Jaishree Kalia sizes up the clashing egos and driving ambition at Kirkland’s City arm.
Flashy cars, Dom Pérignon and top dollar are just some of the things associated with Kirkland & Ellis’ City high-flyers. The top ten global law firm has been highly successful in London since setting up shop in 1994 to service trophy client Bain Capital. The practice is certainly substantial, generating over $180m in 2015, according to one partner.
But critics increasingly contend that Kirkland’s City arm is beset with tensions illustrated by a string of partner exits over the last 12 months amid a repositioning as a broader transactional practice, albeit remaining focused on sponsor clients.
Says one Kirkland partner: ‘The usual thing you read is the firm has an entrepreneurial culture and some people just can’t hack it, or that it’s a ruthless, horrible snake pit where everyone is just awful. But it’s way more complicated than that. There are six or seven things going on, not one or two.’
‘The usual thing you read is the firm is a ruthless, horrible snake pit where everyone is just awful. But it’s way more complicated than that.’
Nevertheless, the most important factor by consensus was the handover in management at Kirkland from Washington DC litigator Thomas Yannucci to Chicago corporate veteran Jeffrey Hammes back in 2010. Kirkland had long been considered the most thrusting of Chicago’s leading law firms but Yannucci had set a measured tone at the top in dealing with the firm’s big personalities. Hammes in contrast took a more robust line and soon became convinced that Kirkland’s City arm needed a deeper corporate practice, a shift in the strategy under former London head Graham White. Comments one current partner: ‘Jeff realised changes were needed in London and we weren’t making the same progress as the rest of the firm. Our strategy was defensive. White wouldn’t hire more M&A partners.’
The most obvious shift in direction came with the 2014 hire of Weil, Gotshal & Manges acquisition finance star Stephen Lucas on a guaranteed package of $8m a year, a move that key deal finance partner Neel Sachdev had pressed for with Hammes.
Despite Lucas’s strong reputation it was always clear his entrance, and installation of Kirkland’s effective City head, would disrupt the office’s delicate equilibrium. This dynamic was accentuated when Lucas in 2015 was appointed to Kirkland’s 15-member committee as the only non-US member.
The stability of the office had already been affected by the 2012 departure of US partner Jim Learner, the firm’s de facto City head who had strong links to Kirkland’s Chicago heartlands. Learner returned to the firm in early 2015 after a spell with client HGGC but in the interim the London practice had changed significantly.
The shake-up in leadership style in London and its US parent was aggravated by an overhaul of Kirkland’s remuneration, which critics argue took on a more political edge, increasingly focused on patronage and Hammes’ good will.
Departures soon started. Last year saw the move of high-yield heavyweight Ward McKimm to co-head Freshfields Bruckhaus Deringer’s European leveraged finance team in London, and a three-partner funds team – Mark Mifsud, Kate Downey and Alexandra Conroy – to join Fried, Frank, Harris, Shriver & Jacobson.
White and finance veteran Stephen Gillespie – members of the office’s older guard who looked increasingly out of step with the new regime – respectively left for Fried Frank and Gibson, Dunn & Crutcher in 2014.
More dramatically, this February saw the departure of a six-partner team, including partner Christian Iwasko, to join Sidley Austin, quickly followed by the exit of another high-yield specialist, Andrew Hagan, to join McKimm at Freshfields. The exits led to Hammes making an emergency trip to London to rally the troops. After this pitch, just seven associates left to join Sidley from a team of around 20.
In March, Kirkland – historically laissez-faire over resignations – doubled the notice period for all of its global equity partners from 60 days to 120, and introduced a 30-day notice period for all non-equity partners.
The loss of the team to Sidley is seen as a particularly symbolic setback, being a productive home-grown team in a core area. Kirkland, having set the agenda by moving into funds with the recruitment of Mifsud and two colleagues from SJ Berwin in 2007, is also now outpaced by some rivals in the area.
The loss of a second figure in the key high-yield sector had also left Kirkland reliant on the highly regarded Matthew Merkle. With rivals targeting the young finance partner, according to one account Kirkland hiked Merkle’s package to retain him.
Since 2014, some 20 partners have departed the London office, including eight equity partners. Even for Kirkland, which has an unusual ‘tournament’ approach to partnership, in which it makes up large ranks of fixed-share partners relatively early but is ready to push out those that do not make the case for full equity within five years, this level of turnover is striking. The office comprises 174 fee-earners in London, including 62 partners although the majority of these are non-equity partners.
‘If a partner is not hitting targets, he or she will get counselled, and if they continue to under-perform they get managed out.’
