LB: What have been the big wins for Herbert Smith Freehills [HSF] over the last two years?
Mark Rigotti (MR): It has been the shift from integration. That’s by definition backwards-looking so it’s good to move on. We’ve been strengthening some of the smaller offices. We’re different from the Magic Circle that have long-established European practices. We’ve grown about 50% in five years in mainland Europe. The German, Madrid and Paris offices are all significantly bigger. There are more European clients and more leadership positions going to Europeans. That’s a big cultural shift.
If you looked back five years ago and used the words ‘Herbert Smith Freehills’ and ‘innovation’ in the same sentence, they were not natural bedfellows. We’re trying to shift the culture. That’s an overused buzzword, but we’re serious. We’ve made progress.
The big conversation at the moment is about premises. We’d never build an office like this [Exchange House] again. But five years ago, people would say: ‘Good idea, Mark, but where’s my office?’
LB: What does that involve?
MR: People not having assigned desks. There will be real-time feedback electronically. No paper. The physical premises will be different, but it’s more than that. It’s an opportunity to do things differently. People seem pretty up for it.
‘As a corporate partner, it’s very difficult to deliver the same economic contribution as a disputes partner.’
LB: How is the firm’s alternative legal services team doing?
MR: In the last two years there’s been a dramatic scaling up. Not just the number of people, but we’ve launched in Johannesburg, Melbourne and Shanghai. It’s gone from toddler to early teenager. Now the challenge is making it mainstream.
LB: How?
MR: It’s not having to sell it to a client. If a client comes to us with an M&A deal, they’ll assume we can do the employment due diligence. It’s normalising it so it’s part of the way we do things.
LB: What do you expect from that division over the next three years?
MR: The biggest threat will be technology – the work going to the next technological step – but I think the division will double in size over the next three years.
LB: Imagine I’m a GC at a FTSE 100 company. How would you convince me that HSF is special and different?
MR: We have strengths in some sectors but not others. If you were a private equity firm, we probably wouldn’t be distinguished. If you were energy or real estate, we would. The alternative legal services offering is different. Clients are starting to be interested in innovation in our business. There is also a lot we can do around improving service delivery. We are getting consistent feedback from clients that they value the experience they have with us. It wins work from rivals.
LB: Would you ever see a case for major law firms to pool their middle and back offices together?
MR: Other industries do it. Banks used to pool their resources to clear cheques. It would be interesting. We’ve never done it as an industry, but I don’t see why ours doesn’t.
LB: Does HSF look at a shop like Quinn Emanuel and think: are we playing up the contentious angle enough?
MR: Contentious makes us stand out, but it’s hard to sell. If you’re a bank, part of your job is to manage the risk associated with disputes. But if you’re a corporate, you don’t want to get too many visits from a litigator.
LB: There’s been a protracted period of time where the contentious side has pulled away from corporate at HSF. Should the firm put more weight on disputes?
MR: It depends how you measure success. Disputes are big and price-insensitive compared to transactional work, which is getting commoditised faster. But if you look at where the work comes in, a lot of relationships come through transactions. As a corporate partner, it’s very difficult to deliver the same economic contribution as a disputes partner. But I can look after relationships with banks and funds, and make sure we get a broad spread of work from them.
Our strategy is more about better defining what is expected from certain parts of the firm with transactional parts focusing on relationships and market coverage to generate work beyond their teams, even if pricing for their immediate work is different to that of large disputes.
‘I don’t think we are heading towards becoming a disputes-led firm.’
LB: What’s wrong with saying: ‘We want to be the world’s top contentious practice with a really good corporate practice?’
MR: I would say we’re full service with a strength in [many areas, including] disputes.
LB: How do you stand out then?
MR: By doing it well. You are right to suggest that legacy Herbert Smith was famous for its disputes brand (as was Freehills) and question why we would not want to differentiate this way. We have looked at this. You can differentiate on a variety of bases and traditionally people do that by product or practice area. The advantage of differentiation around practice areas is that you can be clear about what you stand for and align everything to that. The disadvantage is that you are not considered for large parts of the market where you might otherwise compete.
LB: You’re fighting on a lot of fronts. You’re in Europe, you want to do something in America, you have a constrained balance sheet compared to some rivals… how do you achieve all that while tackling the structural challenges we talked about at the start?
MR: If you’re suggesting we become a disputes-led firm, I don’t think that’s where we are heading. In Europe we’re 50% corporate.
Following the Herbert Smith and Freehills merger, we looked at the market and listened to clients. Clients wanted more depth and breadth, as well as proper relationships – someone thinking about their business and increasingly an innovation mindset. Being great at one area of law was no longer sufficient. Also, they did not think about their issues in practice area terms. We responded to this feedback by launching our Beyond 2020 Strategy two years ago, which focused on a number of areas to build a world-class business. The strategy strands include a focus on high performance, transformation in our service delivery (because clients want lower and more certain prices), a culture of innovation and a full-service global platform. Our focus over the past two years has been to relentlessly invest in these key areas.
LB: What does the firm needs to achieve in the next two to three years?
MR: Lifting profitability. There’s also something about this culture of innovation. There is a point about getting sufficient scale in Europe. A&O did a fantastic job of following banks into a range of different markets. In the next two years we need to build out those relationships, particularly in energy and real estate.
