Dynamic Duo

Clyde & Co’s Michael Payton has held the top job at the firm for 27 years and since 1997 has formed a formidable partnership with CEO Peter Hasson.

On the eve of the firm’s much-hyped union with Barlow Lyde & Gilbert, LB takes a closer look at this successful management duo.

Michael Payton has presence: there is no other word for it. As one of the longest-serving senior partners in the City, when he enters the room he instantly seems to take charge.

He is also a little old school. The 67-year old doesn’t use a BlackBerry and doesn’t send e-mails, relying on his two secretaries to deal with all his correspondence. ‘I have a computer, but whether I use it is another matter,’ he says. ‘I probably send about 100 e-mails every day: there is just no way I can deal with all of that.’

Under his 27-year leadership, Clyde & Co has transformed from a niche marine firm to a major player in the global insurance market. After nearly three decades in the job and recently pulling off the largest merger in UK legal history, you could forgive him for being a bit jaded. But he shows no sign of slowing down. He still fizzes with energy.

‘It’s fascinating helping to run a business of any kind,’ he says. ‘Working out what the next stages might be is endlessly interesting. It beats doing crosswords.’

This month, Clyde & Co’s union with Barlow Lyde & Gilbert (BLG) will go live. It has been billed as a game changer for the insurance law market, creating the largest specialist insurance law firm in the world. Just a year ago, such a deal hardly seemed possible. Once arch rivals, the firms traded partners back and forth for years, each trying to nudge the other out of the competitive insurance patch. In the two years before the deal was announced, Clydes separately approached or interviewed – effectively tried to poach – over a quarter of BLG’s 97-strong partnership, some 25 partners in all.

All of this has meant a summer of intense negotiations and an unusual amount of media interest in the normally quiet firm. But Payton takes it all with good humour, brushing aside criticisms of the deal with a confidence that only one who has been in the business for decades has. He is particularly unfazed by media attention around the deal. At one point during the interview, he does an impression of a journalist that rang him up in October asking if the BLG merger was being called off. Payton asked where that rumour had come from. ‘I cannot reveal my sources, Mr Payton,’ he mimics in a nasal voice while roaring with laughter. He points out that the deal is on track for its 1 November launch, and any minor creases should be ironed out by the time this article hits desks.

‘It’s fascinating helping to run a business of any kind. It beats doing crosswords.’ – Michael Payton

The BLG deal may have been a surprise, but it’s certainly not out of character for the EC3 firm. Clydes has consistently made bold moves and acquisitions, although this is the biggest by a long shot. The firm has taken on four other firms over the past ten years: HPMBC in Paris in 2002; aviation boutique Beaumont & Son in 2005; around half of construction specialist Shadbolt last year; and full-service Canadian outfit Nicholl Paskell-Mede (NPM) earlier this year.

It also caps off an impressive run for the firm financially which saw it beat off challenges from firms such as Slaughter and May, and Norton Rose to be crowned Law Firm of the Year at the Legal Business Awards in February this year.

The numbers speak for themselves: turnover has grown by 240% since 2000, from £62m to £212m. Profitability has also been consistently good. Profit per lawyer stood at £43k in 2000 and is now over £82k. Meanwhile, profit per equity partner (PEP) has increased steadily every year for the past ten years, from £276k in 2000 to £605k this year – a 120% rise overall. That’s up even from the boom years of 2008, when PEP stood at £550k.

Some of this strong financial performance might be expected: the firm is a counter cyclical insurance specialist after all. But when compared to some of its insurance peers, Clydes’ performance is even more impressive.

The firm has managed to grow at a rate of 11% per year over the past five years. Compare that to the LB100 Insurance peer group average of 8%, and the firm comes out shining.

By the time BLG is consumed (despite safe PR talk of a merger, Clyde & Co is clearly the dominant party) things will look even rosier. Even with just 85% of the BLG partnership coming across, turnover will still exceed the £300m mark once the business is absorbed, turning Clydes into a firm of a similar size in terms of fee-earners and turnover to Ashurst and Simmons & Simmons.

