Eight years after its formative merger, Taylor Wessing remains divided. With a new strategy and rebrand in the offing, has the firm finally laid its integration demons to rest, or is it just a new logo and a different shade of green?
Modern law firms are complex machines. In a perfect, well-managed example, the inner workings click and whirr in seamless industry. At Taylor Wessing, the parts haven’t been put together properly. The engine needs some work.
It hasn’t always been this way. In its previous incarnation, Taylor Joynson Garrett, the firm had successfully established itself as a midmarket player with one of the City’s leading IP practices. Then, in 2002, the firm completed a landmark merger with leading independent German firm Wessing. A year later, it launched in France with the capture of a 30-lawyer team from PricewaterhouseCoopers’ legal arm, Landwell. In two decisive moves, a new European firm was born.
It has not proved to be the springboard that the partners – or the market – expected, however. In the years proceeding the three-way tie-up, the firm has struggled to unify its strategy or brand, and suffered growing pains brought on by a lack of true integration or alignment (the three arms remain separate legal entities with their own management). The message has somehow become lost along the way.
It’s a problem that has been most pronounced in the UK, with the firm jokingly referred to as ‘Taylor Who’ in some of the less forgiving corners of the City. One recruiter says that the firm’s lack of identity has left it looking ‘a bit grey’, and even French managing partner Christian Valsamidis admits to being ‘amazed’ at the weakness of the Taylor Wessing brand in London.
It maintains a curiously low profile for a firm that is the fifteenth largest in the UK and on the cusp of the top 100 globally, billing almost £200m a year.
Now, after almost a year’s planning, the firm is about to roll out a new strategy aimed at forging closer integration between practice groups and offices, expanding its international network and focusing more of its efforts on key clients. ‘We haven’t been as integrated or as clear to the market about who we are and why that matters,’ UK managing partner Tim Eyles, who took over from Michael Frawley in May 2009, concedes, ‘but we hope this will change things.’ A lot is riding on the firm’s new blueprint.
Jump start
‘We recognise that the firm is a bit like a diamond that is unpolished and waiting to shine,’ says Eyles, smiling as he sits down in the London office’s tenth floor boardroom on a clear, sunny April afternoon. Thanks to the volcanic ash cloud that has reduced the usually buzzing UK airspace to an eerie silence, the two seats next to him are empty. They were due to be occupied by his opposite numbers – Valsamidis and German managing partner Wolfgang Rehmann – but the eruption of Iceland’s Eyjafjallajökull volcano prevented both from attending and forced a planned international board meeting to take place by video conference. One of the firm’s partners is even stuck in Colombia.
Despite this, Eyles, wearing a well-cut pinstripe suit and his trademark thick-rimmed, wayfarer-style glasses, looks relaxed. As well he might – the firm has escaped relatively unscathed from the rigours of the downturn, making just 11 associates redundant, and after a full nine months of planning, the new brand and strategy are finally ready.
The process first began in January 2009, when the German partners decided to reassess an unwieldy, decentralised structure that saw each of the practice’s six offices – Berlin, Düsseldorf, Frankfurt, Hamburg, Munich and Neuss – operate under separate management. Having discussed the plans with its UK and French colleagues during meetings of the international board, the firm decided to widen the scope and undertake a joint review, subsequently instructing brand consultancy firm Saffron that March.
‘We haven’t been as integrated or as clear to the market about who we are and why that matters.’
Tim Eyles, Taylor Wessing
Saffron has some form in the legal market. Baker & McKenzie and King & Spalding are among its former clients, while principal Ian Stephens, who led the team advising Taylor Wessing, previously acted for Linklaters on its rebrand from Linklaters & Alliance in 2002. The consultants made their first pitch during the firm’s annual international board retreat at the five-star Luton Hoo hotel in Bedfordshire last June. The preliminary presentation singled out a need for Taylor Wessing to be ‘more forward’ with its marketing, and to improve its cross-selling between practices and offices. Saffron then spent the following month collecting information and feedback through interviews with a cross-section of the firm’s lawyers, employees and 45 of its largest clients.
The resulting strategy plan was formally presented that November, during the firm’s three-day international partner conference at the Le Méridien Monte Carlo hotel in Monaco, where the plan was approved by a partnership vote.
