Altered Images – will the real Mayer Brown stand up?

Once one of the most lauded transatlantic players, Mayer Brown has struggled to find its form over the last five years either globally or in the City. Legal Business asks if the firm knows what it wants to be in the Square Mile.

A little over four years ago Mayer Brown went through the latest in a series of reboots aimed at repositioning the firm. Back in 2009 that desire to begin a new chapter was understandable. Mayer Brown had recently weathered a turbulent period dominated by a partner restructuring, problems in its Chicago and New York arms and, of course, the fallout generated by the global banking crisis. The message the firm sought to articulate was that it was determined to reposition itself as a more performance-driven outfit, geared more strongly towards a globalising but increasingly competitive market.

The spring of 2009 saw the firm abandon its unloved troika-style management structure resulting in a new management committee and partnership board and the departure of one very important figure: London head Paul Maher. But what was to follow?

To take a medium-term look at the Chicago-bred firm’s London business is impossible without stumbling upon Maher, the corporate partner that three individuals interviewed for this piece refer to as ‘Marmite’ – a figure who inspires admiration and aversion in equal measure. Preceding his departure, Maher had been seen by many as the next leader of the firm, a figure who could act as the galvanising force the firm badly needed to evolve from regional US leader into serious international player.

Maher had been instrumental in brokering the 2002 merger between Mayer, Brown & Platt and mid-tier City practice Rowe & Maw, a pioneering transatlantic union regarded at the time as positioning the new practice strongly in Europe when even leading US rivals were struggling to gain traction in London. And the notoriously driven Maher was more than a manager; he maintained an impressive M&A practice advising clients like ICI, EMI and Pearson.

The news in 2009 that the firm had appointed US partner Herbert Krueger as sole chairman, followed by the departure of Maher within weeks, upset that expected succession. But if the departure of its charismatic UK figurehead raised obvious questions regarding the direction of Mayer Brown’s City arm, given the scale of the firm – both globally and in London – such issues appeared manageable. Rowe & Maw had been a sizeable and well-known brand in the UK.

At the time, Sean Connolly, an insurance litigation specialist, had been senior partner of the London office for two years. He had stepped into the role in 2007 and inherited a robust-looking London practice. In 2008, Mayer Brown’s London fee income was up 9% from the previous year’s £102m to £111.6m. The firm counted 355 lawyers, including 109 partners, in the City and had just signed a lease for flagship new office space in a Bishopsgate development.

But however solid the platform looked, even with the loss of its most high-profile UK lawyer, Mayer Brown has since often failed to live up to its billing, either in the City or firm-wide.

Thanks to a global recession, some of the firm’s major areas of business in London (real estate, structured finance and corporate) slid into the abyss. Furthermore, Mayer Brown has fallen back against peers. In 2012 UK fee income was £93m after falling 5% from £98m in 2011. Headcount was also down to 279 lawyers, including 87 partners. In 2012 the firm was one of a few international practices in London to make redundancies after confirming two rounds of job cuts.

Partners themselves, who were once relatively candid and outgoing with the press, have struck a more subdued note of late (indeed, gaining internal comment for this article proved challenging, with the firm initially making obviously defensive efforts to control discussions with the media). Far less evident these days are the confidence and ambition the firm once displayed.

Speaking privately, some partners in London are concerned about its progress, citing relatively subdued profitability, a steady stream of departing partners (ten partners left in 2012) and what some claim is a related decline in morale.

Calls for more visibility, vision and clarity from management are common at a firm that external critics – and some internal voices – argue still struggles to define itself. Unease about its direction in the City has only been magnified by news that Mayer Brown held merger talks with at least two large UK law firms over the last three years.

What is clear is that Connolly, who was re-elected by the firm’s equity partners in June 2012 to serve another five-year term as UK senior partner, faces a real challenge if he is to ensure that Mayer Brown’s City arm remains a competitive operator against a growing band of successful international rivals.

