Stephen Rosser became Clarke Willmott’s chief executive two years ago as the firm really started to suffer a post-boom hangover. Since then, the bottom line has gone from bad to worse. It’s time for more radical thinking
Stephen Rosser, Clarke Willmott’s chief executive, ran the London Marathon in 3 hours 59 minutes this year. While there probably aren’t many in law firm management who could run 26.2 miles, let alone in less than four hours, it is perhaps the least of his challenges. Completing a long distance race takes dedication, stamina and the ability to withstand a certain amount of pain – abilities that Rosser will need in abundance if he is to make Clarke Willmott competitive again.
The most recent LB100 figures make grim reading for a Clarke Willmott partner. The firm dropped seven places in the rankings to 76 after turnover fell for the fourth consecutive year this time by 8% to £33.5m. In profitability terms, the performance is even worse: ranked 98th out of 100, the firm’s meagre 15% profit margin equates to a profit per lawyer (PPL) of £25,000 and a PEP of £163,000. The firm’s five-year performance is particularly poor: its revenue compound annual growth rate (CAGR) is -6%, the second worst in the entire LB100, while its net income CAGR is -5%. Turnover is down 37% on 2008’s high of £53.3m.
But Rosser is, on the surface at least, surprisingly upbeat. He unveiled a new three-year strategy in the summer that will see the firm focus on improving client service while at the same time driving profitability and instilling financial rigor. Despite the most recent round of results, Rosser talks a good game.
‘It’s been a tough period,’ he says. ‘It’s been two years since I took over as chief executive and realised that we needed to face up to some fairly tough decisions to recognise a very changed economic outlook and change for the sector as a whole. But now we’re looking to grow and move forward.’
Strategy or not, Rosser could have a fight on his hands just ensuring the firm keeps pace with the top 100. He’s been at Clarke Willmott all his career and knows the firm better than anyone. Nevertheless it is difficult to pinpoint a USP for the firm – it has a diverse mix of services across a number of locations which, to an outsider, look like a jumble of practice areas so common among the morass of firms that occupy the mid-market. The way things currently stand, its new client development strategy will have to be quite special to turn those perceptions around.
Losing direction
Benchmarking Clarke Willmott is difficult, and that may be the nub of the issue. With origins in the South West in private client, property and personal injury, the firm expanded over the past ten years into Southampton, Birmingham and Manchester. Rosser says the firm cannot be compared to any single competitor. For example, he compares the firm to Trowers & Hamlins and Devonshires when it comes to its national social housing practice. But in Bristol it has never successfully competed with Burges Salmon and Osborne Clarke and has been surpassed by TLT in revenue terms.
In some ways Mills & Reeve has followed a similar path to Clarke Willmott, expanding out of its home market in East Anglia to become a Major UK firm with strong offices in key regional markets such as Birmingham, Manchester and Leeds. However, Mills & Reeve has been considerably more successful than Clarke Willmott. Mills & Reeve’s reputation in areas such as insurance, public sector and private client has helped underpin profitable growth and unlike Clarke Willmott it has been successful in squeezing onto corporate deals. Its profit margin is almost double that of Clarke Willmott and its five-year revenue CAGR is a much healthier 4%.
Clarke Willmott appears in our South peer group, one of the worst-performing groups in the LB100 (see ‘Down south’, LB227, page 94). But even in its own backyard, the firm is being outgunned by a number of other firms in terms of financial performance. In fact, Clarke Willmott has the worst five-year revenue CAGR of any firm in the group. While it has a stronger PPL than Bond Pearce (Bond Pearce’s PPL is just £22,000 to Clarke Willmott’s £25,000), it lags behind Blake Lapthorn (£28,000) and Bevan Brittan (£33,000), neither of which have had a fantastic run themselves in recent years. It is also someway behind the strongest firm in the South, Thomas Eggar, which has a PPL of £37,000.
Ultimately this begs the question as to why clients should go to Clarke Willmott instead of any other national firm. Rosser says that working on delivering excellent client service is a key plank of his three-year strategy but Clarke Willmott now is a far cry from the front runner it was before the financial crisis.
Setting the pace
In the frothy market that immediately preceded Lehman Brothers’ collapse in 2008, Clarke Willmott was an early pacesetter. In many ways it is a poster child for all the ambitious mid-market firms that have peaked and crashed since: in 2005 it was shortlisted for National/Regional Firm of the Year at the Legal Business Awards and was riding the crest of a wave.
‘If we hadn’t grown significantly during those boom years, we would have taken a fair amount of flack for being too cautious.’