Although the list of changes does include a new logo and website (see box, ‘Out with the old’, page 44), Eyles is keen to stress that the firm has been more focused on substantive matters.
‘It’s not about the frippery of appearance – it’s about the core of how we deliver our service,’ he says. ‘If all we’d done is create a new brochure and website, that would be very disappointing.’
Outside of the new brand, the strategy focuses on the formation of firmwide industry groups, a global key client programme, a new geographic strategy and, crucially, provisions for improved international alignment.
The most significant change sees a fundamental shift from an office- to a practice-led structure. The set-up echoes those of the major accounting firms, with Taylor Wessing now organised on practice lines that are intersected by a matrix of newly established groups designed to target the ‘industries of tomorrow’ (see box, ‘Under the bonnet’, page 45). These are: technology, communications and brands (comprising 31% of the firm’s partners); life sciences and healthcare (12%); real estate and infrastructure (20%); energy and environment (14%); and financial institutions and services (23%). The industry subgroups have their own allocated budget, and the partner managing each group will see part of their remuneration subject to its performance. They also have specific pages on the firmwide intranet, compiling not just staff details and deal lists but also commercial market information. ‘It was about recognising that clients drive everything,’ Eyles explains. ‘Technical expertise is a given at this level – the biggest factor for clients is whether a firm understands their business.’
In a bold move, partners and associates will also now be expected to spend 50% of their recorded hours – for partners that equates to 1,250 hours a year – on ‘investment time’. This primarily covers business development and knowledge management (it also includes management activities, for those in such positions), which the firm says is of ‘greater long-term benefit’ than working towards pure chargeable hour targets.
For a law firm to be trumpeting its commercial expertise is nothing new – so much so that the phrase ‘business-led advice’ has already become hackneyed – but Eyles dismisses suggestions that Taylor Wessing is merely playing catch-up.
‘We wouldn’t say we’ve reinvented the wheel, but our feedback is that [such commercial understanding] isn’t common to the depth we’re talking about,’ he says.
Firms such as Freshfields Bruckhaus Deringer, which restructured its business around sector groups as part of its merger in 2000, may beg to differ. Eyles, though, is confident that the changes will address the longstanding issues that the firm has had in relation to the integration of its three arms.
Internal combustion
No one single event so clearly defined Taylor Wessing’s European growing pains as the departure of former French managing partner Arnaud de Senilhes and a group of 12 partners in 2008.
Over 18 months have now passed since the debacle, which culminated in Taylor Wessing launching an ultimately unsuccessful lawsuit against Nixon Peabody for tapping up the lion’s share of its Paris office, but the reputational fallout still lingers. Although dismissed by UK managing partner Tim Eyles as ‘ancient history’, it remains one of the things most commonly associated with the firm by partners throughout the City.
Taylor Wessing’s Paris office was established in 2003 by a media-focused team from PricewaterhouseCoopers’ legal arm, Landwell. Led by de Senilhes, the eight-partner, 30-lawyer unit had been looking to leave Landwell for some time due to the reluctance of its clients to work with a group so closely linked to an audit firm. As 75% of these clients were from North America, a US firm seemed the most natural fit. However, its initial approaches were rebuffed as, according to one partner, ‘they didn’t see lawyers from an accounting firm as being credible’.
The group eventually found Taylor Wessing, and although the practice mix wasn’t perfect, the French practice’s media and film finance expertise sat comfortably with the UK firm’s core strength in IP and TMT. In November 2003, the deal was done.
Of the eight partners that left Landwell, five put up a total of €1m capital to establish the practice, borrowing €700,000 under a €1.5m facility arrangement from the UK and German partnerships to do so. This ownership remained constant as the practice grew. Even at its peak of 20 partners, only five had access to the equity.
Having repaid the debt – with interest – within four months, the partners became frustrated at having to regularly make annual payments of up to €1.5m under the three firms’ ‘relevant factor’ profit-sharing arrangements (see main feature). ‘It felt like we were being punished for our success,’ one says.
This feeling of imbalance was exacerbated during a meeting of the management committee in 2007, in which then UK managing partner Michael Frawley revealed an interest among his partnership of opening its equity to external investors.
