Mishcon de Reya was a standout performer in the 2011 LB100, jumping 11 places on the back of a 37% leap in turnover. LB charts the firm’s recent success and asks senior management where it is heading.
Kevin Gold, Mishcon de Reya’s managing partner, leads the way to a meeting room clutching a walking stick, the result of a motorcycle accident in June 2008. He broke his leg and encountered a number of complications while recovering, including contracting MRSA in hospital. For almost two years, as he underwent 19 operations restoring him to mobility and health, Gold was not always around. But such was the strength of the firm he had shaped over the preceding ten years that Mishcons went from strength to strength during that time becoming, as Gold puts it, ‘pretty unique’.
Although he admits to having been reticent about becoming joint managing partner in 1998 (with Philip Freedman QC) he is, in most observers’ eyes, the ‘soul’ of Mishcons. He became sole managing partner in 2002, and is responsible for the introduction of the ‘best is best’ maxim universally adopted by the firm’s more evangelical lawyers since the
mid-nineties. Variously described as ‘visionary’, ‘extraordinary’, a ‘fantastic leader’ and ‘inspirational’, Gold is one managing partner that has former and current employees behind him. ‘I can’t imagine Mishcons without Kevin as managing partner,’ says one former partner. Recent financial performance shows just how far the firm has come under Gold.
Mishcons grew from a firm with a turnover of £15.8m in 2000/01, to £65m in 2010/11. In 2010/11, it posted a monstrous 37% growth in revenue, from £47.5m the year before, a feat practically unheard of elsewhere in the City. Impressively, management was expecting this level of growth. In the recession years, while many firms were suffering from shrinking turnover, Mishcons’ revenue flat-lined, which, as the firm’s executive partner James Libson points out, indicates actual growth in underlying market share. He explains: ‘This year’s sudden growth is a combination of the market returning to a degree, and us being bigger and better.’ Profits per equity partner (PEP) also jumped 28% in just one year, from £450,000 to £575,000.
‘We used to have to sell ourselves hard to potential laterals, but it’s different bow. People are seeing our reputation.’ – Nick Davies, Mishcon de Reya
The firm stands out for more than its financial growth during 2010/11, however. What makes the firm’s recent success all the more veritable is its revenue compound annual growth rate (CAGR), which over a five-year period, sits at 18%. Only DWF has a higher CAGR in the LB100, at 20%. In addition, Mishcons’ five-year PEP CAGR is 7%, higher than at least five firms either side of it in the LB100 table. While these five-year averages are impressive, recent leaps in revenue have been the major contributor. In 2009/10, the firm’s revenue CAGR was 14%, putting it closer to its LB100 peers.
Notably, Mishcons performs far better in the league table for profitability than it does for turnover. By turnover, it is 47th, but when combining £67,000 profit per lawyer, a 21% profit margin and £575,000 PEP, the firm is at joint 35th with Forsters. This also puts it within touching distance of ‘Major City’ peer group members Olswang and Simmons & Simmons, although the firm still has some work to do if it wants to reach the top 30.
Gold is adamant that Mishcons will hit its target of £80m revenue when its current three-year business plan ends in 2013. The elements that brought the firm to such a position of strength, however, vary from tactical prescience to, in some areas, luck. ‘We weren’t anticipating the return of the real estate market, for example, which for us has been fantastic this year,’ says Libson. ‘It was a hellish market and our real estate department took a hell of a battering.’
Taking stock
In order to reach such a stable footing during difficult economic conditions, an evolution has taken place. The firm’s finances have, to the outsider, looked unpredictable in recent years. A climbing turnover contrasted with a wildly fluctuating PEP, which ballooned from £295,000 to £714,000 between 2005 and 2008, only to plummet suddenly in 2009 by 45% to £395,000. However, the turbulence was caused by what Libson describes as ‘counter-intuitive investment’.
‘We decided to invest in people who were leaving firms and businesses that we would not have been able to afford before and who would not have been interested in us before,’ he says.