Under the leadership of managing partner David Sedgwick (now chief executive of immigration specialists Magrath), the firm had completed an audacious move into the highly competitive Birmingham market and broken into the top 60 of the LB100. During his 11-year tenure of the firm, Sedgwick presided over turnover growth from £12m to £50m, while profit quadrupled as the firm expanded its business from the South West into a truly national firm, opening in Southampton as well as Birmingham. The rise was described by Simon Chadwick, co-founder of recruiters Chadwick Nott in 2006 as ‘the biggest transformation of any firm in the UK, other than DLA’.
By 2008 – the zenith for Clarke Willmott, as it was for many – the firm was again shortlisted in the Legal Business Awards after moving its headquarters from Bristol to Birmingham and posting impressive financials, despite all the investment. Turnover climbed by 18% to £53.3m notwithstanding the spending on the new head office – and its eye-catching 62% leap in PEP to £315,000 was no mean feat either. It appeared that Sedgwick had the Midas touch.
With the benefit of hindsight, however, it’s clear that the new and improved Clarke Willmott had shaky foundations (again, a problem shared by many an aggressive expander). Much of the growth and success in Birmingham centred on its strength in property, particularly for housebuilder clients such as Westbury and Bellway. Even in 2006 the cracks were starting to show. After the firm had made 17 lateral hires in as many months, competitors suggested that it hired first and asked questions later, something that Sedgwick strongly denied. But the focus on property would come back to haunt Clarke Willmott when the market collapsed and the mandates dried up, leading to four years of declining revenues, spiralling debt and redundancy programmes. Of the 17 lateral hires made in 2005/06, eight are no longer with the firm.
‘I suppose we could be criticised for being over-ambitious but we weren’t the only ones’
In 2006, LB noted that ‘success or failure for Clarke Willmott in the long-run hinges massively on the success of its fledgling Birmingham offering in what is one of the UK’s toughest legal markets’. It seems that the project has been a failure so far. The office has been outmuscled by bigger and better rivals in the UK’s second city and the focus on real estate didn’t help either. Kathy Toon, the former head of the Birmingham office, left in December 2010 to join more established Midlands firm Martineau, meaning five partners had left the firm’s HQ in a year.
While not directly critical of Clarke Willmott, Toon told LB at the time that her move was ‘something I had wanted for a while’ and that Martineau ‘knows which way it wants to go in the future’. The fact that Clarke Willmott’s Birmingham office is still registered as the firm’s head office on The Law Society’s website but only houses 11 ‘regulated principles’, compared to 35 in its Bristol office, shows how ambitions have been tempered.
But Rosser is keen not to blame the previous regime for the post-Lehman hangover. ‘I suppose we could be criticised for being over-ambitious but we weren’t the only ones doing that and it would have been odd to ignore client requests for expansion,’ he says. ‘We have a strong collegiate partnership and we felt that we were all in it together.’
Sedgwick himself has kept his counsel on the problems that Clarke Willmott has faced during the recession. Responding to a request for an interview about the firm last year he said: ‘I have been out of the management of Clarke Willmott for some time now and could not talk sensibly about what is going on there at the moment. In any event, my focus (probably like that of the current Clarke Willmott management team) is on the present and the future rather than the past. I am afraid that I would not feel comfortable talking about my old firm and its response to the problems which very many firms have faced over the last couple of years.’
‘The market pre-2007 was unusual,’ says Rosser. ‘If we hadn’t grown significantly during those boom years, we would have taken a fair amount of flack for being too cautious. If there’s any hair shirt criticism that we could take it is that we were being too kind on ourselves when the markets turned completely in addressing some tough decisions that we had to make. This is essentially what I had to do when I took over in June 2010.’
‘Perhaps we waited and saw for too long, which created pressure on costs and the need to respond fairly quickly.’
‘I think like a number of others we took a very cautious wait-and-see approach,’ he adds. ‘Perhaps we waited and saw for too long, which created pressure on costs and the need to respond fairly quickly – and fairly radically as well – to ensure we reduced that cost base and addressed areas that weren’t performing.’
Rosser was appointed chair of the firm in 2009, before being appointed uncontested as chief executive in the summer of 2010. His first and most important task was to get to grips with a cost base that was clearly out of line with revenues – the root cause of the pain still being felt by the firm today.
He set about improving the balance sheet and, despite consistently poor top-line figures in recent years, that has been a success. Revenues may be down and profit levels poor but Rosser and the management team have tackled the firm’s debt problems, partly by holding back profit to reduce loans. The highest paid member of the LLP was paid just £163,000 according to the firm’s 2010/11 LLP accounts. According to the firm, top and bottom of the equity in 2011/12 was £163,000.