The firm has also made strides internationally. It was one of the first to open in Hong Kong back in 1981 and now has eight significant international outposts in the US, the Middle East, Asia and Latin America. This year, international offices brought in 42% or nearly £88m worth of revenue, with the US alone hauling in around £38m.

Not bad for a practice that has only been up and running for five years. The most recent outpost for the firm is Canada, after Clydes’ merger with NPM in June that gifted the firm offices in Montreal and Toronto.

The firm also hasn’t been afraid to take a few risks. For instance, it opened in Singapore in 1991. The idea was first suggested by an associate, John Whittaker (who is now a partner on the management board). Payton agreed and the young associate was told to make it happen. Another example was the addition of construction specialist Shadbolt at the height of the worst property slump in decades.

One constant throughout all this change is Payton’s leadership. This consistency has been key to the firm’s success, thanks to his risk-taking, entrepreneurial style of management.

But equally important to Payton and the firm’s recent successes is his relationship with his forthright number two, Peter Hasson. Since 1997 the non-lawyer chief executive has been instrumental in keeping the numbers in check and reigning in Payton’s enthusiasm for hard-headed business decisions.

 

Numbers Man

Hasson should be comfortable with figures. Before joining Clyde & Co in 1997 he was a partner at accountancy firm RSM plus for ten years after completing an MBA at Warwick University and a degree in politics at Oxford. Hasson clearly enjoys his job; he speaks quickly and enthusiastically and has a straightforward manner.

Unlike Payton, he is firmly attached to his BlackBerry. Aside from keeping a close eye on the numbers, Hasson really shines in hammering home the importance of a consistent strategy.

His presentation at the firm’s annual partner conference could be considered a bit boring. Every year for the past eight years he has started his presentation with the same PowerPoint slide, laying out the key practice areas for the firm and strategic objectives. That consistency has been helped by Payton’s long tenure.

‘In professional services firms, one of the things that managers often struggle with is that you can have businesses almost run to an electoral cycle,’ says Hasson. ‘You get a new managing partner, it takes a year or two for them to work out what they are doing, another year or two in which they become effective, and then in another year or so they are starting to make sure they are re-elected. There are long periods of hiatus where the strategy changes and the key issues change.’

‘We have worked well because the management board we put together has got the decisions right.’ – Peter Hasson

Non-lawyer chief executives at top 100 firms are still relatively rare. Manches, BLG and Howard Kennedy are among the handful of firms that have non-lawyers in charge. It can be difficult for non-lawyers to understand the politics and nuances of a law firm partnership, and lawyers are often loath to take orders from an outsider. It’s something that Hasson is acutely aware of.

‘I’ve always said that I’ve got an MBA and a politics degree, and that the politics degree has been far more useful,’ Hasson quips.

When he first started in the job, he used to meet up with other non-lawyer managers who worked at law firms – they called themselves ‘the illegals’. ‘We used to chat about how awful it was to work with lawyers,’ he says, laughing.

But after 14 years at Clydes he seems to have got the hang of it. ‘If you think you can get a bunch of lawyers to deliver anything from someone who says they are an expert, it just doesn’t work. It’s all about understanding the people you are dealing with and building a consensus,’ says Hasson.

 

The Payton Show

Payton left school at 16 and began his articles a year later at a two-partner high street firm in Yorkshire. At 20, the City beckoned and he responded to a job advertisement for a shipping lawyer at Clydes. He has been there ever since. As Payton puts it: ‘I’m man and boy Clydes.’

He has, of course, seen major changes in the profession over his four decades in the law. Back when he was a young lawyer in the late 1960s, he remembers visiting the senior partner of a Fleet Street firm that is now part of CMS Cameron McKenna. The partner in question had a coal fireplace in his office, and someone to come and stoke it. ‘That’s how it was back then,’ he says.