‘There was a very strong lobby among the UK partners to join either a bank, an insurance company or, even better, a retail entity,’ the partner adds. ‘Michael [Frawley] said that he didn’t want to do it, but that he would struggle to convince his partners to resist the values being talked about. Fifteen times profit, 12 times EBITDA – they were crazy figures and represented a hell of a lot of money.’ One former partner even claims that the firm held tentative discussions with Marks and Spencer, although Eyles denies that any such meetings took place.
Having decided to leave, a group of equity partners – led by de Senilhes and Gilles Amsallem – approached around 15 US firms with a view to a possible merger of the French business.
Later that year, the group drew up a shortlist of three firms and opened discussions with Squire, Sanders & Dempsey, Nixon Peabody – with which it shared a number of common clients such as Disney and video sharing website Dailymotion – and an unknown third firm.
Upon hearing of the planned exodus, Frawley visited de Senilhes with German managing partner Wolfgang Rehmann to inform the group that the UK partnership had shelved its plans to seek external investment and request that the talks be terminated.
After consulting with the other four equity partners, de Senilhes agreed and approached each of the three US firms in November 2007 to inform them that the group would be staying put. It proved not to be that simple.
Having grown disillusioned with a reluctance among the founding partners to share the tightly held equity – a point on which de Senilhes is believed to have clashed with the four other French equity partners – a group of 12 non-equity partners remained determined to leave the firm.
It soon emerged that, unbeknown to Frawley and Rehmann, the talks with Nixon Peabody had continued.
Taylor Wessing reacted by commencing proceedings in the US to sue Nixon Peabody for aiding and abetting breach of fiduciary duty, tortious interference with advantageous business relations and breach of contract. It argued that the US firm was in breach of a non-disclosure agreement that was signed during the merger talks on 31 July 2007, which prevented each party from ‘solicit[ing] each other’s partners, lawyers or employees should the discussions not come to fruition’. It also sought an injunction preventing the US firm from hiring de Senilhes and the group of 12 non-equity partners.
In response, Nixon Peabody launched a counter-suit, seeking an injunction and $1m plus punitive damages from Taylor Wessing for tortious interference with advantageous business relations. Quite a mess.
On 16 September 2008, Justice Kenneth Fisher ruled in favour of Nixon Peabody in a summary judgment before the New York Supreme Court. A full year later, the two firms eventually agreed to settle, bringing to a close ongoing proceedings in New York and France, and an appeal in New York. The dispute over, the 13 partners joined Nixon Peabody on 1 November 2008. Upon leaving, de Senilhes sold his 30% stake in the French business to the UK and German partnerships at a par value of €300,000.
Taylor Wessing was left with eight partners in the office, with Alain de Foucaud and former Paris bar president Paul-Albert Iweins joining the remaining four founding partners in the equity. Christian Valsamidis was appointed to replace de Senilhes as managing partner for France.
Grinding gears
Although Taylor Wessing refers to its German and French tie-ups as mergers, the truth is that the three businesses have never actually unified at a structural level. They operate as distinct legal entities, with separate management structures, profit pools and, in the case of Germany, a different financial year end. One of the partners involved in the original negotiations goes so far as to term the arrangement a ‘franchise’, saying that the three firms represent no more than an exclusive alliance (the same partner claims that the original plan was to merge fully after three years, but the firm denies this).
However, while each group’s profits may remain separate from an accounting perspective, money does change hands. Put simply, the three separate profits are collected and combined into a ‘virtual pool’, which is then shared between the three entities through valve partners. The amount of profit each arm owes or receives is dependent on what the firm calls the ‘relevant factor’ – an extremely complex equation that takes into account a series of considerations, such as relative performance, the generation and referral of business, and any changes in staffing levels. The calculation is made even more difficult by the three entities’ vastly different gearings – ranging from 1:2 in Germany to 1:10 in France – and, as a result, hugely disparate partner profit levels (at the time of the merger, UK equity partners at the firm were earning twice as much as their German counterparts).