Gold agrees: ‘I was able to go to my partners and say: “let’s not take as much out of the business now, because there is more talent being released into the marketplace than we have ever seen, and that will allow us to make a step-change in the core practice areas in which we want to be ‘best is best’”.’ Libson mentions that approximately 70% of the drop in PEP in 2009 (from £714,000 to £395,000) can be attributed to the cost of investment, meaning equity partners took an average of about £225,000 less to allow for investment into the business.
In the summer of 2008, as the global financial crisis began to take root, management embarked on its key strategy. ‘We decided that we wanted to emerge from the period of economic difficulty in a better position than our competition. We decided to sustain revenue, and invest in people,’ says Libson.
As a result, the firm has hired 18 new partners since 2008, five of them in corporate. Major laterals included corporate partners Dean Poster from Orrick, Herrington & Sutcliffe in April 2010, and Saul Sender from Reed Smith in February 2011. The firm also hired real estate heavyweight Nick Minkoff from SJ Berwin in January 2010. Both Libson and Gold insist that partners knew the hit on their pockets was coming, and having subscribed to the ambitions and ‘culture’ of the firm, were fine with the situation.
We’re predicting a slow-down in growth because we need the growth we’ve had to bed down culturally.’ – Kevin Gold, Mishcon de Reya
The firm is convinced it has raised its profile in the lateral market. Corporate practice head Nick Davis says that recruitment has recently become ‘incredibly easy’ for the firm. ‘We used to have to sell ourselves really hard [to potential laterals], but it’s different now. People are seeing our reputation in the market.’ He points to the hire of banking specialist Michael Bardell into the corporate practice from Travers Smith in September 2011. ‘He could have gone anywhere, but he went for Mishcons because he could see that everyone was on board with the firm’s message,’ he says.
‘It’s been a very shrewd recruitment strategy, and I could definitely see vision and a lot of opportunity here. I’ve been very impressed with the leadership,’ comments IP partner Lewis Cohen, who joined as a partner from Field Fisher Waterhouse in August 2011.
‘Something clicked in the last couple of years which sent profits soaring and it became a sort of refugee site for people sick of the City,’ comments a recruiter at a large agency. ‘They have had some good lateral figures join the firm.’
Pressed on whether the strategy of bulking up the corporate practice had previously counted on explosive growth coming out of that market, Gold concedes that the firm was hoping for better conditions.
But Mishcons has also cashed in on its traditional stength in private client work, with the 2010 introduction of the client-facing Mishcon Private initiative that now acts as the gateway for high-net-worth individuals to the rest of the firm’s services. While the firm does not calculate how much revenue private clients generate, Libson estimates a figure somewhere between 50% and 60%, if private business corporate mandates are counted. Gold explains that Mishcon Private is the single most important initiative for driving growth across the firm.
‘Some of our biggest corporate work has been in family corporates, the high-net-worth of the world who move in slightly different ways to capital markets. So where people have got money and cash, they are still doing deals and thinking things are cheap, and we have more than our fair share of that client base,’ he says.
Gold is not wrong: the corporate practice grew 61% from 2009 to 2011, from £7m to u £11.25m. While the growth is impressive, it is worth noting that the firm was not forthcoming with examples of larger corporate work, apart from what was readily available through press releases on the official website. It would be disingenuous to characterise Mishcons’ corporate offering as a mainstream corporate practice, management’s focus is ostensibly on providing corporate capability for private clients. Gold iterates: ‘What drives you as an owner is a different kind of mindset from a manager. So we decided to look at how you service, in the round, a family or individual in business.’
‘We’re one of the biggest litigation houses in town, and even there is feels boutiquey and personal.’ – James Libson. Mishcon de Reya
Meanwhile, the firm’s well-established litigation practice has provided a bedrock on which to build the other elements of its recent success. ‘If you slice and dice how we divide ourselves, the reality is that more than 50% of the firm is made up of litigators,’ says Gold. ‘This strength in litigation gave us the ability to subsidise the non-contentious parts of our business in M&A and real estate.’ The firm has 180 litigators and billed £45m in 2010/11. But Libson says despite the scale of the team, the feel of the practice remains unchanged: ‘We’re one of the biggest litigation houses in town, and even there it feels boutiquey and personal.’