Bad habits die slowly

Inevitably, the fortunes of Mayer Brown’s City arm have been shaped to a considerable extent by the global performance of the firm and in this regard it has been a difficult period. The Chicago-based firm now falls behind competitors, including Kirkland & Ellis, Winston & Strawn, Sidley Austin and McDermott Will & Emery.

In 2011, firm-wide net income at Mayer Brown was $324m, while global revenue stood at $1.134bn. The firm’s profit per lawyer (PPL) lagged behind its competitors at $202,000. Kirkland was the best performer of the group at $634,000, while McDermott ($271,000), Winston & Strawn ($262,000) and Sidley ($299,000) each had higher PPL.

In 2012 Mayer Brown’s global business saw its figures fall. Net income went down 6% to $304m, while fee income fell 4% to $1.09bn, a six-year low and down $200m on 2008. Profits per equity partner edged down to $1.15m from $1.18m in 2011. The firm attributed the fall to difficult market conditions, though it said that its performance improved through the second half of 2012. Its sizeable litigation practice was also noted for another strong year.

Overall, the numbers show Mayer Brown has performed relatively poorly over the last five years, not only against historic Chicago rivals but against other large full-service US practices. Certainly, for a firm that would historically have been viewed as one of the elite players in Chicago, it has been chastening to see Kirkland hugely outpace it over the last decade in both the US and abroad. By the same token, the firm’s profitability is low by the standards of a top 50 global practice.

This difficult performance comes despite an active lateral hiring programme, which the firm has maintained in the US and UK. This policy remains a sore point with many, who argue that Mayer Brown has had a generally poor track record with partner hiring, too often bringing in expensive lawyers that fail to produce or bed down.

‘There was a real shift towards getting high-cost lateral partners in parts of the business where we weren’t well established,’ recalls one former partner.

The lateral hiring push was most evident in the City in 2009 when Mayer Brown made an audacious attempt to expand its finance (particularly leveraged finance) and corporate practices. Obviously, such areas were in distress as a result of the global financial crisis but Mayer Brown argued it could make a counter-cyclical play as other firms scaled back, positioning itself in key transactional disciplines for the long term.

The firm made some ground in acquisition finance in October 2009 hiring former Allen & Overy (A&O) partner Jacqueline Evans and Lee Cullinane from Clifford Chance (CC). The move in leveraged finance – which was internally dubbed Project Archimedes – turned heads as both Evans and Cullinane came from highly-rated deal finance teams, boasted credible CVs and established relationships with key players like J.P. Morgan.

Mayer Brown didn’t stop there. Within a 12-month period, the firm also took on asset finance partner Graham Wedlake from Taylor Wessing, and private equity specialist Nicola Marley from Linklaters. The deal finance team was further bolstered with partner hires Neil Caddy and Chris Arnold from A&O and CC partner John Clark.

While there was considerable support for the idea of an against-trend corporate finance push, there was some unease at the level of expansion and the results of this effort were generally poor. There are conflicting accounts of why the finance push didn’t live up to expectations. Partners like Cullinane and Evans were brought into the equity on one-year guarantees with a view to targeting high-end work from banks.

But it soon became apparent that moving over big-ticket bank work would be difficult (see ‘Mayer Brown targets finance growth after shock exits’, LB211, page 20). With a slumping leveraged finance market in late 2009 and early 2010, the firm was overlooked on the three major instructions Cullinane and Evans pitched for. The pair left a year after they joined, moving to White & Case. And now, more than half of those finance partners recruited in 2009/10 have left the firm.

There was also some bad luck. With White & Case intent on quickly bulking up its practice after losing a large banking team to Latham & Watkins, Evans and Cullinane were offered a highly competitive package to move, cutting off the leverage finance push before it could realistically build any momentum.

As such, one Mayer Brown partner strongly refutes the claim that the firm’s brand carried no weight with banks, commenting: ‘I have a lot of time for Lee but I don’t think Lee and Jackie were here long enough to make that claim [that Mayer Brown wasn’t considered a credible contender for deal finance work]. It’s half-baked.’