It’s a formula that even Rehmann, who was instrumental in its creation in 2004 (he refers to himself as the system’s ‘father’ and later describes it as his ‘baby’), admits is overly intricate. It’s also one that has been the source of considerable friction in the past – the French arm’s unexpectedly strong performance means that it has regularly paid up to E1.5m to the UK and German practices, some 50% more than the practice’s entire partner capital.
Although Taylor Wessing refers to its German and French tie-ups as mergers, the truth is that the three businesses have never actually unified at a structural level
‘Nothing in life is perfect – you can always try to do things better,’ Rehmann says. ‘But sharing profits is only one story. It’s more important that you are aligned internationally on practice areas, industry groups and management. On that front, we are 100% together.’
Rehmann says that the process is under review, but explains that tax and accounting constraints – Taylor Wessing UK operates on an accruals basis, the German arm on a cash basis, for example – mean that full integration is unlikely. To do so would leave the firm around E23m worse off, he estimates.
However, in an attempt to encourage further integration, the firm has introduced a central ‘development pot’ – a working capital pool to be used for firmwide strategic initiatives, such as new offices, into which each arm will contribute varying amounts determined by the relevant factor. In addition, the German business has restructured itself to mirror the organisation of the UK firm.
This involves only having one managing partner – previously each of the six German offices had one – while the business group model that was rolled-out in the UK in 2007 and has divided the firm’s practices into three separate divisions, has also been taken up. The firm has expanded its UK ‘pivotal client programme’ across the French and German businesses, with the international management board currently drawing up a list of global or pan-European corporates that, according to the firm, ‘have the potential to grow significantly across the firm’s global platform.’
Under the bonnet
As a result of its new strategy, Taylor Wessing’s global management structure is much more aligned.
The firm now operates through a system of business groups, which are designed to run on an industry, rather than an office basis. Each group is headed by a director, who is responsible for the management of all group resources, the driving of all strategic planning and, along with each practice group leader, the setting and realisation of practice group objectives.
Each of the three firm entities – the UK, Germany and France – have their own managing partner, who is elected by the firmwide partnership to three-year terms. The three managing partners form the international management committee, and are responsible for appointing the business group directors in their relevant jurisdiction. The directors sit alongside the managing partners on an 11-member international management board, while each jurisdiction has a separate executive board comprising the managing partner, chief operating officer, finance director and the business group directors.
On the move
Thanks to a newly developed international strategy, that global platform looks set to increase significantly. Eyles and UK business group director Charles Lloyd have identified a number of key jurisdictions in which the firm aims to increase its presence, whether through greenfield launches or additional mergers. Three areas have been singled out as being of the highest strategic priority: China, the Middle East and India.
In China, the firm will be expanding its existing Beijing and Shanghai offices considerably, Eyles says, while it is looking at ‘penetrating other regions’ in the Middle East and is currently on the hunt for a local partner in Riyadh. The firm has already bolstered its existing Dubai practice, with Mark Fraser joining last month from Hammonds to head its local construction practice.
In India, while well-publicised practice restrictions mean that international firms remain unable to operate a permanent presence, the firm appointed London corporate tax partner Omleen Ajimal into a newly established role as India group head this February in anticipation of the market’s long-awaited liberalisation. She now leads the India desk on a full-time basis, developing business with support from London-based corporate partner James Robertson and partner Peter Bert in Frankfurt.
Elsewhere, the firm is ‘proactively looking for the right partner’ in both the Netherlands and Italy, according to Eyles, while other regions of interest include Brazil, Russia and Spain.
‘We’re nowhere in Brazil or Russia, which I don’t find comfortable given how quickly those jurisdictions are growing,’ he adds.
One key decision the firm will have to make in relation to any new office is whether it is fully integrated across the UK, German and French arms. This hasn’t uniformly been the case among Taylor Wessing’s existing network.
In 2004, the French business took over what was previously a brass plaque Brussels office operated by the UK and Germany, staffing it with full-time fee-earners for the first time. It became wholly owned and controlled by the French practice, although it still worked with other practices across the firm. This changed in 2006, when the office was reopened to the UK and German arms, with each taking a 33% stake. The two Chinese offices in Beijing and Shanghai, on the other hand, are still technically part of the German business.