Horse racing has been a life-long passion. He talks wistfully of Nuclear Debate, a champion horse he owned in 2000 that was named ‘sprint king’ by The Telegraph. ‘That was a once-in-a-lifetime horse,’ says Payton.

Contemporaries believe his love of racing has shaped his management style. ‘Michael is a gambler; his passion is racehorses,’ says Tim Taylor, a partner at BLG who has known Payton for over 20 years. ‘He’s prepared to trust his instincts and prepared to cut his losses as well, without any recriminations.’

That willingness to take risks has paid dividends – moves such as the BLG deal prove that. But if Payton can be a touch headstrong, Hasson is well used to reigning him in.

‘I feel that it’s crucial that the people on the management board are actually at the coal face.’ – Michael Payton

‘I tend to start by saying, “Gosh, that’s a good idea”,’ says Payton. ‘Peter tends to say, “That’s not such a good idea, for the following reasons”, then we debate it out. It’s a very good check and balance. Peter is completely numerate and can deal with that side of things.’

The decision to move into the Canadian market is a good example of this dynamic. The firm had noticed insurance companies were increasingly active in Canada. Payton approached a contact of his, Senator David Angus, a former Stikeman Elliott lawyer, and asked him to take on a consultancy role for the firm, providing an overview of the market and business opportunities. Angus provided Clydes with the names of some good quality local firms, including NPM, and the two firms began merger talks.

‘I remember I was pretty sceptical at that stage, because I usually am,’ says Hasson. ‘Michael’s attitude on most of these deals is, “This is fantastic!” and I say, “I’m not so sure. Will the numbers stack up? Does it fit in with strategy?”.’

Talks progressed slowly, but in early 2010 the deal gathered momentum, with Hasson and management board member James Burns taking over the project and thrashing out the specifics during regular visits to Canada. After protracted negotiations the deal was agreed in the Spring and went live in September this year.

 

Consensus Approach

Payton and Hasson clearly work well together, but Payton seems to be the boss, which is probably not surprising given his experience and length of tenure.

‘Michael is a very strong-willed individual who gets his way and imposes his will on people who come into contact with him,’ says a source familiar with the firm. ‘Peter is very strong and competent, but doesn’t always take the lead because of Michael’s style.’

‘Peter is the hands-on administrator and he works very closely together with Michael,’ says one former partner. ‘But Michael leads from the front. The firm has grown enormously under his leadership. It’s his baby.’

But Hasson is keen to stress that Clydes ‘is not the Michael Payton show’. The management board has also been instrumental. ‘We have worked well because the management board we put together has got the decisions right,’ says Hasson.

The board is made up of four elected partners (James Burns, David Bennet, John Morris and Ben Knowles) along with representatives from Asia, the US and Middle East. But it seems to be more useful as a sounding board and feedback device with the rank and file partners, than a decision-making body.

All the members of the board are fee-earners, including Payton who spends around half his time fee-earning. Over the course of his career he has handled some major cases, including claims related to the Piper Alpha and Exxon Valdez incidents, the invasion of Kuwait, the 9/11 attacks and the 2007 outbreak of foot and mouth.

‘I feel that it’s crucial that the people on the management board are actually at the coal face,’ says Payton. ‘Firstly so they know exactly what’s going on; secondly because it achieves respect. When they talk to other partners and say, “This is where we need to go”, that carries more weight.’

Hasson, who is not on the management board, agrees: ‘I think it helps that all of our board members are fee-earners. So you get a closeness and responsiveness in terms of decision-making.’

Remarkably, given the grip that Hasson and Payton have on the decision-making process, there seems to be little resistance to key decisions from the wider partnership. Management has a fair degree of leeway thanks to its strong track record.

‘For years, we’d seen BLG as one of our main competitors. They were one of the few firms we rated in terms of quality.’ – Peter Hasson

‘Autocratic wouldn’t be too strong a word to describe their style,’ says one former partner. ‘But most people at the firm just want to get on with their work. They are very happy to leave management to a successful team. The majority want to leave the tedious task of management to them, as long as it’s going well.’