Certainly, given the firm’s scale, global reach and reputation in structured finance, on paper Mayer Brown looked a perfectly reasonable contender to break into the acquisition finance market.

Ian Coles, head of Mayer Brown’s finance practice in Europe, admits that the move into leveraged finance didn’t work. ‘People have come and gone. Investing in the lateral market for very large leveraged finance deals is not on our radar screen.’ However, Coles says the trajectory for the finance group is currently good and that structured finance, derivatives, restructuring and project finance are all performing well.

Another sore spot in London is the firm’s corporate practice, which appeared to have considerable promise back at the time of the Rowe & Maw tie-up. In this regard there is no doubt that the departure of Maher to launch a City arm for Greenberg Traurig in 2009 damaged Mayer Brown. Maher controlled a sizeable group of clients and he was to quickly recruit a handful of corporate partners from Mayer Brown’s London office, including Henrietta Walker, Fiona Adams and Cate Sharp.

On a more positive note, Mayer Brown had hired McDermott corporate veteran William Charnley in 2007 – a high biller who had built up a well-regarded client base tilting heavily toward hedge funds. However, Charnley was to quit in 2012 for King & Spalding, depriving the firm of probably its biggest remaining name in corporate.

To add to its woes, the issue of the firm’s London office space is put forward as one of the contributing factors to its profitability problems. In 2008 the firm moved into 170,000 sq ft of space at 201 Bishopsgate, a brand new high-rise, which sits on the cusp of the City. It was, according to a number of people interviewed for this piece, too much space for the firm.

Two years ago Maurice Turnor Gardner took space on the 5th floor from Mayer Brown, while Locke Lord moved onto the second floor last year. Jeremy Clay, global head of real estate, comments: ‘Do I think it is part of our job to reduce cost base? Of course. We’ll take it back when we need it but for now, yes, we have done this to save money – it’s important we make the most efficient use possible of our premises in London and elsewhere.’ He says there is roughly 10,000 sq ft more space that he would like to sub-let.

According to its UK LLP accounts, the firm made £21.8m in leasehold payments on 1 May 2011, which reduced by £2.9m during the year.

Hearts and minds

In 2011 Mayer Brown London management conducted a survey of its staff, including support staff, associates and partners, asking for feedback. According to a number of sources, the results were generally critical of the firm’s leadership and direction, a finding that led to a series of hurried internal meetings.

‘Results [of the survey] led to an overwhelming number of people saying that feelings were that leadership was not strong and an internal communications initiative was launched,’ comments a former lawyer with the firm.

Connolly and Clay held meetings with the partners after the survey was completed, telling them that they had to have faith in the business.

The complaint of a lack of leadership is not new to Mayer Brown. The firm hoped to address this problem when it scrapped its three-man chairman role in April 2009. The former structure included a large policy and planning committee, which was considered unwieldy.

At the time Krueger was elected as sole chairman of the firm, Mayer Brown created two new managing bodies designed to streamline its governance: the management committee and the partnership board. The seven-strong management committee is the smaller of the two bodies and is intended to act quickly on operational matters. It consists of partners from across the firm’s US, European and Asian offices. Clay is the only UK partner to sit on the committee.

Connolly and Coles sit on the partnership board, which advises the management committee on strategy, assists with partner compensation and nominates partners to the management committee. Coles says the board formally meets once a month by telephone and quarterly in person.

But while such improvements in governance have been welcomed, Mayer Brown remains subject to many familiar complaints. The firm lacks cohesion across its offices argue many former partners, who maintain that London is run too much in the style of a satellite office.

A few former partners who were lateral hires themselves say that when they arrived there was no business plan in place or strategy for growth. ‘Most firms have strong business plans – we all have to buy into them. But when I arrived there was no plan or strategy for my group and so there was a real lack of understanding of what people were doing,’ comments a former partner.