Eyles says that the intention would be for any new office to operate as a shared entity of the firm, as is the case with its Dubai base, which opened through the merger with local ally Key & Dixon in 2008. However, he admitted this policy could be ‘nuanced’ in certain situations, pointing out that the manufacturing strength of the German business would mean it would be likely to have stronger ties with any potential new office in eastern Europe.
London is also set for considerable investment. In an attempt to be, as Eyles says, ‘more on the front foot and not so reactive to contingent searches’, the firm currently has no fewer than 13 active partner searches for its City base, covering patents, life sciences, energy, healthcare, disputes, financial services and contentious IP.
One thing that won’t be changing is the firm’s US strategy. Having previously investigated the possibility of merging with an American partner, the firm eschewed a trans-Atlantic tie-up in favour of continuing with its lucrative – and numerous – referral ties. And with the number of independent (from a US perspective) City firms growing ever smaller – Lovells is now off the market, having merged with Hogan & Hartson to form Hogan Lovells, Ashurst has launched in New York, while SJ Berwin recently flirted with a number of potential US partners and at the time of writing remains in talks with Proskauer Rose – that flow of work should only increase.
The London practice is led by inward investment head David Kent, who has also achieved considerable success in marketing directly to US corporates such as Google, American Airlines, 3M and Cargill. Andrew Fraser, the former head of the Department of Trade and Industry’s (now the Department for Business, Innovation and Skills) Invest in Britain Bureau, claimed that Taylor Wessing handled around 40% of all inbound investment work for US emerging growth companies – more than any other firm.
Nuts and bolts: a decade of Taylor Wessing’s Financials
The following graphs show Taylor Wessing’s financial performance benchmarked against its historic IP and technology rivals – Bird & Bird and Olswang – and a set of average figures for the Major City practices, the firm’s LB100 peer group that includes the likes of Stephenson Harwood, Berwin Leighton Paisner and Simmons & Simmons. The PEP graph also distinguishes between firmwide and UK-specific PEP, following Taylor Joynson Garrett and Wessing’s partial financial integration in 2004/05.
In pure turnover terms, the firm’s German merger saw it open clear water between it and its main rivals, although Bird & Bird is catching up fast. While the impact of the merger on turnover was instant and significant, it seems to have done little for the firm’s profitability. Back in 2001/02, Taylor Wessing’s PEP was higher than both Bird & Bird and Olswang. In 2008/09 – the most recent available results – it was the lowest. It now lags over £170,000 behind Bird & Bird, with the average Taylor Wessing equity partner taking home a relatively meagre £308,000. That’s less than Eversheds and Nabarro.
It may come as some surprise then to learn that the firm’s profit margin has been consistently higher than not only its two IP competitors, but also the Major City average. Ten years ago, the firm was operating at a Magic Circle-esque margin of 46%. Although this has declined in the proceeding years, it still remains at a respectable 30% – eleven percentage points higher than Bird & Bird. When combined with the firm’s below-average PEP, it suggests that it is sharing its equity too freely. Indeed, while the pervading market trend has been for firms to progressively tighten their equity, Taylor Wessing has loosened it for the third consecutive year. Twenty four percent of all lawyers at the firm are now equity partners – the joint third-highest level among the UK top 50. Bird & Bird, by comparison, is 10%. Even Slaughter and May is just 17%.
These figures are slightly misleading, however. As a further demonstration of its lack of true integration at a financial level, the equity partners in Taylor Wessing’s UK arm earn significantly more than their European counterparts. And the gap is widening. In the first year post-integration, the average UK partner took home an additional £55,000, or 16% more than the firmwide PEP. In 2008/09, that figure had risen to £130,000 – a difference of over 40%.
Turnover
Source: Legal Business 100
PEP
Source: Legal Business 100
Profit margin
Source: Legal Business 100
A change of parts
As befitting a firm with such a strong background in the innovative technology sector, Taylor Wessing has been busily preparing for the onset of alternative business structures as part of the Legal Services Act (LSA) in 2011.
‘The legal services market is in the middle of a revolution,’ Eyles says. ‘The LSA is the coup de grace, but it’s not the only thing that you need to worry about. We’re in darkness at the moment, but are trying to emerge into light with a clear picture of the changes we need to make.’
