold's very fast right of reply.)
Major clients include Associated British Foods, Bank of Ireland, British American Tobacco, BG, BP, Credit Suisse, Hammerson, Marsh, Merrill Lynch, Time Warner, Tata and UBS. Was recently appointed to the Government's Legal Services Catalist Framework Agreement, a centralised 'super panel' for legal services for project finance work.
Key partners divide up very much along the firm's three major practice groups: corporate, litigation and real estate. In corporate, prominent names include James Palmer, Ben Ward and Henry Raine. Heavyweight partners in litigation include senior partner David Gold, Charles Plant, Ted Greeno and department head Sonya Leydecker (pictured).
Arguably the highest profile lawyer in property was Chris de Pury, who quit the firm in early 2007 to join Berwin Leighton Paisner. Other recommended real estate partners include James Barnes, Matthew White and Richard Forsdyke. Finance is a more of a work-in-progress, though the firm has been recruiting in recent years, including in 2006 hiring respected Denton Wilde Sapte leveraged finance head Chris Fanner.
"Promotion prospects are not what they used to be in litigation," comments one poster, although these have likely improved given the changes in the market that have lifted the amount of dispute work around. "The number of assistants to each partner has really shot up in some teams. Some people feel really gloomy about it." Mind you, of the nine new partners made up in 2007, five were litigators.
The firm has made up a lot of partners in recent years but there is a feeling, with a high number of salaried partners, that there is a limit to the extent the firm can push its leverage. That said, aggressive growth plans in finance would suggest good prospects for the ambitious.
Herbert Smith has also brought in a new 'of counsel' role as an alternative to partnership, with 15 associates having been promoted to the new level as of July 2007.
A competitive employer in the London market, the firm essentially pays top City 'rates'. Trainees start on £36,000. Newly-qualifieds earn £64,000, stepping up annually to £69,000, then £81,000, hitting £90,000 at three years' qualification. However, the firm in 2009 announced that it was freezing pay at 2008 levels in response to the recession.
Herbert Smith has a reputation for being generous in terms of paying out on its bonus. Standard holiday allocation is 27 days a year.
In September 2009 Herbert Smith retained 48 out of 65 trainees on qualification, equating to a 74% retention rate.
Not viewed as the most hours-centric of the City's top 10, though this is certainly not a lifestyle firm. Operates an annual billing target of 1,700 hours. Research from Legal Week Intelligence found a considerable level of dissatisfaction from the firm's own assistants regarding work/life balance, even by the standards of a large commercial law firm. The firm is also pretty robust in expecting its billable targets to be met.
Regarded as more progressive than the City average, becoming in 2006 the first major City firm to hire a dedicated diversity manager.
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