‘It was a tough decision to leave the firm but the alternative was to stay and not have a book of business,’ recalls another on why they chose to leave.

Coles defends Connolly and Clay and says: ‘We have moved in the right direction. We have a much tighter board and our global strategy has been a success. We now need to make sure that we are sweating that footprint.’

Connolly is respected by the firm’s partners, despite his understated approach, with UK colleagues believing he has made progress considering the backdrop of a tough economy and a relative lack of vision and support from the US. Connolly was appointed to serve another five years as London’s leader in a contested election, which saw London banking head Dominic Griffiths also stand in June last year.

‘I really like Sean,’ says one London partner. ‘He gives London great direction. He needs a second term to really bed down his strategy.’ ‘Sean is a good guy and the partners wanted him for the role,’ agrees one former partner.

Another says: ‘People like Sean but he’s not visible enough. There isn’t strong enough leadership. Jeremy and Sean get along well. Sean is more measured while Jeremy is more vocal.’

‘I don’t recognise suggestions that London is a satellite office,’ responds Connolly. ‘We have a management committee and partnership board and London is represented on both. More importantly, the firm conducts its business led by global practice groups, client teams and industry sectors and London partners are members of leadership teams in all these groupings.’

Whether due to shortcomings in the UK or the legacy of a US parent lacking global ambition, the wider issue that is raised regarding management is that which many believe is the real factor that has held back Mayer Brown in the UK and Europe: a basic failure to articulate where the firm is positioned and where it aims to be in the years ahead.

In retrospect it is apparent that Maher’s drive, influence and clout within the firm had compensated to some extent for a haziness regarding what Mayer Brown wants to be. In his absence, the firm has struggled to articulate such a message, either externally, or to its own partners.

In this context, news in 2010 that it had held merger discussions with Simmons & Simmons was unsettling. While the deal in some regards looked attractive – creating as it would a £1bn law firm – it would have caused considerable overlap in London and it was hard to see how the union fitted in with what Mayer Brown was trying to achieve. (Mayer Brown called the talks off, despite considerable support from Simmons’ management.)

Similar reservations were at play in 2012 when Mayer Brown’s US management held informal discussions with SJ Berwin, another broad service UK practice. But the talks were just preliminary and never went further than a few meetings.

Quite aside from where such deals fitted into Mayer Brown’s strategy, there would have been considerable doubts about the firm’s ability to successfully integrate with large UK practices that have faced strategic challenges of their own.

Connolly concedes that the firm has not always put across its message about its direction effectively but maintains that it has made more progress than it is given credit for. ‘In summer 2007 I told partners that it was my primary goal to improve the integration of our firm in London with our global law firm.’ He adds: ‘Reputation can lag reality in a lot of cases. I’m not surprised that people have been asking questions. At the time of the merger more than ten years ago we were a mid-tier UK firm merging with a large US practice. London has had to change its capabilities but we are now fully integrated into one global practice. We are one of the largest offices in the firm representing some 15% or so of its global revenue.’

Positively, it is also argued with some conviction that much of the negativity surrounding the office stems from a group of disaffected partners that have now left the firm.

Clay comments: ‘We have had something of a Greek chorus attached to us, though I don’t know why. If I walked across the Thames there would be someone saying there was something wrong with it.’

Finance partner John Clark picks up the theme with gusto: ‘It’s hard to pin down. There had been something of a self-fulfilling negativity but [the disaffected partners] have now gone and the atmosphere feels very different. We have a group of partners who see the firm as a good platform, a good place to be. The finance team has gotten off to a cracking start to the year. There is certainly no morale issue around here.’

The good with the bad

If Mayer Brown has failed to hit its stride in recent years, it still remains a credible upper mid-market player with a broad practice and an enviable list of clients, including British Land, Unilever, ACE European Group, Canary Wharf, QBE and Wells Fargo. And in certain areas it has also moved upmarket in terms of the quality of work it handles after several years following the Rowe & Maw union when it ran too much like a domestic practice.

