Facing the drop

Following the departure of 11 partners from Addleshaw Booth & Co, Andrew Towler discovers that more may be in the firing line as firms assess their structure and performance

One positive aspect of financial uncertainty and slow markets is that it gives the larger law firms the chance to reflect on the runaway success and profits of the past few years.

And despite the age-old structure of partnerships, it is increasingly noticeable - through the advent of limited liability partnerships, for example - that they are becoming more businesslike in their approach and are willing to react to dips in the market in a more cut-throat manner.

This was highlighted earlier this month when national firm Addleshaw Booth & Co axed 11 of its 126 equity and salaried partners citing 'a greater capacity at partner level than fitted in with our antici-pated growth plan' as the cause.

Managing partner Mark Jones says: 'The 11 who are leaving are not just partners but friends, but the restructure must be done for business purposes.

Those leaving realise it is a capacity and not capability issue, but it is certainly not something I envisage or want to go through again in my professional life.'

There is clearly still a bond that exists between partners in law firms, that you probably would not find in the higher echelons of other City professions, but the need for greater profits seems to be putting a strain on that relationship.

'The loss of partners is a particularly topical issue at the moment,' says Giles Rubens, a director at legal consultancy Hildebrandt.

'Over the past couple of years, when business has been non-stop, firms haven't been minded to deal with issues of structure and performance.

Over the past financial year, however, firms have seen financial transactions halve and while income has not necessarily fallen, profit for many has dropped, forcing them to focus more on profit-making issues.'

This view is echoed by Gavin Sharpe, a director of legal recruiters at TMP Worldwide, who says: 'This kind of market breeds uncertainty and when you're not as busy you have a chance to assess various options.' He says he has never been as busy trying to find new positions for partners as he is now.

Mr Rubens says the two main reasons why firms decide to remove partners are for restructuring purposes - 'although we are not always called in times of a crisis, sometimes firms just want to be more competitive' - and partner under-performance.

'A lot of the time the incoming workflow won't warrant the number of partners and the firm must either try and grow the number of junior staff, or reduce the number at the top of the management pyramid,' he says.

'A good example is insurance defence work, which is increasingly being seen as a less skilled area of work that requires less partner input and will thus cost clients less.

Whereas the partner to assistant ratio used to be roughly one to three, it is now frequently in the region of one to 12.'

Mr Sharpe adds: 'Certain law firms will look at the removing of "dead wood" as a good way to increase equity and thus profitability.'

Whereas a mass reduction in partners may be the answer to a firm's profitability problems, Mr Rubens says holding on to a single under-performing partner can be just as damaging.'In my experience, it can be very demoralising for assistants and associates, who know their work is contributing to firm profits, to see a partner not pulling his weight and clogging up their promotion cycle,' he says.

Roger Zair, head of professional practices at accountants and business advisers Grant Thornton, agrees that under-performance is one of the leading reasons for losses at partner level.

'From a financial point of view, partners are the highest-cost individuals in the business,' says Mr Zair.

'Managing partners must ask themselves whether they have the right number, whether they are doing the right thing and whether they need to be re-skilled.'

He continues: 'It should not be an across-the-board head count, but rather a desire to improve results.

If the firm is falling short in certain areas then you must look at what the partners are doing.'

Mr Zair agrees that the atmosphere in law firms is changing as the concept of seeing themselves as commercial businesses gains acceptance.

Mr Jones says Addleshaws had simply grown top-heavy and that partners outweighed client needs.

'We work in three-year business planning cycles and set a budget for each year,' he says.

'After review of the structure of our corporate, property and commercial divisions, we decided to talk to 11 partners about possible departures.'

Mr Jones says conversations were held with 11 identified individuals, rather than asking for volunteers and that while 'for some it is little more than accelerated retirement, others will have to re-establish their careers elsewhere'.

He says that the firm will make it as easy as possible for the departing lawyers to obtain jobs at other practices and in their own time.

'We have named no names and told the partners they are free to leave at any point over the next 12 months,' he says.

'We want to maximise their chances of future employment by letting them move from within.'

Mr Jones says he has no worries that the 11 will pull their weight for the firm in the meantime, but adds: 'If that isn't the case, we would review the situation.'

The departures at Addleshaws are as amicable as can be, according to Mr Jones - who says that, in accordance with the partnership deed, all capital will be paid out within two months of the respective partners leaving.

However, as Mr Zair says: 'Sometimes departures can be contentious.

But if the financial terms are fair and negotiations carried out according to a defined process in the partnership agreement, there can be little complaint - these are not employees being fired, but part owners of the firm leaving.'

Mr Rubens agrees that 'the partnership deed may mean that firms don't necessarily need to give partners a reason for leaving' but says departures may still leave the firm with headaches.

'If somebody wants to leave immediately, their capital may have to be made available,' he says.

'This could easily be around the 250,000 mark and may require extensive bank borrowing on the firm's part.'

A substantial cash sum is not the only consolation for an outgoing partner, however.

'While downsizing firms isn't exactly enjoyable work, it is not necessarily all doom and gloom for the partner,' says Mr Rubens.

'Many partners go on to be top performers in their new firms and for others leaving provides an opportunity to pursue completely new avenues - setting up their own firms, moving to an in-house position or following an entirely new career.'

Mr Sharpe says partners are not just being pushed from firms, but many are jumping of their own accord.

'Partners are using this quiet time to reassess values and options as well,' he says.

'Maybe ten years ago it was ethically frowned upon and highly unusual for partners to leave firms, but now it's far more acceptable.'

He continues: 'Many leave mid-level firms because they feel they have taken the practice as far as possible, while many move the other way because they have found working for a big City firm not all it is cracked up to be.

Whatever the reason, it's okay now for partners to move on.'

By whatever route partners are leaving firms, times are changing and the examples of lawyers remaining in one firm for all their working life are increasingly rare.

Rocky markets do for legal partnerships what rocky marriages do for couples.

Many cope through gritted teeth, but for others the temptation to split is too great; and in the modern legal world, this is no longer a taboo.