‘I have a long-held view that a full distribution model is not necessarily the right one,’ says Rosser. ‘I know firms have done it, and we have done it in the past, but actually it comes back to what we as a team are doing now – prudent financial management. We are looking at it on a continuous basis but when the market is uncertain it is foolish to continue on a full distribution model.’
Rosser also renegotiated the firm’s debt in 2011, changing banking provider from The Royal Bank of Scotland (RBS) to HSBC and switching an overdraft facility into two secured loans: a £2m loan payable over four years and a £1.8m loan over two years; better terms over a longer period. Rosser adds that the firm paid off the second loan a
year early.
The firm reviews banking arrangements every couple of years. ‘This review came just after Halliwells,’ Rosser says. ‘There was a little flirting on both sides with HSBC and they were able to offer us much better rates.’
‘We think our current debt position is very much in line with the industry norm,’ adds Rosser. ‘Our longer-term goal is to reduce it to a realistic level: we recognise that debt isn’t necessarily a bad thing but you want it at a manageable level. Yes, it was probably too high a couple of years ago but now we think it’s very much in line with where we want it to be.’
The firm’s management also decided to sell-off its asset management business to Brooks Macdonald Asset Management in a deal worth up to £6m over a year ago, having realised significant investment was needed for it to keep up with its competitors so disposal was the best option.
As for Birmingham, Rosser feels it is easy to criticise the firm’s bold plans in the Midlands with the benefit of hindsight, while conceding that perhaps he would have been a little more cautious. ‘The important thing looking forward is that Birmingham remains an important part of our business,’ he says. ‘We have a good client base there; some good people; and we are growing it again in a cautious way and using our strengths.’ The firm has recruited two new lawyers to its Birmingham office in the last year, most recently partner Stuart Farr, the former head of Laytons’ Manchester disputes practice, in July.
Nuts and bolts
Rosser feels he has got the firm into a much better position than it was a couple of years ago, not only by reducing the debt but by bringing in systems that help the day-to-day running of the business. These include a formal pipeline process, where each team forecasts its revenue streams three months ahead, with the management team constantly monitoring that against both budgets and reality.
‘We’re not fully there yet because there’s always work to be done,’ he says. ‘I have introduced better procedures and processes and greater levels of financial hygiene. We focus very much on realistic valuations of work in progress; we’ve been pretty hard on ourselves in ensuring that we don’t value WIP unless we’re absolutely sure that it’s going to be converted. We look at our realisation rates in different parts of the business to ensure again that we’re evaluating it in the right way, and we look at our lock-up, our debtor days, and focus very much on ensuring those day-to-day nitty-gritty things are done.’
Rosser’s new strategy, launched in the summer, is hardly rocket science, but it does develop the theme of simply getting the basics right. The strategy is based on three core planks: improving client service in a profitable way; improving professional development; and ensuring commercial success through a rigorous control of the firm’s finances. Rosser spent the early part of the year presenting strategy roadshows to the rest of the firm, unveiling his new plans.
‘It’s all about the small things, making tiny incremental changes that add up to a whole,’ he says.
One particular innovation is the Clarke Willmott Management School, which is due for launch on 15th November. Rosser believes the firm will be the first to badge its training programme specifically as a ‘management school’. He says Clarke Willmott will be using a similar model to the IE Law School in Madrid, where there’s a specific focus on additional skills.
‘Being a good lawyer is a given and there needs to be the ability to understand the commercial needs of our clients, what’s actually driving them in terms of the instructions that they are giving us,’ he says.
Other than that, much of what the firm has planned is simply sound business sense. Making sure it reviews budgets and pipelines regularly to avoid surprises. Recognising
that it’s all very well being able to provide services effectively but if they’re not cost-effective then it doesn’t make for an effective business model.
‘As I’ve been saying in our strategy roadshows around the firm, no one’s going to have a magic wand; there’s no golden bullet that’s going to be the answer to everyone’s prayers in terms of changing the profession,’ he says. ‘It’s all about doing the basic things right, which gets us to where we want to be. Otherwise I’d be taking that golden bullet or magic wand around with me.’
A common sense approach is fine, but Clarke Willmott needs something more radical. Rosser is approachable and ambitious but he really needs to take the firm up a gear: his current term ends in 2015 and by then partners will want to see some healthy financial growth.
When asked where he would like the firm to be by the end of his tenure, Rosser says: ‘I would like it to have grown. I would like it to have achieved its aim of growing turnover and profitability by £3m-£5m. I would like it to be recognised as providing that quality service across its key areas in a way that is appreciated by its clients: really good quality service but in a value way.’
Rosser has yet to break the pain barrier in his bid to get Clarke Willmott back on track. There are still many hard miles to go.