As such, the firm established a ‘change group’ last July to investigate the potential impact of the LSA and the opportunities it presents. The group is headed by Eyles and also includes former real estate boss Adam Marks, private client leader Mark Buzzoni, financial institutions head Tim Stocks, finance chief Peter Shepherd and trade mark, copyright and media expert Niri Shanmuganathan, the firm’s youngest practice manager.
The question of strategy is further complicated by a seeming lack of clarity over exactly what Taylor Wessing is attempting to manage
However, while the group was only established in 2009, the UK partners had already discussed the possibility of seeking additional capital. During a meeting of the international board in 2007, former UK managing partner Michael Frawley revealed a desire among the UK partnership to open its equity to external investors – news that did not go down at all well with the partners in France.
Eyles now says that the firm ‘expects to achieve [its] strategy without recourse to the need for an alternative business structure’. But, given that he also admits that the UK firm’s November 2008 move to its new 5 New Street Square premises ‘absolutely savaged our debt’ – the firm’s 2008/09 LLP accounts show the total cost to be over £31m – the prospect of additional investment will no doubt seem attractive.
Some of the initiatives introduced by the change group would be likely to centre around the firm’s four-partner Cambridge office, which has historically serviced the thriving local venture capital and technology markets. A number of partners told LB that the firm is currently considering bulking up its presence in the city in order to allow it to perform a higher volume of work at a lower cost base, and while Eyles was reluctant to comment on the matter in much detail, he admitted that the situation was currently under review.
‘We are keen to be at the forefront of change in the way legal services are delivered and are exploring ways in which we can deliver a more competitive service,’ he says. ‘That may or may not include an increase in presence in our Cambridge office in order to facilitate a more effective service.’
Building works
Law firm strategy is a curious thing. The more cynical observer might dismiss the very term as an oxymoron; rejecting the idea that law firms have strategies at all. An exaggeration, of course, but it’s true that the upper echelons of the commercial law firm market are beset by a great irony: that for all their oft-touted expertise in advising clients, not just on black letter law but also on the commercial side of their business, lawyers are notoriously bad at running their own.
For Taylor Wessing, the question of strategy is further complicated by a seeming lack of clarity over exactly what it is that they’re attempting to manage. It’s telling that, even after a lengthy and expensive brand review involving external consultants and considerable management resource, most partners interviewed for this feature remain unable to concisely sum up exactly what it is that makes the firm different. For a practice so well-versed in the dark arts of intellectual property, identifying a USP should be straightforward.
The obvious answer is that Taylor Wessing is a full-service European firm focused on the IP and technology sectors. Instead, partners aimlessly grasp at meaningless buzzwords and marketing puff. ‘We find distinctive ways of serving the client – we’re innovative, proactive, ambitious and instinctively commercial,’ says one. ‘We aim to become our clients’ most trusted business adviser,’ offers another.
That said, the brand – or lack thereof – is of secondary concern. The most pressing issue to resolve is integration.
It would be unfair to suggest that the firm has entirely failed to capitalise on the opportunities presented by the merger. The German practice has doubled its turnover in the last eight years, and increased profitability by close to 30%. Its international client base has expanded substantially, and now accounts for almost half of all fees – twice that of the pre-merger business. Google, Nike, Daimler and pharmaceuticals business Abbott have all been added to the stable since the tie-up in 2002. But the consultants at Saffron are right: more could be done. Even ignoring what happened in Paris two years ago (see box, ‘Internal combustion’, p43), one local partner estimates that as much as 97% of the office’s turnover is generated by work for its own clients such as IBM, Credit Suisse and Europcar. Hardly the sign of a joined-up approach.
With the new structures still in their infancy, it remains to be seen whether they will fill in the cracks between the three firms, or simply paper over them. However, it’s clear that the shift towards a firmwide industry focus has meant that, while the three entities remain distinct, they are much more aligned. It is also promising that the partnership appears to have fully bought into the new strategy. When it comes to implementing change among such traditionally risk-averse entities as law firms, that’s more than half the battle.
As the first major move of Eyles’ tenure, a lot rests on its success. It looks set to be a defining moment, not only in his career but for the future of the firm as a whole. It’s the step that could finally make Taylor Wessing’s ‘one firm’ dream a reality. LB