The genesis of the deal with BLG is a case in point. Talks began after BLG insurance disputes partner Taylor asked Payton out for a coffee and a catch up in April. Nothing unusual there, but when Taylor asked to bring along BLG senior partner Simon Konsta, Payton knew something was afoot.

BLG was looking for a merger partner and had spoken to three American firms about a possible tie-up over the past two years. It had suffered a string of partner departures over the previous few years and in March 2011 the firm’s highly profitable eight-partner aviation team upped sticks to Holman Fenwick Willan. The team’s main rival was Clydes, and its departure paved the way for a deal, by significantly reducing the number of potential conflicts between the two firms.

‘When the aerospace team departed, we suddenly realised that instead of talking to other UK firms, the opportunity to do something with Clydes was there,’ says Taylor.

After the initial meeting, Payton went back to his management team to discuss the options. Both Hasson and Payton agreed that it was too good an opportunity to miss: it meshed well with Clydes’ strategy of providing a wide service for its existing insurance clients. The firms entered into talks that became public in June.

‘For years, we’d seen BLG as one of our main competitors,’ says Hasson. ‘They were one of the few firms that we rated in terms of quality. We are stacked full of Barlows people. They were in parts of the market we weren’t particularly strong in.’

Over the course of the summer the details of the deal became clear. In terms of pure financials, Clydes was coming at the negotiations from a stronger position, with a heavier international footprint and with a PEP of £605k compared to £329k at BLG, a £276k difference. As a result, the new entity would drop the BLG brand and 15% of the BLG partnership would be asked to leave.

‘It started off as an okay deal for BLG, but then it was gradually ramped up by Clydes,’ says one source. But management at both firms are quick to dismiss this.

‘We were always very clear on what we wanted to achieve,’ says Taylor. ‘There was a clear pathway. We knew there had to be structural changes.’

Hasson points out that Clydes is also making a major investment in BLG by paying for £5m worth of common IT and infrastructure systems. He is pragmatic about dropping the BLG name, arguing that BLG had little international brand recognition.

‘BLG is not known in the States, the Far East or the Middle East,’ says Hasson. ‘When we sat down we said, “Do we try and fudge it?” If you try and smash the two names together you’d probably only do it for a few years. We’d have to rebrand in three continents and go through it again a couple of years later. It’s better to just use a single name and get everyone behind that.’

Sources say that both firms have already had approaches from international insurance boutiques and teams at larger firms, so the next few years should see yet more changes.

 

Payton’s Career highlights

Succession problem

After the merger, the management structure is set to change. BLG’s current chief executive David Jabbari is set to join Hasson in the management team under the new post of chief operating officer. BLG senior partner Konsta will join Payton on the existing Clyde & Co management board.

The structure of the new management alone suggests it will be business as usual for Hasson and Payton – with the duo making the most important decisions. Whether the BLG partnership, which has historically been very collegiate but also a little fusty, can be easily assimilated or will mesh with the more entrepreneurial and individualistic culture of Clydes remains to be seen. Whatever happens it’s likely to be a learning curve for both sides, particularly BLG.

Clydes has shown the importance of a consistent strategy and the value of having strong risk-taking management at the helm.

As Payton nears the end of his sixth term as senior partner in 2014, one major question remains: how much longer will he stay in the job? Succession is one issue that could derail Clydes’ upward trajectory. Payton’s forceful personality has been a boon to the firm, but has left a limited number of partners with the experience to handle the top job.

The management board could be a useful breeding ground, with James Burns and litigation partner Ben Knowles singled out as potential successors by at least one former partner. Hasson’s management team should also be able to provide a degree of stability and continuity in the event that Payton retires.

When Payton started in the job in 1984, the outgoing senior partner Gordon Blacker gave him some enduring advice: ‘Gordon said to me, “When you are senior partner, don’t ever deceive yourself that you will know how to run a business, because you won’t”.’ Wise words – but after 27 years in the job, it seems Payton has a pretty good idea. LB