The firm has made three hires into litigation since the new strategy was implemented, including Cohen. Libson explains that this will be an area of continued growth over the coming years. ‘We’re overly busy in some areas and we will need to bring more people in, particularly in litigation where it just feels busier and busier,’ he says. ‘Some growth will have to be achieved by laterals to reach our £80m target.’
At the same time as launching Mishcon Private, the firm also spun out its employment department from its corporate practice to become a standalone practice, which Gold puts down to it having found ‘enough legs’
to become another department. Employment has six partners and a total of 20 lawyers. With the addition of the private client and employment teams, Mishcons has gone from a four-department to a six-department firm.
Value added
Senior figures at the firm are unanimous in attributing Mishcons’ recent success largely to the so-called ‘core values’ which Gold introduced at the start of his tenure. Designed to run through everything the firm does – and signed up to by all lawyers at the firm at the time – the values crystallise the firm’s culture, from encouraging positive relationships and decency between lawyers to the commitment to invest financially in the future of the firm. The way Gold and Libson speak about the list of values makes it sound like a written constitution. While Gold concedes that the initiative may sound ‘wishy-washy’ to some, it is certainly something that partners subscribe to – during interviews many cannot help but mention the core values when asked about the culture of the firm.
While the values have created what Gold describes as the ‘glue’ holding the partnership together, the commitment to invest is creating an erosive effect: keeping things ‘boutiquey’ and ‘personal’ is becoming increasingly difficult with more lawyers than ever and the need for management to make more dispassionate business decisions.
One subject that management avoids talking about until prompted is redundancies. A mere six months after the 2008 recruitment decision, a redundancy consultation began. Gold describes how a lot of firms had ‘spent many years getting a bit fat’, and that the fat at Mishcons needed to be trimmed. This hard-headed business talk contrasts with Gold’s recollection of a time when he could walk around the office and know every lawyer and a bit about their family. Libson confirms that in the winter of 2008, 40 jobs were cut, including 15 fee-earners.
Gold is unapologetic: ‘They were genuine redundancies. We had to prepare for what was inevitable in the market. We had to look at areas where we couldn’t say “best is best” and then re-examine people, and say “do those people have the right skill sets to maintain those practice areas?”.’ He mentions that at least four lawyers affected by the redundancies were then re-trained in other areas instead of facing the boot. Libson expands: ‘Often firms don’t look for alternative employment for people to avoid making them redundant, but we had some capacity elsewhere in the firm in litigation and employment.’
But in January 2009, following its redundancy consultation the previous December, the firm said it would cut 17 from its headcount, including a salaried partner from real estate and one from the corporate practice. The cuts were made as a result of the two practices struggling during the downturn.
‘When I took the job I put into my own contract that any day 50% of the people don’t want me, then I’m not.’ – Kevin Gold, Mishcon de Reya
For those lucky enough to have remained, the ‘boutique’ feel of Mishcons is starting to dilute. There are now ‘forum meetings’, where partners from across the firm form focus groups to discuss their concerns, which can then be communicated to management through forum leaders. ‘We’re now too large to have open dialogue in a partners’ meeting,’ says Gold. ‘We have inter-departmental fora where people can discuss their concerns and thoughts about business development.’ For some partners, this is not the same firm many thought they were joining ten years ago. Libson acknowledges that the change will need careful management: ‘If you’d asked me when I first joined: “Do you want to be in a £70m firm with 500 lawyers?” I would have said “no”, because the soul of the firm would be lost. But we still have the same group of people and a big part of the conversation in the partnership is about the soul of the firm.’