LB: If you look at the regulated banking sector, surely they will be worse clients for law firms over the next 20 years. Is that message getting through to City law firms?
MR: [City law firms] like the banks. They like the kudos. But if you go across to our finance department, 50% of their work is not for banks – it’s for funds and shadow banking outfits. I agree. I’m a believer on that point.
LB: Your American business is disputes-driven. What’s the next step?
MR: About 26% of our clients are already US-based, so being relevant to US clients is part of our strategy. The strategy is simple: sensible expansion around adjacencies. We’re not in the market to pick up an M&A team, but building out more financial services and litigation lawyers.
LB: Can you just build up through lateral hires?
MR: If you build up a team of 20 to 30, can you keep going until you hit 75? I don’t think so. There’s a lot of great law firms over there. You can keep looking after your US clients and build out a sensible set of capabilities, but it will never challenge major US firms. We will need to do something, along the lines of a combination, to take it further.
‘Clients want proper relationships – someone thinking about their business. Being great at one area of law is no longer enough.’
LB: It’s hard to see a US firm that would move the dial for you that would consider a UK merger.
MR: Mergers only work if there is something in it for both sides. We want access to US clients and US lawyers. A lot of US firms are under pressure and it’s about trying to find someone who’s got a vision of the future that is aligned to our vision of the world in ten years’ time. It’s theoretically achievable, but I don’t see a rush to do a merger anytime soon. It is a long-term strategic objective to be a firm of significant capability in the US but not an immediate priority. I am very pleased with the way the office is developing – it’s had its best year yet. It will be interesting to see what the latest expansion will be from US firms in London. I don’t think they’re doing as well as people think.
LB: There are surely three or four US firms growing in a dangerous way for UK rivals while there’s at least half a dozen more with strong niches.
MR: There are some like the White & Cases and Lathams who have got the formula right; there are some who are very contained.
LB: For a US deal, would you want a firm equivalent to HSF or a firm that’s a more discreet size?
MR: We don’t have a preference. It’s if they’re covering what we need. The US is a big place. It’s multiple markets. It’d be nice to be in New York, but you don’t have to be.
LB: The firm’s shaken up its remuneration. Was that easy to get through?
MR: No remuneration change is easy at a law firm. ‘Shaken up’ is probably placing it a bit high – I think of it as an evolution.
LB: But you can pay your London partners a third more now. That’s significant.
MR: When I say ‘shake up’, I think of when firms go from one extreme to the other. We’ve added an extension zone on top of our current lockstep.
LB: It took 18 months to get through. Was that frustrating?
MR: It’s frustrating in that it turns the gaze internally when the real battle is out in the market.
LB: Did the Freshfields partnership reforms [voted through in November 2017] have a big impact?
MR: Surprisingly not.
LB: Is the new package a major step forward?
MR: Definitely. It modernises the system. We already had flexibility in our system, so it was a continuation of that, and now we can draw a line under it for three years.
LB: Do you see there’s room to do anything radical with innovation?
MR: The thing that’s worrying me with innovation is that it’s vendor-driven when it should be client-driven. We’ve got a team developing apps in Australia, but can that compete with people whose sole mandate is to develop technology? I think it will come from a well-resourced vendor rather than a law firm.
LB: How do you get past that?
MR: Maybe it’s a shared service, which becomes part of the law firm infrastructure. That story has to play out.
LB: What do you think your personal style has brought to the firm?
MR: I’ve brought a bit of ‘can do’ rather than ‘convince me’. This whole innovation thing is a bit of my personal style. I’m trying to bring a more business-like way of doing things and that’s something specific to HSF. That’s shifted a long way. It’s been interesting being an Australian, an outsider in this market. I’ve done a pretty good job of getting to know the partners.
‘There’s a piece of paper, which I’m saving for my leaving speech. It says: “What partners say” and “What they mean”. I’m up to page 18.’
LB: You must be patient. British people love whingeing, especially partners. And you spend a lot of time with British partners.
MR: There’s a piece of paper on my desk, which I’m saving for my leaving speech. It says: ‘What they say’ and ‘What they mean’. I’m up to about page 18.
LB: Where do you get your ideas from?
MR: Some key clients. Wesfarmers [the Australian group with diverse interests covering retail, mining and agrichemicals]. I appreciate their thinking. They’ve always been a source of inspiration for me.
There’s a bunch of managing partners I admire. Bill Voge from Latham: he’s ‘eyes on the prize’ and very clear. Gideon [Moore] and Charlie [Jacobs] do a good job at Linklaters. They’ve shifted the way they project to the market. I’ve always been close to Weil – they’re a bit different, but I’ve always liked them.
I also like some of the academics like [Harvard Law School lecturer and author] Heidi Gardner. I’ve got a mentor here, a US guy, a former chief executive of a FTSE company. I find his thinking very interesting. Clients look at problems in different ways.
LB: What do clients want to see from advisers in the coming years?
MR: They want certainty of price. And to augment risk. Risk is a big deal for them at the moment. And regulation. They’re overwhelmed by the amount of regulation. Those three messages come through a lot.