Meanwhile, many peers argue the firm that several years ago looked to be one of the most upwardly mobile players in the lucrative City buyout market has lost some ground to US rivals. Bain has used a number of other firms in the UK, notably Ropes & Gray. The Sidley departures will also transfer work for private equity client TowerBrook.
The number of highly-paid laterals has added to the internal conflict, as one partner says: ‘The problem is the compensation of lateral hires in the foreign offices does not match the output and that causes tension in the smaller offices, mainly London.’
Others blame the leadership style: ‘First you had to kiss Jim’s ring and now you have to kiss Stephen’s ring. The problem is you always have to kiss someone’s ring in that place.’
Another former partner says of the change in culture under Hammes. ‘They used to say you didn’t have to be an arsehole to do well here. Now it’s: “You don’t have to be an arsehole to do well here… but it doesn’t hurt.”’
Partners have their performance monitored every two years and in the last quarter of 2016 salaried partners will get individually reviewed by a committee member. Senior partners are typically reviewed by Hammes, who was re-elected to serve a third three-year term as chair in February this year.
‘Jeff is very confident in his ability to make decisions about other people,’ says one current partner. ‘He is happy to back his own view about people, practice areas and growth. He is confident and very tough.’
The firm maintains a young partnership and currently has only two partners aged over 50 in London. ‘Your job is to build a business that is sustainable, pass clients on and move on. We will pay you well in the meantime,’ says one partner. ‘If a partner is not hitting targets, he or she will get counselled, and if they continue to under-perform they get managed out.’
But some argue that generating European business in the London office remains a challenge as one ex-partner comments: ‘It is difficult to get new business because essentially it’s a firm that focuses on the US, so internally the focus shifts on who will be the guy that gets the phone call for the existing clients. There is this squabble in London over existing clients, where in Chicago and in New York the model tends to work better because it’s bigger and there are tons of clients to go for.’
But aside from key clients such as Bain and Advent International, the office has drummed up deals advising clients closer to home including Pamplona Capital Management, CapVest Partners, Triton Investment Advisors, Montagu Private Equity and Brookfield Europe.
Some recent transactions derived from other local relationships include advising Blackstone on a large carve-out and reorganisation transaction in relation to the O’Flynn Group; representing Kohlberg Kravis Roberts & Co in its acquisition of the vending machine operator Selecta Group from Allianz; acting for Oaktree Capital Management in its sale of Knightsbridge Student Housing’s Westbourne portfolio of student accommodation to Goldman Sachs; and advising BNP Paribas as selling shareholder in the initial public offering of Eltel, a provider of technical services to infrastructure companies, on the Nasdaq Stockholm. In short, the firm retains work for many of the pace-setting sponsor clients in Europe and despite the recent turbulence the London office in 2015 outpaced firmwide revenue growth of 7%.
The firm has also been active in recruiting, investing heavily to bring in a series of notable names since the beginning of 2015. Recent joiners include corporate duo Roger Johnson and Matthew Elliott, and competition partner Paula Riedel, who all joined from Linklaters; Weil Gotshal tax partner Jonathan Kandel; and finance partner Michael Steele, who joined from Freshfields, despite both Steele and Elliott being offered higher compensation at rival US firms.
But not everyone is convinced that Kirkland’s trusted tactic of offering $3m-plus packages to laterals can paper over the cracks. There are certainly mixed views on the firm’s organisational style. While the leadership approach of Lucas and Hammes has antagonised some, others cite its current strategy as an attempt to broaden its practice and build a more collaborative style in a firm known for individualism. Equity partners meet every week to discuss clients and business development, which was introduced under the leadership of Lucas who is cited as an energetic and highly-regarded practitioner by Kirkland partners current and former. A shake up of its origination credit system several years ago was also designed to encourage referrals and collaboration.
Nevertheless, one of the most upwardly mobile and focused law firms in the global legal market is currently in the odd position of struggling to hit its stride in London despite very clear market differentiation and a willingness to offer top-of-the-market pay. According to one source close to the firm, both McKimm and Iwasko rejected bigger pay packets offered by Kirkland to keep them from joining Freshfields and Sidley respectively. The Kirkland formula is struggling to do what it is supposed to do: attract, motivate and retain its band of driven performers.
One former partner concludes: ‘At Kirkland you are free to do what you want and there is limited bureaucracy and some really talented lawyers. The environment suits some people who can cope with the internal politics and gossip. But in London the pie is not getting any bigger.’ According to this reading, even the tactic of offering high partner remuneration is a problem as it stokes insecurity and paranoia, with several partners citing a ‘toxic’ atmosphere driven by pushy personalities. Kirkland’s current problems shows that paying top dollar gets you a long way, but perhaps not all the way. LB
jaishree.kalia@legalease.co.uk
- For further analysis, see: Global London 2016