Libson insists that the boutique feel remains intact but knows that its days may be numbered. Asked whether the atmosphere will remain if the firm more than doubles in size again this decade, he is realistic. ‘I agree, at £150m it may be a different type of firm. You can’t be boutiquey at £150m. The big challenge for growth will be to keep the firm a bit different, a bit niche.’ So far, the firm has capitalised on its unique elements very successfully, but can such a trajectory possibly continue without sacrificing the lauded ‘culture’ of Mishcons?
Fine adaptation
Mishcons has long displayed a propensity for adapting well to circumstances. When purchasing the firm’s current Holborn premises in 2002, it was unable to find a building with a break clause in the lease, so partners decided to form a separate LLP outside of the partnership (one of the first ever legal LLPs in the UK) in order to purchase the building and lease it back to themselves. Gold explains that any partners who wanted to leave within five years of the purchase would lose whatever interest they had in that property-owning LLP.
One former junior partner recollects how, under Gold, there was always an emphasis on growth. He found that the ‘culture’ and ambition of Mishcons was, in reality, vested most heavily in the pockets of the equity partnership.
‘The equity partnership was very opaque, and sometimes not even the whole equity partnership would be consulted on strategy. Small groups of equity partners would spend time doing the same after-work activities, send their kids to the same handful of schools, and do a lot of talking about strategy in that time rather than in the office,’ says the former partner.
Such rapid growth inevitably causes fallout, and some have been stung by the genesis of a bigger, better Mishcons. When insolvency partner Marika Chalkiadis left the firm in mid-2007 after just one year, Libson said ‘not everyone is a Mishcons person’. Evidently, the onus is on people to fit the Mishcons mould, increasingly vague as that mould may appear. Gold realises that protecting the culture will require some nurturing.
‘We’re predicting a slow-down in growth because we need the growth we’ve had to bed down culturally. It’s important with so many new faces that they understand the nuances of the firm,’ he says.
Libson explains that while more recruitment will continue in the pursuit of the £80m turnover target, it will only be in certain areas. ‘We’ve done what we set out to do in corporate, we’ve plugged all the holes, and there will not be many more joiners in the near future for corporate.’ There’s no question that the virility of the culture is high on the minds of management. ‘As we grow it becomes more complicated and the culture has to be slightly diluted, in terms of the intensity of the personal relationships,’ says Gold.
This is not the only problem that the current three-year plan is likely to present. As the firm looks ahead, questions are being asked about the tightness of the equity in a growing firm, and how PEP can be sustained when and if it reaches £750,000, especially when the figure has been such a moveable feast in recent years.
‘The equity partnership is really small for a firm of 205 lawyers. The equity is too tightly held, so naturally that will drive PEP up,’ says a recruiter.
According to the latest LB100 data, the firm has 24 equity partners and 31 non-equity. Gold appears unconcerned, and while claiming there is a ‘constant dialogue’ on the subject, gives no hint that there are any actual plans to widen the equity. ‘I don’t think the focus on equity is consistent with the view of people internally on how it affects their life,’ he says.
The present partnership structure came into being in 1999, when, as Libson explains, ‘the equity had grown too big, and there were too many poor performers’. In response to this, Gold de-equitised roughly five partners. But he insists those that were disenfranchised are all still at the firm, and that he made the decision in response to a legal press obsession with PEP. ‘I had to do it to convince people that we’re not just a bunch of also-rans, but we’ve actually got a great business!’
Libson agrees, and takes the technical aspects into consideration: ‘There is no reason in our structure why a junior partner can’t earn more than an equity partner. There is no distinction in the internal conversation between equity and non-equity. We don’t lose people because we’re turning them away at the equity door.’ Mishcons does not have a lockstep system, and so on a poor year in terms of profitability, junior partners can find themselves earning more than squeezed equity partners. Libson says there are currently at least five junior partners earning significantly more than equity partners.