Notably, the firm’s London finance team, despite reverses in deal finance, has started to make its mark with UK and overseas banks in areas like capital markets and derivatives. Last year Mayer Brown won a first time spot on HSBC’s global legal panel. In 2010, it also landed first time appointments on both the Lloyds TSB and Nomura panels. The firm also sits on Deutsche Bank’s global panel and the Barclays Capital panel. Mayer Brown has also established a strong relationship with The Royal Bank of Scotland (RBS) and Bank of America Merrill Lynch.

At the tail end of last year, the firm acted for the Kingdom of Morocco on its $1.5bn notes offering. The deal was led by corporate partner and new recruit Bernd Bohr and included London banking and finance partner Stephen Walsh and New York tax partner Jason Bazar. The firm also acted for Tunisia with the same team on a $500m sovereign bond earlier in 2012. Bohr joined Mayer Brown from A&O at the start of last year as a partner.

At the end of 2012, London and New York banking partner Bruce Bloomingdale acted for private equity house GTCR on its £900m acquisition of Premium Credit, a UK insurance provider.

And the London restructuring practice has also seen its share of work coming from the recession. London partner Ashley Katz recently acted for Deloitte on the administration of retailer Comet, which collapsed in November. ‘We landed deals like this because we’ve developed a reputation for being a safe pair of hands. It’s fair to say that our practice has had an outstanding year,’ says Katz.

The firm can also point to a consistently strong showing in litigation, securing the hire of high-profile White & Case white-collar litigator Alistair Graham at the start of 2013. Graham, who hit the headlines for representing former Morgan Crucible chief executive Ian Norris against the US government’s attempts to extradite him, sits on the firm’s litigation board.

The firm is also viewed as making progress in banking litigation, one of the hottest practice areas in the City currently. At present it is acting for UBS in its dispute with the Leipzig Water Board, LBBW and Depfa. Other notable work has seen Mayer Brown acting for accountants KPMG as joint liquidators of Lehman Brothers Commercial Corporation Asia/Lehman Brothers Asia Holdings in the RASCALS litigation.

Moreover, the latest edition of The Legal 500 gives substantial recognition to Mayer Brown’s UK practice in a number of areas, including insurance, structured products, pensions, securities and restructuring.

‘What does this prove?’

Given that it remains a large, geographically diverse law firm with a strong client base and plenty of good lawyers, the mystery of Mayer Brown is why it has often failed to live up to its own promise in recent years.

In his next five years as senior partner Connolly will need to address the problems that the London office currently faces and merging with another UK firm seems unlikely to be the answer given that Mayer Brown is hardly in huge need of scale in the City. It surely needs to get its own house in order before it starts taking on a lot more tenants.

And, while Mayer Brown’s willingness to invest in lateral hires is laudable in itself, there have to be doubts about how much of a solution it will find in the partner recruitment market. The firm’s record on selecting and integrating its hires has been mixed at best and Mayer Brown’s City arm is unlikely to really excel while seeing such a revolving door at partner level (the firm recruited five partners last year).

A further reason for doubts over heavy partner recruitment is the breadth of its practice. Many US firms have had success through UK recruitment into areas of clear focus. Mayer Brown in contrast has largely avoided building such ‘calling card’ teams that carry its brand and consequently probably struggles to consistently bring in the right performers, a reality further underlined by its mid-pack profitability.

Such an outlook suggests the firm should fall back on the boring basics of focusing on quality, profitability and cohesion in the short-term, while refining a clearer and more ambitious vision of what it wants its global practice to look like over the next five to ten years. If the latter will ultimately be defined by the engagement of its US management, with the former at least Connolly and co have scope to deliver.

Coles, for one, maintains that the firm is the right size now, despite a few holes here and there. ‘Morale is good and the current six month pipeline also looks good. What does this prove? That we have good lawyers doing decent work.’ A fair point, certainly. But, ultimately, Mayer Brown sees itself as doing rather better than that. LB