The pair are satisfied that sustaining a PEP of £750,000 after 2013 will be achievable. But the numbers make it hard to plot a reliable trend. LB100 data shows that, while the firm’s PEP has climbed since 2009 when it was £395,000, the figure was a large drop from the £714,000 of 2008. The firm has consistently put this down to the cost of investing, but it is hard to see why that cost will not continue to be a burden on PEP. If revenues are hit in the wake of another (eurozone-prompted) recession, partners will inevitably be asked to dig deep into their pockets as investment, such as growing its litigation practice and New York office, continues. Internally, Gold assures LB, there is no worry about this. ‘We were earning the target level of PEP before we decided to invest, so no-one internally was surprised by the reduction in profits. The fact of the matter is, the upturn never came in the way people expected,’ he says.
Generation next
Gold has been managing partner for 13 years. This is already a long time by any standard. But his colleagues are emphatic that he remains the right man for the job, and that his energy will carry them through a series of exciting new chapters. Libson says that since his accident, Gold has come back ‘with a tremendous amount of energy, as though he started all over again’. Davis says the partnership is ‘not even entertaining the idea’ of Gold’s succession just yet.
Gold himself says he has considered the question of succession often. ‘When I took the job originally, which I was reticent to do, I put into my own internal contract that any day 50% of the people don’t want me, then I’m out. But really, if even 25% of the people don’t want me, I wouldn’t want to stay,’ he says. The firm has moved on significantly in recent years, and Libson is not just paying lip-service in saying that Gold is back with passion. But the management has changed, and Gold’s strategy is evolving. ‘The day-to-day management of the firm is more heavily invested in the executive partner (Libson) now,’ says Gold. ‘This will extend. The business has now changed and the possibilities have now changed with the Legal Services Act and the office in New York.’
The legal community has long debated the possible effects of the Legal Services Act but Gold and his management are already thinking about where the Act might take the firm. ‘We are considering investment opportunities in the private arena, as well as in public affairs and various litigation support offerings,’ he explains.
One former partner is sure that there will be further expansion abroad, particularly into jurisdictions that will support the private client practice, such as the Middle East and Hong Kong. Another is ‘surprised they have not yet merged with a US firm’.
The firm is clear that the opening of the New York office was an opportunistic decision and not one that indicates a future international expansion strategy. Nonetheless, management is not shy of putting investment into the office. In November 2011, family partner Michael Stutman was hired in New York from his own firm Mayerson Stutman Abramowitz, to help accommodate the ‘increasingly international nature of our clients’ needs’, according to Gold.
Libson explains the origins of the New York office: ‘We have habitually thrown out quite a bit of work into New York for our clients here, so we thought we may as well see if it works by trying to capture that work in-house.
‘It hasn’t instilled a wonderlust in us to do similar elsewhere – we continue to address the issues of international coverage, but in so doing it is about the relationships rather than big strategic initiatives.’
Despite having just added Stutman to the litigation-heavy New York practice, Gold insists that the focus of the firm’s strategy remains on London. He explains that any future investment will be designed to ‘enhance the core London legal offering’. The firm hired property litigation specialist Richard Anyamene from Jones Day, where he headed the practice, at the end of 2011. For example, the firm anticipates growth in transatlantic litigation work in the New York office ‘as the regulatory noose tightens’, but the office will remain geared towards its existing areas of expertise in international arbitration, regulatory, IP, fraud, employment and family law.
Having made such great strides in recent years, and having gained market share in the private client arena, Mishcons may face a challenge in protecting the progress that has been made when an economic upturn finally comes. Libson outlines the firm’s strategy for combating this possibility: ‘We need to strengthen our depth on the advisory side, and we have a lateral joining in January [2012]. We will continue to distinguish ourselves through our product lines and specialised services. If we can develop long-term relationships with our types of clients then we have a good platform from which to grow.’
Mishcons is an increasingly exciting business prospect, and Gold has had no trouble recognising that fact. The firm has secured itself a more prestigious position in the market, and through the opening of the New York office, has undoubtedly had a taste of what can be gained from an international operation. Pressed for a more specific answer about when he might eventually decide to step down, Gold gives perhaps the least emphatic answer of the interview: ‘Not for a while!’ he laughs.